Back in January, we explored what we expected to see impacting the insurance industry in 2023 and how we expected businesses in the sector to adapt as a result of changing economic circumstances and customer expectations.
Insurance has traditionally been a rather conservative industry, but there has been a pronounced shift in mindset and attitude to change over the past few years, with the influx of digital-first insurers, tech giants, and innovative startups forcing established players to adapt1.
In light of this increase in competition within the sector, it’s clear that insurers need to work harder to differentiate themselves, focussing on becoming more customer-centric and providing great customer experiences2. Adopting new technology is key to achieving this whilst also improving agility and productivity, which will be fundamental to maintaining growth during economic uncertainty3.
So, eight months on, how have things changed for the outlook of the insurance industry?
1. Low premium income growth
In our blog earlier this year, we examined the increasing pressure insurance companies were coming under from customers to reduce their premiums and stay affordable due to the cost-of-living crisis4. Combined with rising operational costs because of inflation and a reduction in the demand for insurance, as it becomes unaffordable for people to make purchases that come with insurance needs, such as houses, cars, or holidays, premium income growth this year was expected to be low5.
According to the recently published Allianz Global Insurance Report, total global insurance premium income amounted to almost EUR5.6trn in 20226. The premium pool grew by 4.9% against the backdrop of a global inflation rate of 8.6%, however there was a significant disparity in growth across different segments of the insurance market7. Property and casualty (P&C) insurance fared well, with growth of +8.7%, health expanded by +4.9%, but life insurance growth was a dismal +2.4%8.
These statistics deviate from earlier forecasts, where non-life was forecasted to grow 4.1% and life by 5%, suggesting that premium income growth this year will perhaps not be as badly affected as initial predictions9.
2. New and evolving risk
With the risk landscape becoming increasingly challenging as a result of political, climate, and economic changes, it is unsurprising that Allianz’s latest report has flagged an increase in protection gaps as a growing issue in the industry, which currently exceeds EUR1,000bn in cyber and natural catastrophe segments10.
With the increasing implementation of new tech, including AI, comes further risks for both businesses and insurers themselves, namely in terms of data protection and cybercrime. Across the UK, 69% of large businesses and 59% of medium businesses experienced cyber-attacks or data breaches in 2022-2023, with the largest breaches costing an average of £4,96011. Across UK businesses, there were approximately 2.39 million instances of cybercrime, with the average cost of cybercrime for a business being estimated at £15,300 per victim12. We can expect increasing time and resources to be put into the prevention of cybercrime and the protection of data, both for insurance companies who will need to invest in protecting their customer data and also for businesses who choose to boost their protection by purchasing cyber insurance.
With the catastrophic weather events we have seen this year, it is unsurprising that climate change is another risk factor that is high on the list of new and evolving risks that are having an impact on the insurance industry. Allianz’s report predicts a significant increase in natural catastrophe claims from floods, forest fires, and storms, as well as highlighting the need for updated insurance policies that can cover climate-mitigation measures, such as decarbonisation.
Many of these new risks will test the limits of insurability. In order to continue to protect customers and ensure fair pricing, the value proposition of insurers is expected to shift, from pure financial compensation to risk management and holistic service offerings to prevent and mitigate risks13.
3. Technological transformation
New digital distribution partners, brokers, agents, and TPAs continue to invest in back-end automation and API-driven business models, shifting insurance into a tech-driven approach14. As technology shifts the way insurers operate, we can expect to see it become more adaptable and scalable for both customers and insurers15. While insurance historically could be a bit clunky, technology today has made it flexible to current demands. On the customer-facing side of things, insurers can now provide services everywhere and anywhere via self-service dashboards and apps and can collect valuable data from customers via IoT-enabled devices and even wearables16. On the back-end, this technology is collected and helps brokers and insurers make more accurate decisions on underwriting, policies, new product offerings, and more.
Implementing new solutions, such as AI, has meant almost every facet of insurance operations are becoming optimised for speed and efficiency. Claims can be processed via an app instantly, and policy writing can be done in less time with machine learning capabilities17. Digital transformation is also speeding up customer service, where live chat and digital assistants are helping customers in their most important times of need18. Not only does this improve customer experience, but also vastly boosts productivity.
Industry watchers predict that these investments in automation and analytics technologies like AI, RPA, and machine learning, along with connected insurance, will increase throughout 2023 and peak in 2024, resulting in more targeted offerings, lower risk, and better efficiency19.
The relevance of behavioural analytics also continues to grow in parallel with the amount of data generated across multiple data sources, ranging from social media to wearables. Concurrently the tools used for behavioural analytics have developed further, being able to aggregate, analyse and process more data along with contextual information20. This is especially relevant for healthcare and motor insurance to assess risk profiles, enabling the implementation of new products, such as user-based insurance.
However, more data has also created a greater need for security, along with more complicated compliance. Here too, it is technology that is filling the gap, with regulatory technology (RegTech) and other automated compliance solutions aiming to pre-empt harm to data and violation of regulations21. They are also increasingly being used in anti-money-laundering and Know Your Customer (KYC) processes22.
4. Using digital to support the customer experience
The insurance industry has always been a customer-centric business, but the rise of digital technology has given customers more power than ever before. Today’s insurance consumer desires digital convenience from their insurance provider, above all else, with 91% willing to use online channels as part of the shopping experience23. This trend has been reflected across all policy lines, even life insurance. Whereas traditionally, only 10% of consumers have conducted their life insurance shopping online, that figure jumped to 40% in 202224.
Digital transformation is empowering insurers with the tools they need to give customers excellent service without overextending their resources. AI and machine learning create a seamless personalised experience for customers and brokers alike25. One of the biggest trends we can see in insurance is the growing expectation among customers for self-service26. Thanks to the proliferation of digital channels such as online portals and mobile apps, customers now expect to be able to do more for themselves without having to pick up the phone and speak to a customer service representative. Moreover, there is an expectation that these digital experiences feel like and are as easy as their online retail experiences. Customers increasingly can pay bills, view policies, and file claims via their app, and brokers can receive and process all information on their end under one system27.
Digital transformation in insurance is also helping to personalise marketing efforts. Robust data analytics and AI systems can tailor and target marketing efforts for insurers, using the power of social media to reach audiences they can truly impact28.
How payments can help insurers adapt to these trends:
Payments are crucial to enable insurance providers to offer an omnichannel experience to their customers, giving them seamless and integrated ways to purchase. By implementing multiple payment methods, such as Pay by Link embedded into emails, or Virtual Terminal, which allows your customers to pay securely over the phone, businesses can provide multiple points of contact and ensure that customers are confident in their purchases. By choosing which methods of payment to add to their payments gateway, insurers can tailor their offering to their customers’ needs, ensuring choice and the right level of self-service for their business.
Increasingly, insurers are implementing mobile payment methods to support seamless in-app or online purchases, again reducing friction for customers. This encourages customers to make faster decisions about their insurance and can go a long way to reducing cart abandonment.
Moreover, while security features may conflict with the ability to offer a frictionless customer experience, many insurance consumers are revealing that they would take more comfort in additional authentication and verification measures. A recent survey showed 50% expressed willingness to undergo additional verification to secure an online quote, while 43% would abandon the application if they didn’t think it was safe29. Insurance businesses should therefore ensure that security and anti-fraud measures are a top priority when choosing a payments provider and work alongside them to find the right balance between security measures and friction for their customers.
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