Disruption in the Insurance Industry focus of New PwC Report
August 26, 2015
The speed, strategic and tactical value of adopting state-of-the-art technology is always an issue in any vertical market. However, as has been a common theme in the insurance industry for several years, there is a growing consensus that we are at a watershed moment due to a number of factors, and insurers need to accelerate their investments in technology or face what are predicted to be dire consequences.
An illustration of the challenges was just addressed by PriceWaterhouseCoopers (PwC) in a new report, Exploring the insurance industry’s top risks: A New Zealand perspective—a supplement to the PwC Banana Skins series, a global series that measures risks in financial services. As the title indicates, the focus of this report was the insurance industry in New Zealand, but in many ways the findings are applicable universally.
According to PwC, technological advances and changing customer behaviors are hitting the insurance industry hard, which was reflected in the top 10 risks New Zealand insurers identified in the survey the report is based on:
8.Long tail liabilities
9.Quality of risk management
PwC Insurance Sector Leader Karl Deutschle said, “The industry is at the tipping point as it grapples with the impact of new technology, new distribution models, changing customer behavior and more exacting local and global regulations.” He noted that the findings for New Zealand are consistent with this year’s PwC Global CEO Survey where insurance industry executives told PwC they believed their sector is facing more disruption than any other.
A key issue Deutschle highlighted was consumer demand for the same type of customer-centric services they are receiving from online retailers. A range of different technologies now makes it possible to essentially anticipate the needs of customers and deliver anytime, anywhere convenience.
While some industries such as retailing are structured to deliver more compelling customer-centric services, the insurance industry has not been. It is why traditional vendors need to evaluate how to get from here to there. The reason for the observation of the industry being at a “tipping point” is that new players are already using technology to disrupt the market. They are eroding the customer base of traditional insurance companies, and the attrition rate is especially high with millennials, who are looking for low price points, personalized customer service and accessibility.
The report stated, “The insurance marketplace is becoming increasingly fragmented, with an ageing population at one end of the spectrum and a less loyal and often hard to engage millennial generation at the other. As the nature of the marketplace changes so do customer expectations.”
Deutschle said technology can be a source of disruption for some and a competitive advantage for others. This is true for new and nontraditional entrants were able to quickly respond to customer demands and address the consumer base of the future.
A few highlights from the New Zealand respondents to contemplate were:
- Reputation: “Social media coupled with increasing premiums across the country will spread [distrust] and make the industry more despised.”
- Social change: “There are significant risks for life insurers associated with demographic changes – including new causes for some diseases.”
- Human talent: “Talent has lots of options – many more exciting than insurance.”
- Regulation: “Industry regulation is light and, as a result, there is insufficient transparency for customers.”
The report concluded by saying, New Zealand in particular is operating within a complicated matrix that has unpredictable natural environment, changing consumer behavior and an unavoidable disruption from technology. The biggest concern that came out of the survey is that the insurance industry in the country is not adapting fast enough to the changing marketplace.
Edited by Peter Bernstein