Underlying technological, economic, social, and regulatory changes are coming together to dramatically cut accidents and improve safety in both cars and homes; enrich and personalize the customer-insurer relationship; and recast the role and value of the traditional P&C insurer.
Unfortunately, these disruptions will also serve to dramatically shrink the volume and value of overall premiums and claims, shift the market focus, and attract new market players with their own direct access to customers and proprietary customer data, along with superior digital and analytics capabilities.
Insurers must respond quickly to defend their turf against these combined threats.
The key is to recognize these disruptive forces as opportunities—not hurdles. Although the potential pain of these changes may not be felt for several years, insurers must take steps now to begin putting in place the foundations and long-term strategies needed to successfully compete in a fast-changing market.
There is no standardized approach or linear path to the future state, however, and each insurer’s way forward will depend on its size and business mix. Still, BCG recommends a fundamental rethinking of all aspects of the operating model—such as underwriting capabilities, distribution channels, and cost structure—and the incorporation of one or more of the following three strategic plays:
Digital Play. It’s not enough to just digitize existing processes. Insurers must develop an overall data acquisition and digital strategy that fully leverages technology throughout the value chain and enables data sharing across the underwriting, claims, and servicing functions in order to enhance the digital experience for modern customers by enabling fewer process steps and more personalization. An effective digital strategy will also increase an insurer’s competitive advantage by improving its data capture, analytics, diagnostics, risk management, and distribution capabilities and achieving superior cost efficiency.
BCG offers an expansive toolkit—from BCG Digital Ventures to our BCG Gamma advanced analytics solutions and Digital Fitness Model—that can help insurers fully assess their digital health, digitize core processes, create and manage digital innovation, leverage digital and customer data for new opportunities, and realize improvements across the value chain.
Partnership Play. Insurers throughout the P&C industry can choose to join forces with new market entrants, such as telematics companies, original equipment manufacturers (OEMs), and telecom companies—rather than compete against them. This strategy allows insurers to compensate for the coming reduction in the risk pool by boosting revenue growth within the value chain and defending against potential disruptors more effectively.
An example is the partnership between Allianz and Octo Telematics, which together developed an integrated technical solution to meet the unique insurance demands of Eni-Enjoy’s new scooter sharing service in Italy. The solution uses video cameras mounted on the front and back of the scooter to record events before and after impact, which improves transparency, guards against fraud, and speeds up claim settlements. Insurers can also ally with a B2B partner that offers complementary but superior organizational strengths, such as product design, IT, and digitization or sales and distribution support.
BCG can help insurers succeed with this strategy by helping identify ideal partners; managing bids; assessing, developing, and strengthening needed capabilities for new business pursuits; and using our OrgBuilder tool, to manage complex reorganization and change efforts quickly and efficiently.
Adjacency Play. Diversifying into mobility-related and other complementary solutions is an effective strategy to boost customer engagement, replace lost revenue, collect more relevant data, and fuel future growth. Motor insurers, for instance, might move into adjacencies such as car safety features, car repair, and maintenance platforms and roadside assistance. These types of related businesses not only increase and diversify revenue opportunities but also help insurers better understand car use and driver behavior, build trust and intimacy with the customer, and create more opportunities for customer interactions. Home insurers might look to enhance their core business with home security systems, home inventory apps, and packing and moving services.
Insurers that attempt to sustain and grow their business using this strategy can rely on BCG for assistance with identifying adjacencies and enabling the organizational and technology changes necessary to easily and rapidly deliver value and growth.