Insurers risk being sidelined by internet-savvy consumer generation: Towers Watson

A new report from Towers Watson has suggested that price-conscious buyers under 30 years of age are driving a fundamental shift in how insurance is bought.

Many under-25s are far more risk aware and interested in financial security than previously thought, the study said

The study, The shifting balance of power, surveyed 7,136 consumers across Europe’s six largest and fastest-growing markets – the UK, France, Germany, Italy, The Netherlands and Spain, plus the region’s most rapidly emerging market, Turkey. Towers Watson commissioned the study last year and the results were released this week.

The survey found that “the advance of technology increasingly distancing the millennial generation of buyers from traditional purchase channels and sources of advice and influence.” The study also found many under-25s to be far more risk aware and interested in financial security than previously thought, underlining the need for insurers to find new methods of engaging with these younger buyers.

Tammy Richardson, UK head of insurance management consultancy at Towers Watson, said that brand power and the traditional broker role are in decline as a new generation of buyers drive a rise in direct sales online.

Related: Insurance companies struggle to take full advantage of digital tools, technology: McKinsey report

“Consumers are increasingly in control and now more likely to ‘pull’ information from comparison websites, smartphones and social media than respond to ‘pushed’ communication,” she said in a press release, noting that this shifting balance of power in the customer/provider relationship could present an opportunity for insurers. “With the right digital distribution technology in place, companies will be able to meet emerging consumer needs to more easily compare and choose financial products tailored to their preferences,” she said. [click image below to enlarge]

Previous Towers Watson research supports the position that technology platforms are expected to play a key future role, with more than four in 10 senior property and casualty insurance executives rating digital distribution as the most attractive channel for acquisition in the next three years. A quarter of life insurers also put top priority on digital distribution capability.

“An important implication of this survey, in our opinion, is that insurers will need to further enhance their efforts to make product benefits more transparent and use data and analytics in new ways to improve their understanding of customer behaviours,” Richardson said. “This is likely to be central to future profitability, driving strategy for customer acquisition, retention and portfolio management. There is a lot of attention focused on data (big data), but the data itself will not provide a strategic advantage for insurers; how they use it is key and that is why analytics has such an important role to play.” [click image below to enlarge]

Less than 10% of UK survey respondents cited brand reputation as an influence on their buying decision for life, home and motor insurance.

The report added that “the danger is that if insurers do not get to grips with how buyers use of technology to make financial decisions is evolving, other digital businesses with relevant expertise (Google, for example) may step in.”

The survey also revealed a high level of consumer ignorance across all age groups about the benefits and risks of the insurance products they are buying, which is likely to get worse as direct sales continue to rise. Sixty-five percent of consumers over 45 (50% of all ages) across Europe would still buy insurance products even if they did not understand the benefits or risks, the survey said.

According to Towers Watson, these findings further highlight the risk that some products will be deemed by regulators to have been sold without sufficient understanding from those buying them or to have been inappropriate to the needs of consumers. “Further changes in distribution channels will not devolve insurers of responsibility for explaining what their customers are buying,” Richardson added.

Key survey findings included the following:

• Under 25s across Europe have become more risk averse in the last five years than any other age group;

• Less than 10% of 18-24 year olds would anticipate buying common forms of insurance from an agent or broker;

• Price is the dominant consideration for 70% of UK 18-34 year olds when buying motor insurance; and

• Less than 10% of UK survey respondents cited brand reputation as an influence on their buying decision for life, home and motor insurance.

Why do consumer feel they do not understand certain #insurance products? @TowersWatson #Report http://t.co/FkXX9YK1gB pic.twitter.com/MANOvXGCDu

— Stephan Weiss (@st_weiss) April 2, 2015