Data privacy and disintermediation pose threats, but should not be exaggerated.
One of the first things that delegates at the recent inaugural meeting of the Digital Insurance Network considered was the threats to digital transformation, and thus to realizing some of the benefits from using digital technologies. Two of these threats, in particular, are of general interest to the wider insurance community.
The first is the whole issue of data privacy. As I have repeatedly argued in my regular blogs, one of the prime benefits to be gained from many digital initiatives is access to “big customer data,” and the possibilities it raises for developing a solution-focused approach, rather than one that relies on products.
Standing squarely in our path to this data-driven nirvana of marketing effectiveness through customer intimacy is the whole question of data privacy. We all know that data privacy laws are already on some statute books, with more to come, but the real point is that it’s a very heterogeneous environment. To put it bluntly, trying to negotiate one’s way through a maze of conflicting legislation will be hard for multinational companies—and many insurers fall into this group.
Another threat is the growing customer awareness of how valuable their data is. I have already heard of a non-profit foundation in the Netherlands that offers to manage individuals’ data and collect “royalties” for its use, and there are many other embryo businesses springing up in the virtual world with a similar value proposition. You might be interested in this good article on Forbes that tackles the issue. I particularly liked the soundbite from a Microsoft executive who likened the current system relating to our personal information as “digital feudalism.”
So, data is one issue that poses a threat to insurers’ digital plans. Another is the whole tendency of digital transformation to disintermediate the existing value chain. Most insurance still relies heavily on a complex “channel” of intermediaries to connect them to their end-customers. One of the first things that happens when an industry digitizes, it seems, is the middlemen get squeezed out. It’s what Dell did in the PC market, and it’s what’s happened in the travel business, too. Other industries are facing the same threat of disintermediation.
Already, I have come across some reinsurers who are using a third-party administration service to package insurance products and offer them direct to end-customers, and the direct model has already taken hold in many geographies or sectors of the insurance market.
It’s something that insurers need to think about, that’s for sure, but I think it’s probably easy to exaggerate its importance. Dell and its imitators have been around for years but the IT channel remains as vibrant and profitable as ever—it’s just had to work harder at delivering value. The same is true of travel agents. If you’re buying a ticket from London to Paris, it’s cheaper to buy it direct from the airline, but if you’re planning a two-week trip to India, a visit to a good travel agent is to be recommended.
I’m sure that the insurance “channel” will undergo a bit of a shake-up, but those intermediaries who are prepared to recalibrate the value they offer, either to insurers or customers, will go from strength to strength. It’s only the box-droppers (to use a phrase current in the IT industry), the pure sellers of product, who will feel the chill winds of disintermediation.
What do you think?