Innovation may boost insurance revenues by $375bn
Insurance carriers globally could seize $375 billion in new revenue in the next five years by transforming and revitalizing their businesses, according to a new report from consultancy firm Accenture.
The report, “Insurance as a Living Business,” finds that insurers that continuously innovate and adapt to changing customer needs will be able to capture emerging growth opportunities and outperform competitors.
The report estimates that these insurers could, in aggregate, generate an additional $177 billion in revenue from five key areas: emerging risks like cyber security and autonomous vehicles; improved penetration of markets that until now have been difficult to profit from; value-added services that help reduce customers’ risk, such as connected devices in homes to detect maintenance issues before they cause damage; expanded business partnerships, both within and outside of insurance, to create more-personalized offerings for consumers; and the monetization of assets such as data, platforms and algorithms.
Another $198 billion in new revenue represents the potential shift in market share within the five key areas, favouring insurers who embrace transformation at the cost of less-responsive competitors.
According to the report, innovating and adapting to changing customer needs will require insurers to develop more-fluid talent pools, streamline legacy infrastructure, use data and analytics to personalize their services more effectively, and create a vigorous leadership team and organizational culture that are open to new ideas and approaches.
“The insurance industry as we know it is at the edge of a new business environment,” said Michael Costonis, who leads Accenture’s insurance practice globally. “Breaking away from the pack and capturing new revenue opportunities requires a shift in business mindset – a shift from product-focused to customer-focused; from rigid operating models to more fluid and agile operating models that respond quickly to customer preferences; and from going to market alone to partnering with insurtechs and technology behemoths that can help them reach new customer segments and reinforce their brand.”
The report recommends several steps that insurers can take to amplify growth opportunities. These include developing an enterprise-wide digital strategy that embraces new models and new technology – including artificial intelligence, blockchain, smart contracts and the internet of things – to offer more-personalized and faster services, and harnessing the treasure trove of customer data already in their possession to better customize their offerings.
In addition, the report identifies five areas for revenue growth where insurance carriers – across property and casualty, life and commercial lines – could either launch new products and services or increase the reach of those they already sell.
The report suggests, for example, targeting hard-to-reach market segments in new, more effective ways. As new channels (online, mobile) and technologies (analytics, geo-location) proliferate, insurers can tap into harder-to-reach segments, like micro insurance or instant issue for life insurance, to grow market share cost-effectively. This could generate $144 billion in new revenue.
In addition, insurers should develop new offerings that address emerging risks, such as cyber insurance and new commercial exposure brought about by the advent of autonomous vehicles. This could generate $111 billion in new revenue.
Business relationships with insurtech startups and organizations outside the insurance industry can enable insurers to engage differently with customers and discover new sources of customer value. This includes plugging into existing ecosystems operated by online platform companies such as Google, Amazon, Facebook and Apple to connect with consumers who are already taking advantage of their platforms, including virtual assistants. This approach could generate $80 billion in new revenue. According to the report, three-quarters (76 percent) of the new revenues in property and casualty lines are likely to come from these non-traditional relationships.
Insurers can offer their assets – data, customer insights, platforms and models as services, risk algorithms, etc. – to ecosystem partners who would benefit from them. Doing so could generate $28 billion in new revenue.
Insurers should focus on personalized services that help reduce customers’ risks, such as the use of wearables to help aging relatives stay at home longer, and selling and managing connected home devices. This could generate $12 billion in new revenue.
“Maintaining the business status quo is unsustainable,” Costonis said. “Insurers’ profits and revenues are under pressure as insurtech startups proliferate and technology companies with strong personalized customer relationships circle the industry. Innovation – beyond aggregators and online distributors – must be an industry priority. Carriers that make the right business changes, understand their customers, and respond to them rapidly and fearlessly with relevant, innovative offerings will be more likely to increase market share and capitalize on the new emerging opportunities.”
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