The insurance industry is on the brink of major technology-driven changes, according to “Evolution and Revolution: How Insurers Stay Relevant in a Digital Future,” a new report by The Boston Consulting Group and Morgan Stanley Research. To better understand both the changes and the opportunities they will create for insurers that embrace them, we jointly conducted a global study that included 50 interviews with senior executives of insurers and technology providers and a proprietary survey of insurance consumers in 12 countries.
The survey findings point to the need for insurers to completely rethink their customer engagement model. Consumers’ overall digital experience with insurers lags that of other industries—particularly when it comes to “moments of truth” such as paying claims. As consumers continue to integrate digital experiences into their everyday lives, they expect these experiences, as well as their relationship with insurers, to become more direct, simple, seamless, and intuitive. Consumers also expressed strong interest in seeing insurers develop innovative products that apply technology-driven capabilities and are deployed close to the source of their needs. Because “digital native” insurers are well positioned to address these consumer expectations and can operate much more efficiently, they present a significant threat to incumbents.
The study identified many technology-driven opportunities for insurers. For example, the research found a significant number of applications in insurance for the connected sensors and devices that comprise the Internet of Things. Insurers will be able to collect new data sets and assess risk in completely different ways, which has the potential to radically reshape product propositions and reduce the size of global risk pools. Property and casualty insurance is likely to see the biggest long-run impact from technology disruptions as it moves from actuarial risk assessment using statistical techniques to structural risk modeling based on real-time observations. Similar changes are likely to be seen over time in health insurance and life protection. Insurers that seize these opportunities are likely to become the industry’s leaders, while those that do not could find themselves disadvantaged as the industry evolves.
Ecosystems, in which multiple players collaborate, are likely to become increasingly important in the insurance industry. Insurers will need to form partnerships with technology providers that can supply and service connected devices. They will also need to form broader partnerships to secure early access to customers and valuable data sets. The rising importance of ecosystems entails the risk that new players will enter the insurance industry at different points of the value chain or take control of these ecosystems—potentially leveraging far more detailed customer insights than are currently available to insurers. The long-term result could be lower returns for insurers if they lose control of customer relationships and become more marginalized providers of capital.
To defend their markets, insurers must aggressively build new business models that focus on meeting consumers’ expectations for digital interactions. They must also apply the capabilities of new technologies to improve the ways they assess risk and operate their businesses. The biggest winners will be insurers with the foresight to identify new game-changing technology that may not be ready for immediate commercialization but could have a significant long-term impact on the industry.