In my first post in this series, I made the point that although the threat of disruption is real, large insurers are as capable of driving the disruption as any digital start-up or established tech giant. And among the disruptive trends sweeping our industry, one that brings with it massive threat and opportunity for insurers is what Accenture Technology Labs calls the “digital–physical blur.”
This trend is about the proliferation of intelligent devices, from smartwatches and fitness wearables to drones, autonomous cars, and home and factory sensors. These devices capture a wealth of data in real-time, allowing us to make decisions “on the edge”—at the point where digital and physical worlds converge.
This trend has the potential to turn the business of insurance upside down. Thanks to a wealth of usage and contextual data, insurers will be able to refine risk, redefine products and transform customer relationships. If they don’t, they could leave a gap wide open for aggressive start-ups with more modular and flexible products that are tailored to customers’ immediate needs and context.
Consider the following scenario. A technology start-up company combines the power of analytics and wearable technology to offer a holistic lifestyle product with health and life insurance as a component. Consumers only need to wear the supplier’s fitness monitor and their insurance policy is automatically updated in real time, according their physical activity level and general health.
The supplier can track consumers’ behavior and reward them with points that can be used for branded goods, services, or even discounts on insurance rates. The impact is that the start-up owns the customer relationship, insurers lose market share, and there’s a new disruptive product line in the market.
Against that backdrop, insurers should start looking at how they can own digital interfaces with consumers and hence the customer relationship. What are the options? Run pilots through “intrapreneurial” business units? Partner with the providers of wearable technology? Or find ways to integrate the new business model into their existing product lines? There are no easy answers, but it’s important to start thinking about the questions.
The digital-physical blur is already affecting the auto-insurance business with the rise of vehicle telematics. Equipped with telematics data to assess individual driver risk, many insurers are rewarding safer drivers with low premiums and added-value services. Some are using this data to create innovative pay-per-use products. But this is just the beginning.
Imagine what will happen when the driverless cars that the likes of Google are testing in California become commonplace. They could eliminate many of the human errors that are normally associated with accidents. The result could be that consumers will no longer see a requirement for car insurance products—causing a massive drop in premium income for P&C insurers.
Rather than fearing this development, insurers should be looking at how they can turn it into an opportunity. As my colleague Mark Halverson argues, insurers could hold the key to making driverless cars a safe commercial reality. But first they’ll need to refresh their well established distribution, rating, claims and non-underwritten services to prepare for a new world.
Will the customer be an auto manufacturer rather than a driver? How will insurers cater for risks that will be increasingly centered on technology failures and cyber-security breaches rather than on human error?
And what will the insurer’s role be in a wider transport ecosystem that will be completely revolutionized by autonomous vehicles? Should insurers that rely heavily on agent networks and branches follow the lead of retailers such as Burberry by combining digital and physical to re-create the customer experience?
Again, there are no straightforward answers, but many questions that need to be pondered.
In my next post, I’ll take a closer look at how the flexibility of crowdsourcing could impact on the insurance industry. If you missed my first post in this series you can find it here. Alternatively, you may want to download the full Accenture Technology Vision 2014 for Insurance report.