23 April 2021Insurance

Digital transformation to displace £8.3bn in UK insurance revenues by 2025: Accenture

Digital insurance and distribution in the UK will put a £8.3 billion dent in the revenues of insurers that cannot keep up with the pace of technological change by 2025, according to a new global report from Accenture.

Accenture’s report, titled Insurance revenue landscape 2025: Innovate for resilience, warned increasingly digital-savvy customers will increasingly obtain coverage from technology-enabled offerings such as pay-as-you-drive and connected health, rather than renewing traditional insurance products. It predicted this trend will cost insurers £3.5 billion in lost revenues.

Another £4.8 billion of revenues that is currently transacted via traditional channels will be captured by insurers offering digital distribution experiences, as customers choose to purchase insurance through online platforms, Accenture added.

Jamie Althorp, insurance lead for Accenture UK and Ireland, said resilience has been a key strength for UK insurers, but warned they must do more to keep pace with rapidly evolving customer habits.

“The past year has placed even greater emphasis on digital touchpoints, not just for digitally established lines like motor and home, but in newer areas like term life and small commercial,” he said. “To keep up with these changes, insurers must deliver seamless digital experiences whilst tapping into technology-led revenue streams, all whilst focusing on customer retention in a post-dual-pricing world.”

Accenture’s research suggests the UK insurance industry will grow to approximately £298 billion by the end of 2025, from £274 billion in early 2020, a compound annual growth rate of around 1.4 percent. Globally the industry will grow to £6 trillion over that period, from £4.9 trillion in early 2020, a compound annual growth rate of 3.5 percent. This figure includes £575 billion in US-centric healthcare payer premiums, which have not traditionally been counted as part of the insurance sector but have become material due to global demand for convergence of digital health products and services, such as wellness offerings, Accenture explained.

Meanwhile, an increased focus on mental and physical health is driving demand for offerings around customer wellness, Accenture noted. Its report estimates that the convergence of the life insurance, health and wealth industries will generate a £4.5 billion revenue opportunity by 2025. This comprises £700 million from smart health products; £1.9 billion from products and services for the aging population; and £1.9 billion from direct life and wealth management products.

Climate change is also set to contribute £1.5 billion to insurer revenues, while cyber will generate another £800 million, Accenture said. “Insurers that improve pre- and post-incident handling, with digital technologies, such as artificial intelligence and analytics, will enable more sophisticated risk modelling and incident response,” it added.

Althorp said insurance companies should fulfill a broader societal mission as people feel increasingly vulnerable amid the constantly changing risk landscape. “Part of this is the move from compensation to prevention,” he said. “It’s no secret that UK consumers are increasingly comfortable sharing their data in return for personalised premiums, particularly in areas like car insurance. This is just one example of how insurers can use digital technologies to incentivise safer behaviours and prevent accidents, as well as price more fairly to reflect actual usage.”

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