Disruption is the new reality in the global insurance industry: PwC report

The global insurance industry is at a “pivotal juncture” as it grapples with changing customer behaviour, new technologies and new distribution and business models, suggests a new report published by PwC on Monday.

In 2010, PwC began carrying out scenario analysis of the trends reshaping insurance and what the industry would look like by 2020, drawing on interviews with more than a thousand executives worldwide. The newly released report, Insurance 2020 and Beyond: Necessity is the mother of reinvention, reviews ongoing developments against PwC’s initial projections, looks ahead to the major trends that will develop in the global insurance industry over the next five years and beyond, and how businesses can design their strategy to face the future and capitalize on them.

“For some businesses, these developments are a potential source of disruption,” the report reads, adding that the insurance industry leaders taking part in our latest global CEO survey see “more disruption ahead than CEOs in any other commercial sector, underlining the need for strategic re-evaluation and possible re-orientation. Yet for others, change offers competitive advantage. A telling indication of the mixed mood within the industry is that while nearly 60% of insurance CEOs see more opportunities than three years ago, almost the same proportion (61%) see more threats.”

For p&c personal lines specifically, the report suggested that “a combination of automated underwriting and competition from aggregators and new entrants will drive down prices and accelerate the commoditization of motor, property and other core business lines. At the same time, new opportunities will continue to open up through new information-based models, both within traditional areas of insurance coverage and new fields, such as maintenance and concierge services.”

PwC also predicted that “data from car and equipment diagnostics, along with user behaviour, will be exchanged with manufacturers and repairers, breaking down commercial boundaries and opening up further opportunities in design and maintenance.” [click image below to enlarge]

“We estimate that the reduction in accident, personal injury and other auto-related claims as ADAS (automated driver assistance systems) technology becomes more widespread could reduce annual auto insurance losses in a developed market such as the U.S. by at least 10% by 2025,” the report suggested. “But the risk and claims profile would be more complex as the driver switches between self-driving (and hence driver liability) on the one side and ADAS driving (and hence product liability) on the other. While there are regulatory prohibitions on autonomous driving at present, it may eventually not just be permitted in many countries, but even obligatory, especially in high-risk situations.”

PwC noted in an accompanying release that “digital developments have enabled the insurers to deliver anytime, anywhere convenience via a seamless multichannel experience, streamline operations, and reach untapped segments.” Digital developments also are helping insurers to enhance their customer profiling, develop sales leads, tailor financial solutions to individual needs and, for non-life businesses in particular, improve claims assessment and settlement. “However, and in a threat to the existing order, many new market entrants are using advanced profiling techniques and cost-efficient digital distribution just as or even more effectively than incumbent competitors,” PwC warned.

While most insurers have invested in digital distribution, some are even moving beyond direct digital sales to embedding the company in people’s lives (such as pay-as-you drive insurance). In addition, the combination of big data analytics, sensor technology and communicating networks could allow insurers to anticipate risks and customer demands with far greater precision than ever before. “The benefits could include not only keener pricing and sharper customer targeting, but a decisive shift in insurers’ value model from reactive claims payer to preventative risk advisors,” PwC suggested.

“The long-term opportunities for insurers in a world where people are living longer and have more wealth to protect are evident. But they are also bringing fresh competition, both from within the insurance industry, and a raft of new entrants coming in from outside,” the report concluded.