Life insurers may need to rethink their traditional view, which sees regulation as a cost of doing business and thus a brake on profitable growth. Here’s why.
Last week, we explored the threat of external competitors to the insurance value chain. On the face of it, because life insurance is such a specialized area, traditional carriers will always have a role because new entrants are unlikely to want to take out their own license, compete for scarce talent and deal with tough regulations like Solvency II.
In other words, regulation is one of the factors that create a certain barrier to entry for insurers generally. The danger here is that the carriers are relegated to a factory role, and lose the customer relationship.
Technology innovation is set to change insurance generally, with the big changes set to hit the property and casualty sector first. It’s in this area that insurers could actually see regulation as something more positive than a barrier to entry.
Innovations like telematics, for example, have the potential to change auto insurance dramatically, as will the advent of the driverless car. It’s in this area of technology innovation, argues my colleague Mark Halverson, that insurers can position themselves by adopting a more proactive stance towards regulators. Mark uses the driverless car as an example, arguing that insurers are uniquely placed to help make this kind of technology acceptable to regulators. After all, as he says, without a system for mitigating risk, “horseless carriages” would never have become ubiquitous. Read his blog for more on this concept.
Insurers, in other words, should see themselves as midwives of innovation, acting in concert with the relevant regulator to make a technological innovation “safe” for commercial use—and, incidentally, reserving themselves a seat at the table, so to speak.
Similar scenarios will play out in the life and health sectors. Consider, for example, wearable technology that relays vital signs from an insured person back to his or her insurer. As we all know, there are huge issues—technical, security, ethical—tied up in this emerging industry. Who better than life insurers, who already have a relationship of absolute good faith (uberrima fides) with their customers, to help coordinate the research and put the risk framework into place?
The more radical the innovation—and there are many radical ideas out there as we look at ways in which to meet rising customer expectations—the greater the synergy between carriers and regulators. (Read Thomi Meyer’s blog, “Convergence and the new (digital) insurance business model,” for insight into some radical ideas for the life industry.”