Digital disruption is happening at unprecedented speed, and insurers can’t afford to bury their heads in the sand. Accenture analysis reveals that the value at stake is significant: an estimated 15–30 percent in premium, and 25–50 percent in profits. As we’ll see in this Insurance Chart of the Week, there are high stakes at risk—and the winners will be those that adopt a proactive stance and adapt to continually changing rules.

High stakes for high value

Click the image above for a large version of the Insurance Chart of the Week (opens in a new window).
Click the image above for a large version of the Insurance Chart of the Week (opens in a new window).

First, the bad news: disruption puts pressure on insurers’ traditional revenue and profit sources, and those that don’t adapt will see a decline in both revenue and profit. In particular:

  • Reduced risk pools as connected homes and vehicles and the Internet of Things reduce claims frequency and severity—and premiums. The continued spread of the sharing economy may also mean fewer individually owned cars to insure.
  • Lower premium volumes, partly stemming from reduced risk pools and partly from increased competition from new players like Google. These new players aren’t constrained by industry norms, and their digital-first, customer-centric approach should have all insurers paying attention.
  • Margin pressures as aggregators and comparison sites emphasize the price of insurance above all else.

And then the good news: disruption opens the door to opportunities to innovate and access new revenue opportunities and profit pools:

  • New risks and hybrid products, such as cyber insurance or insurance that comes with additional service—for example, home insurance with security, appliance maintenance or risk monitoring services. It’s an opportunity to position insurance as more than a transaction, but as a risk management tool for everyday life.
  • New premium growth through digital models. For example, the Internet of Things can provide real-time data for continuous underwriting that can open up new routes for premium.
  • Alternative revenue sources, particularly in the data and analytics sphere. As insurers collect, slice and dice customer data, they can reveal additional insights to drive value along the insurance chain.
  • Improved combined ratios from the increased efficiencies, mitigated losses and expense reductions that are offered by digital operations.

The keys to capturing these opportunities lie in digital transformation and in insurers’ ability to position themselves as part of an ecosystem beyond their four walls. Join me next week as I look at how these capabilities can help insurers expand in a digitally connected future.

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