Insurance companies worldwide are pessimistic about the way they deal with technological developments and changes in customer behavior. This is one of the findings from a recent study by KPMG. Nearly half of the questioned financial institutions expects to lose a lot of revenue to fintech or insurtech companies the coming years. Insurers acknowledge that they do not focus enough on the (digital) transformation that is vital to safeguard the company’s future.
Revenue lost to insurtech companies
The urge to adapt is greater than ever. Insurers are aware of the challenges they face and are willing to change. However, it takes more than just a positive attitude to align the business model with today’s society. A lot of organizations claim that they have difficulties to extract value from in-house transformations and lack the knowledge or experience required for effective change management.
Research by PWC confirms that the insurance sector strongly fears ‘insurtech’ companies. Established insurers expect to lose 20% of their revenue to new entrants over the next four years. A shocking indicator that supports this claim: more than half of the interviewed firms has no clue what to do with blockchain technology.
What to do with blockchain technology?
The ‘lack of interest’ is remarkable because the impact of this technology on the financial world is potentially enormous, as blockchain automatically guarantees the validity of transactions. Insurtech company Everledger uses blockchain technology to register diamond certificates and their transaction history. This enables insurers to easily verify the authenticity of a certificate or a transaction. It significantly shortens the process of checking customer information and looking for the truth.
Anticipating on current trends
The findings furthermore show that most traditional organizations believe insurtech companies are particularly powerful in responding to changing customer demands. For insurers this means that insurtechs better anticipate on current trends; offering direct insurance, insurance based on actual use, such as pay-as-you-drive or pay-how-you-drive policies, and intuitive mobile apps that give customers full control over financial products and services.
Another growing development is software taking over from management. Some respondents believe that data, coming from all angles within the organization, is much more powerful than a small group of people in a boardroom. In many companies, software is already making daily management decisions. Insurers can take advantage of this and improve the customer experience by transforming parts of their daily operation to straight-through processing (STP).
Competition from other industries
Not only insurtech startups are impacting the insurance business. Competition from other sides is also on the rise. Car manufacturers are compensating decreasing profits on vehicles by expanding their lines of business, for example to insurance. GM is already making a lot of money from it. And while John Deere is well-known for its agricultural machinery, the company rather sees itself as a software supplier with a lot of iron around it. John Deere is keen on gathering customer data and using it for expansion of the product portfolio, including insurances.
Examples like these are numerous. They underline the need for insurers to shift their focus. However, it does not mean that insurance companies should reserve a lot of resources for development of software or in-depth knowledge about topics that are far from the core business. Instead, insurers should be making smart choices.
Use insurtech for the better
Examples like these, and many more, underline the need for insurers to shift or prioritize their focus. This does not mean that organizations need to spend lots of resources on building software or developing expert knowledge themselves. However, they should make smart decisions. Instead of fearing new insurtech entrants, use them for the better. Now is the time for insurers to strongly invest in their cooperation with insurtech companies, so they can improve their business proposition continuously and keep up with the game.