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Agility remains relevant to business

30 November 2016 Jonathan Faurie

The advantages of being agile are not exclusively limited to sportsmen. Companies who are able to be agile enough to adapt to changing customer demands and industry challenges are those that usually rise to the top while competitors continue the battle to remain relevant. We have spoken a lot about technology and the advantages that it can offer companies within the insurance industry.

We recently published an article based on the findings of the 2016 Capgemini Efma World Insurance Report where the report gave some short and medium term strategies on how companies should optimally adapt the industry’s technological demands; so how do companies adapt in the long term?

Never the same

The report states unequivocally that it is highly unlikely that the insurance industry will remain the same over the next five to ten years, and very few people can refute this statement. Already, new players are taking advantage of technology to introduce radically different business models.

According to the report, to remain relevant over the long term, traditional insurers must strive to make their businesses more agile while deepening existing customer bonds. There is no doubt that social media will play a major role in this aspect.

Evolution in underwriting

Traditionally, insurers have based their risk modelling on historical and customer data such as age, gender, credit scores and past claims data.

As real time data becomes increasingly available, risk models are expected to evolve to include near instant transformation from devices such as sensors, wearables and smartphones. This near real time data can be used to enhance traditional risk models on an interactive basis, leading to more predictive risk models. There are a number of insurers in South Africa that are already offering these services, so there is some indication that developments in this regard is occurring.

The report indicates that as risk modelling begins to incorporate real time data, the nature of underwriting may undergo significant change. Real time information will let insurers move beyond customer segmentation based pricing into dynamic pricing at an event and exposure based level. For example, a policyholder traveling abroad may see their life and travel insurance increase while their motor and household premiums decrease for the duration of the trip.

Change by design

Many forces are putting pressure on insurers to embrace new business models.

Traditionally, insurers have put forth a common front end interface for all customers and addressed their needs through a fairly limited number of product options and servicing routines. With real-time data increasingly getting used in risk modelling and pricing, insurers will have the opportunity to engage in mass personalisation.

All interactions, from purchasing to servicing and underwriting, will be executed according to individual circumstances and preferences. Insurers must prepare for this scenario by building flexibility and scalability into their infrastructures.

In addition, forces outside of the insurance industry are impacting business models within the industry; particularly in terms of new product development.

The advent of smart devices and ecosystems is creating a shift in traditional liability. If a driverless car gets into an accident, liability may lie with the manufacturer rather than with the car owner. According to the report, this shift may cause some traditional personal property insurance products to evolve into commercial liability products.

New entrants

Technology has not only changed the way we access and interact with information, but it has opened the door for new entrants into the insurance industry which base their models on data mining.

The Capgemini report points out that the threat of new competitors in insurance emanates from many corners. Retail giants such as Google, Amazon and Rakuten, have already made some advances into insurance or are expected to do so in the coming months. Rakuten offers life insurance policies via the internet at very low premiums and aims to bring premiums down even further. 

These companies have existing expertise in catering for consumer preferences, building up brand value and analysing vast amounts of data, making them potentially formidable players, especially in the consumer facing end of the insurance industry. There is also the threat of peer-to-peer insurers whose impact on the insurance industry will become clearer as the model gains traction.

The report adds that of all possible threats, insurers view Google to be the most significant followed by self-insurance provided by product manufacturers and Amazon. To withstand the coming competition, the Capgemini report says that insurers need to build up their brands, learn to take advantage of real time customer data and develop agile operating models that will enable them to adapt to changing scenarios. 

Editor’s Thoughts:
Changing business models is not easy for any company. However, adaptation needs to take place in order to remain relevant to customers and companies in challenging times. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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