Some carriers could lose as much as 40 percent of their traditional risk-protection revenues.

The threat of digital disruption has prompted insurers to invest heavily in new technology. Many of them have embarked on extensive transformation programs to enhance the customer experience and increase productivity.

Few insurers, however, are sufficiently prepared for the scale of the disruption that awaits them. Our research shows that the insurance industry has, so far, been one of the business sectors least affected by digital disruption. But, it ranks in the top quartile of sectors likely to be disrupted in the next few years. We calculate that the approaching shake-down could cost some carriers as much as 40 percent of their traditional risk-protection revenues. This could happen within five years.

Insurers need to react quickly to protect themselves. Those that move swiftly can gain the upper-hand over their more sluggish competitors. They’ll not only be able to preserve many of their revenue streams. They could also tap exciting new business opportunities. Many of these opportunities are going to emerge far outside the traditional insurance market.

One of the reasons risk-protection revenues are under threat is that lots of insurers have been reactive in their spending on digital technology. They’ve recognized that the influx of tech-savvy firms is disrupting the insurance market. And this threat has guided their investments in technology.

However, the disruption that’s facing the insurance industry will go far deeper. It’s going to affect almost every aspect of an insurer’s business. Big digital service providers and agile insurtech firms are a threat to carriers not just because they may be moving into the insurance market. Far more challenging is the fact that these digital companies are changing consumer expectations about the choice and quality of service they should receive when they’re being sold insurance.  As a result, digital companies are starting to rock the foundations of the insurance industry.

Unless insurers can do business like successful digital disruptors such as Google, Apple, Facebook, Amazon (GAFA) and more recently Uber and Airbnb, they’re likely to struggle in the years to come. The clamor among insurance customers for enhanced digital experiences is a sign that this shift has begun. Consumers want their insurance providers to treat them as their digital service providers do. They want them to be constantly and easily accessible and to offer them “frictionless” highly-personalized digital services.

Let’s compare the traditional characteristics of insurance companies with those of the GAFA organizations.

It’s clear that the approach to business that is ingrained in most traditional insurance companies is far removed from the mindset of the highly-successful digital disruptors. In many respects it’s completely opposite.

To prepare themselves for the impending surge of disruption, insurers need to do more than just invest heavily in digital technology. They must use digital technology to change how they conduct business. They need to become Everyday Insurers that constantly engage and delight their customers.

In my next blog post, I’ll discuss some of the key areas of business that carriers must change if they’re to rise to the challenge of digital disruption and become Everyday Insurers. Until then, have a look at this link. I’m sure you’ll find it worthwhile.

The Everyday Insurer: Playing a bigger, more valuable role in customers’ lives.

Seize the opportunities that new digital technologies offer to provide customers with personalized, on-demand living services in insurance. Read more.

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