The insurance industry will be profoundly disrupted by technological change, Vincent J. Dowling, Jr., managing partner of Dowling & Partners Securities LLC, told attendees at Marsh & McLennan Companies, Inc. (MMC)’s Young Professionals’ Global Forum 2017 in London, U.K. on Wednesday.
“In your careers, personal and commercial auto (insurance) business will be gone,” as it’s currently known, Dowling told delegates, noting that the personal auto market in the United States was worth US$207 billion in net premiums last year.
Lines of business such as small commercial lines will be profoundly changed by disruptive technologies, he said in a statement on behalf of MMC. “I have been following the property/casualty industry for 35 years,” Dowling told delegates. “And I would argue that there has been more change in the past five years than the previous 30 – and we are just at an inflexion point of that change.”
Previously, he said, insurance industry participants would not have competed against a client or supplier. But the influx of new capital into the industry now means parties see they can make more money by “cutting others out of the chain,” for example, by setting up broker facilities or sidecars. Some third-party capital providers are now competing directly for insurance business, he added, and they oftentimes have a lower cost of capital and expense base than property and casualty insurers.
Looking at the U.S. P&C industry, the loss and expense ratios, compared with the profit made on every dollar, “is not sustainable” and industry is at “significant risk of dislocation,” Dowling said in the statement.
Overall, the insurance industry massively lags others in terms of online customer service. The statement referenced a 2013 study by Morgan Stanley Research, which ranked insurance 14th in terms of online customer experience, ahead only of the real estate, telecommunications and cable industries. Meanwhile, a 2017 report from Accenture found that 45% of U.S. Gen Yers would consider buying insurance via on online service provider such as Google or Amazon.
A glance at the ages of many of the CEOs of P&C companies shows that many are in their 40s or 50s, and this new generation of leaders is already doing things differently because they realize they cannot “run out the clock,” Dowling added. Some companies are going direct as a result.
Technology is also enabling new business models to emerge, he added. The cloud, big data and the brain power available today mean that “if you can get the distribution – and that is key,” you can succeed in this marketplace, Dowling contended.
And while several large traditional P&C market players are getting into small commercial lines, there is also “a whole bunch of new online competitors who want to sell insurance.” For example, payroll companies could provide workers’ compensation coverage, and credit score companies could offer insurance, he noted.
The fintech industry – including insurance – will only grow, Dowling said, and most customers do not wish to have a separate insurance relationship. “He who controls the customer wins,” Dowling concluded.
The MMC Young Professionals’ Global Forum 2017 took place on Wednesday and Thursday. It is attended by about 600 delegates, representing over 70 global insurers and insurers. The forum is entitled “Disruption” and presentation topics range from transforming the management of cyber risk, terrorism, leadership, visions of the future and the investor landscape, as well as discussions on the principles of leadership and its role in achieving resilience.