The convergence of digital technologies and data sets the stage for massive disruptions and therefore opportunities in the insurance industry. Insurers need to make investment bets now to position themselves for the future.

As the great philosopher Yogi Berra once said, “Predictions are hard, especially about the future…” Nevertheless, it’s something we all have to do. Increasingly violent and frequent disruptions are changing business certainties across all industries, and insurance is no exception. Advance warning is vital.

Today’s world is dominated by technology and what it can do: if your weekly executive committee meeting isn’t talking about the impact of digital technologies on your business, then it ought to be. The alternative is to risk finding that you are the best at something that nobody wants—the best typewriter or carriage manufacturers all fell into this trap!

In this blog series, I want to consider the disruptions that are currently changing the face of insurance, and one that is coming.

To understand what is happening, I want to frame this discussion as the movement from one business model to another (see the diagram below). Of course, nothing in life or business is so clear cut, and each model overlaps with the other, but treating them as separate makes it easier to understand. Along the way, I hope to challenge some of your assumptions—and to make you see a new type of future for insurance companies that have a lot of vision.

The first business model (grey in the diagram) is essentially a continuation of insurance as it has been. I call it “digital optimization.” It is primarily focused on moving existing business processes onto digital platforms, and uses digital channels to deliver better service.

One shouldn’t underestimate just how hard it is to do this, and how necessary and profitable (for an opinion on just how profitable, read Double the profits: How insurers can create business value from digital transformation). The technological challenges are real, but so are the cultural, organizational and strategic ones.

Digitizing existing business processes and developing new digital channels are also generating huge amounts of data. Initially, this data is used to make these business processes yet more effective, but it’s already clear that it’s also enabling the emergence of a whole class of disruptors from outside the insurance industry. These disruptive entrants seem to have one thing in common—a keen understanding of the new ways in which data could be used to craft totally new business models.

In other words, insurers cannot content themselves with just using the vast new stores of data at their disposal to serve their customers better. They are going to have to confront a new “insurance reality” that will require them to rethink their role, and the role of insurance generally, from the ground up.

We’ll consider this emerging insurance business model next time.

Read Jumping the S-curve: How to beat the growth cycle, get on top, and stay there.

Riding the digital S-curve: Disruptions and new business models in insurance
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