In Accenture Strategy’s recent report, Stand on the Sidelines, or Boost Competitiveness? we identify the forces exerting pressure on insurers’ traditional business models and examine the impact of this disruption. One of the key takeaways is that as insurers consider how to respond to these forces—new customer behavior and expectations, technological innovations and the rapid emergence of the IoT —significant value is at stake for them.
Carriers that stick to their core business models and expand only incrementally will face shrinking revenue pools, contested market share and downward pressure on margins. Consider, for example, the impact of the sharing economy and the emergence of digitally connected, smart autos and homes. The foreseeable results of these trends will be fewer assets to insure and reduced premium volume due to lower auto and homeowner risk. Further, a connected future will lead to increased competition from players outside of the industry.
On the other hand, a digitally connected future also presents substantial opportunity to add new revenue streams and significantly reduce the cost structure. Both are important opportunities that insurers will miss if they are too slow to adapt.
As such, the value at stake is not just about what carriers stand to lose, but also the risk of missing the substantial opportunity a connected future will present.
Capturing new value in a disrupted future will require insurers to address multiple dimensions simultaneously.
They will have to offer a broader range of products and services, in addition to their core products. These new offerings range from core products to hybrid products and services integrated with risk management service—for example, home insurance and home monitoring services as an integrated home protection solution.
Insurers will not be able to deliver these services themselves and will therefore be required to work across a broad ecosystem of partners. For example, the hybrid homeowner product and service mentioned above would require the insurer to partner with a connected home provider—similar to State Farm’s partnership with ADT.
To extract value from these partnerships, insurers must be proactive in determining their role and relationship with their customers. Instead of being backed into a corner where it is a reactive provider of the insurance product, the insurer has an opportunity deliver the integrated protection solution to the customer. Consequently, that changes the insurer’s position to a proactive risk manager that provides a truly value added service.
Insurers also must expand their capabilities so they can operate effectively within digital ecosystems. In addition to thinking about capabilities as a means to creating a competitive advantage, carriers must now think about the capabilities that can be leveraged in a partnership. Among other things, this will require digital and connected platforms, a flexible core technology architecture, analytics, an innovation structure, new talent and a culture that embraces their evolution.
To capture new value in the future, Insurers need to address all of these dimensions. Insurers that, for example, bolster their capabilities without expanding their ecosystem partnerships will create limited added value.
Insurers have reached a crossroads. The direction they choose can lead to new revenue streams, improved margins and marketplace leadership. Or it can take them down the road to diminished profits and the loss of a competitive advantage.
So, stand on the Sidelines or prepare for the future?
Next time, we’ll look closer at how insurers can expand their products and services to remain competitive in the digital future.
For more information download the report: Stand on the Sidelines, or Boost Competitiveness? How to Make Bold Moves on the New Insurance Playing Field