the future of personal insurance - december2017

1© Frederik Bisbjerg, December 2017

With Amazon, Google, Tencent (WeChat) etc. as major distributionchannels, the future of the traditional personal insurer is uncertain, butit’s certain that the current business model must change – add to thisthat one of the major product lines most probably will become obsoleteduring the next decade and you have all ingredients to promise theincumbents a bumpy ride going forward

Personal insurance is and will (most probably?!) always be a numbersgame where each insurer must reach a critical mass of customers foreach personal product on offer to make the products viable and hencebe able to pay claims and ultimately company operational costs andshareholder dividends

It is therefore no surprise that the latest development in the personalinsurance space is tech giants looking into the field of personalinsurance – they have millions of customers and an abundance of dataabout each – easily enough to provide for very detailed underwritingand hence very personalized products and prices. They have theexperience in automating customer service, allowing them to run a verysmooth and lean operation and they can easily team up with any third-party administrator for claims management

In short, all they need is a license and a small team, and they’re ready to give the incumbents very tough competition

To further complicate matters, one of the major product lines, motorinsurance, is facing an uncertain future too; autonomous vehicles willbe insured as a product and will therefore most likely fall under thecommercial lines of the insurer – depending on what forecasts youbelieve, the autonomous vehicles will be on the streets in any time fromnow(!) to the next five-ten years. Regardless, no forecast predicts thatthe autonomous vehicles will not come, so personal insurers mustprepare to see this specific product line decline and ultimately vanish(except for a very limited segment of special vehicles; collectors’ cars,special sport cars, etc.)

The future ofpersonal insurance

The tech giants only need a license and a small team, and they’re ready

to give the incumbents very

tough competition


To have a decent chance of survival, incumbentinsurers must craft and implement a much morefocused strategy than what is seen in the marketscurrently, effectively directing all resources tothis strategy and divest the units anddepartments that cannot or does not fullysupport the decided future strategy

The future is in the focusThe fewest (if any) insurers will be able to standagainst a full-frontal attack from some of thelargest companies in the world, all completelybuilt and driven by technology, where incumbentinsurers are struggling with legacy IT systems,rigid and complex organizational structures andvery slow change processes – quite the oppositeof the much younger and much more tech andproduct development savvy tech giants

Figure 1: To secure future viability, incumbent insurers much carefully choose and pursue a focused strategy

Platform provider Niche products

Capacity provider Underwriting specialist

PROVIDER• Analytics / AI / ML• Risk selection• Cost control

DIRECT

PROVIDER

GEN

ERA

LIZA

TIO

N SPECIA

LIZATIO

N

Technology leader

Boutique insurer

BIGDATA

SPECIALIST• Tailored products• Dynamic pricing (IoT)• Risk steering

DIRECT• Peer-to-peer• Entertainment• 1-to-1 service


The future retail insurer must select a strategythat fits in the new order of personal insuranceproducts, services and distribution:

• Platform provider, the “Uber of insurers”,connecting a plethora of insurers with a widerange of products to a large user base, thusestablishing a strong distribution channel –this is the expected strategy of tech giants likeAmazon or Google as they already have theuser base, creating a very attractive platformfor insurers to participate in

• Niche product provider creating and selling astrong, very specialized product where thesheer product expertize is the corecompetence of the insurer – this product canbe sold directly and / or through insuranceplatforms and other platforms (e.g. insurance-on-demand products, home insurancethrough AirBnB, pay-as-you-go passengerprotection through Uber, etc.)

• The Boutique provider creates products andservices tailored for a specific segment andsold directly – e.g. personal insurance productsuite for pilots sold through pilots’associations. This is somewhat similar to theniche product provider but the value providedfrom the boutique insurer is deep knowledgenot only of a product but also of a targetsegment of users and their specific needs

• Raw capacity provider, providing otherinsurers and new start-ups insurance capacity– this is likely to be a future provider for thetech giants if / when they enter the personalinsurance market

• Underwriting specialist for one or moreproducts based on high level of data analytics,usage of Internet of Things and artificialintelligence / machine learning – thesespecialists will be providing their expertize toother insurers that are participating in theinsurance platforms or as part of a boutiqueinsurance solution

• Technology provider, specialized in one ormore of the core insurance processes likeclaims systems, underwriting tools, customerrelationship management etc. They willprovide an invaluable part of incumbentinsurers’ value chain in the future

Product and services must be relevant for the

consumers – even insurance products!

Read the blog and find other whitepapers on www.frederikbisbjerg.com


Figure 2: Consumers basically expect it all immediately with no hassle

Direct is entertainment and meaningInsurers choosing to be selling directly to the end-users need tounderstand that the needs and expectations of the user has beenchanging over the last years and still changes. The consumers todayexpect immediate access to all services and products and they don’twant to wait (the latest research from Google finds that consumersleave a mobile site if load time is longer than three seconds)

ME !

Fun

Access

Fast

Easy

“Entertain me!”

“If I wait, I leave”

“I want it now” “I just want it done”

At the same time, consumers expect that their issue is resolvedimmediately and with no hassle for them – and they expect to beentertained all along! Going direct poses a serious challenge for thedistribution and service channels as well as the systems supportingthem – IT systems must be flexible enough to change with the changein consumer moods and the organizational operational processesnimble enough to support the changes too

Apart from the above, the products and services must be relevant andmake sense for the consumers so they’re able to connect with theservice that they buy – not an easy task for an insurance product, butseveral newcomers have already tried, Lemonade as the most successfulat the time of writing


Figure 3: A provider strategy requires heavy data analytics skills and ultra-connectivity towards virtually everybody

Since data collection and following analytics arekey competences for these insurers, nothing thathinders this must stand in the way. Systemsconnectivity between all partners and sources inthe overall ecosystem is key

Another key value to be provided is loss control,analyzing the data to identify risks and applymethods to avoid these – or to steering the end-user towards a less risky behavior

Providers must know it all – and then some

If the incumbent insurer decides to pursue aprovider strategy, providing underwritingservices or capacity to direct insurers or MGAs,the battle is all about turning data and dataprocessing into knowledge, providing raw datapower for big data analytics and strong, self-learning systems that continues to improvealongside the growth of consumer data available

A key success factor is the ability to collect datafrom an infinite number of data sources andcreating systems prepared for adapting newsources instantly

Analytics, pricing & capacity

provision

New / unknown sources

Distributor dataOwn data

Ecosystem data

Real-time collection and connectionHistorical and real-time

Open systems for future connectivitySocial media & partners


Figure 4: Specialization means going deep in service, product and ancillary product offerings

Specialized insurers must be just that

As an underwriting specialist, or a niche product insurer, it’s necessaryto know more than anyone else in the market about the specificproduct and target segments. Underwriting specialists and nicheinsurers must be able to price products with laser precision andenhance further specialization with ancillary products to refineunderwriting and improve customer experience

These insurers would offer programs that steer consumers towards aspecific behavior and through this behavior reduces the risk and henceallows even more refined pricing. However, it’s not enough to offer aprogram for increased risk control, the customers have to feel impelledto use it too, or they simply will not – this is where the insurers shoulduse Internet of Things and connectivity to engage the customers.Examples could be in-car-telematics with gamification andcompetitions, home monitoring while away and individual healthcareprograms based on sensory inputs

Another compelling way is to offer customers individual and tailoredinsurance based on their specific needs, and offering them somethingthey didn’t expect that adds value to the product and how they use it –for example a medical insurance paired with a DNA test and an Applewatch monitoring health and activity on a daily basis – the humanversion of in-car telematics

Basic insurance product

Product / service tailoring

Ancillary devices (IoT)

Custom usage / feedback

ME !Maximal

Minimal

Deg

ree o

f spe

cial

izat

ion


but in today’s world with open APIs and simpleconnectivity this will not be a lasting competenceas competitors will be able to, fairly easily,construct a complete value chain by using strongpartners

Each of these partners will be specialized inexactly their element of the value chain,outmatching the mediocre performance of theinsurers insisting on owning and managing thecomplete value chain in-house

Even though the boutique insurers and insurersoffering niche products theoretically could coverthe whole value chain, it’s hard to see how they’dbe able to offer operational excellencethroughout all elements – it will be a strongerend-to-end solution if they’re able to partnerwith specialists in the areas where they’re notexperts (e.g. claims handling systems)

Trying to do all ends up doing nothing

The ‘one-size fits all’ is fading away and tosurvive, incumbent insurers must carefullyunderstand their current core competences anddecide what position to strive for in the future –it’s clear that full control of the value chain willbe next to impossible, so another very importantaspect of creating a winning strategy is to selectthe right partners throughout the value chain

This takes careful analysis and a strict selectionand – even more important – de-selection ofwhat areas to operate and specialize in goingforward. It is far more important to completelymaster a select few elements of the value chainand deliver superior operational results here thanstriving to own all elements mediocrely

Some may argue that owning all elements of thevalue chain – even if not to perfection – can be acompetitive advantage in itself,

Figure 5: The ‘new’ value chain is made up of partnerships – no-one can be operational best at all elements in the value chain

Marketing & proposition PricingData &

analysisBack office

Policy admin Claims

Technology leaderUnderwriting specialistPlatform

Boutique insurer / Niche products

Capacity provider / Big Data


Mitigating the loss of a large product line – the demise of motor insurance

There’s little argument that the nature of personal motor insurance willchange dramatically over the next decade, most probably rendering theproduct obsolete as the (autonomous) vehicle will be covered by acommercial product liability insurance instead of a personal vehicle ordriver’s insurance

Going forward, and depending on the chosen strategy, insurers mustfind ways to mitigate the loss of this significant product line

OPEN YOUR SYSTEMS OR CLOSE DOWN

Continuing the discussion on the deconstructed value chain, it should be obvious that a vital point in the futurewill be the insurers’ ability to connect to virtually everybody in the ecosystem through simple API functionality.This holds true regardless of what strategy the insurer choses to pursue

Insurers would need to be able to connect seamlessly to partners, technology providers and customers – andeven other insurers. This is currently a major obstacle in the industry as incumbents are fighting age-old legacysystems with limited or close to no external interfaces. The solution may be to detach the digital part of theinsurer and creating new and simple connection options with just a single connection back to the legacy systems

(see the whitepaper “The Case for Detaching the Digital Insurer” –http://frederikbisbjerg.com/blog/detaching-the-digital-insurer)

Motor

Micro-insuranceLife

Ancillaryproducts

Healthcare

Naturalperils

Lifestyle

Figure 6: With motor insurance threatened to perish, insurers must seek other products and services to offset the loss of premium


The choice of and focus on strategy is extremelyimportant as this defines the future battlefield ofthe incumbent insurer. Choosing a boutiquestrategy requires the insurer to combine a largesubset of insurance products into one, tailoredoffering, where the niche insurer must create andperfect (typically) one insurance product

A deep understanding of the near and farmarkets will be key to developing and executinga future strategy – not only knowledge of theconsumers’ needs and expectations, but alsodemo- and sociographic development which willenable the insurers to spot trends and developproducts to accommodate these – the largemigration from rural to urban areas in Asia isone major trend insurers are acting on, offeringvarious micro-insurances for newcomers to thecities

For now, and while deciding on the futurestrategy, insurers must do all they can tooptimize the current production and delivery ofthe vehicle insurance, including a strong focus oncross-sales of existing products to the customerbase as well as increasing the sheer customermass

In parallel, incumbents must optimize processesand reduce costs to maximize profits so sufficientcapital for future investments is secured. Asmentioned several times, data and functionalityconnectivity through easy-to-use API offeringswill be key, so incumbents should focus oncreating a strong suite of APIs based on customerand partner research as well as analysis of futuremarket trends

Figure 7: Cost optimization for motor insurance operations must be in focus to secure funding for executing the future strategy

Veh

icle

insu

ranc

e Strategy focus andproduct developm

ent

Process optimizationCost reductions

Cross-sell

Market researchPartnershipsConnectivity

NOW SOON


About the author

Frederik Bisbjerg (born 1973 in Denmark) is working as Executive VicePresident for Qatar Insurance Company (QIC), the largest compositeinsurer in the MENA region and one of the largest insurers in Asia

He has more than 10 years’ experience from the insurance industryworldwide and is well known and respected for rapid execution ofdigital and organizational turnarounds as well as fast implementationof commercial strategies

Read more and contact the author via www.frederikbisbjerg.com

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the future of personal insurance - december2017

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