Disruption is the new reality in the global insurance industry: PwC Insurance 2020 report
Worldwide, the insurance industry is facing more disruption than any other industry, posing threats for some and opening up promising commercial possibilities for others, according to a report released by PwC Africa today. The pace of change in global insurance is occurring even more rapidly than originally anticipated and will only accelerate. The report concludes that the industry is at a pivotal juncture as it grapples with changing customer behavior, new technologies and new distribution and business models.
In 2010, PwC began carrying out scenario analysis on the trends shaping insurance and what the industry would look like by 2020. “Now we're at the mid-point between 2010 and 2020, we thought it would be useful to review the developments we've seen against our initial projections and look ahead to the major trends that we're likely to see over the next five years and beyond,” says Stephen O’Hearn PwC Global Insurance Leader.
“The insurance leaders taking part in our latest annual CEO survey see more disruption ahead than any other commercial sector, underlining the need for strategic re-evaluation and possible re-orientation. Yet for others, change offers competitive advantage. A telling indication of the mixed mood within the industry is that while almost 60% of insurance CEOs see more opportunities than three years ago, almost the same proportion (61%) sees more threats,” adds O’Hearn.
Victor Muguto, Long-term Insurance Leader for PwC Africa, says: “Global and African insurers are grappling with new disruptive social, technological, economic, environmental and political (STEEP) changes. These megatrends are already reshaping the competitive environment for insurers, reinsurers and the markets they operate in across Africa.
“Insurance 2020’s central message is that whatever organisations are doing in the short-term – whether dealing with market movement or just going about day-to-day business- they need to be looking at how to keep pace with the sweeping STEEP developments ahead.”
How insurers are feeling the impact of these developments:
Customers expect the same ease of doing business from insurers that they do from retailers. Digital developments have enabled the insurers to deliver anytime, anywhere convenience via a seamless multichannel experience, streamline operations, and reach untapped segments.
Digital developments also are helping insurers to enhance their customer profiling, develop sales leads, tailor financial solutions to individual needs and, for non-life businesses in particular, they improve claims assessment and settlement. However, as a threat to the existing order, many new market entrants are using advanced profiling techniques and cost-efficient digital distribution just as well as or even more effectively than incumbent competitors.
Most insurers have invested in digital distribution. Some are even moving beyond direct digital sales to embedding the company in people’s lives (e.g. pay-as-you drive insurance). This has coincided with the proliferation of new sources of information and analytical techniques that are beginning to reshape customer targeting, underwriting, and financial advice.
According to PwC, as sensors and other digital intelligence become more pervasive as part of the ‘Internet of Things’, savvy insurers can become trusted partners in areas ranging from health and well-being to home and commercial equipment care. In turn, digital technology could extend the reach of life and pension coverage into largely untapped segments such as younger and lower income segments by reducing costs and allowing businesses to engage with customers in more compelling and relevant ways.
Analytics: The emerging game changer
The combination of big data analytics, sensor technology and communicating networks could allow insurers to anticipate risks and customer demands with far greater precision than ever before. The benefits could include not only keener pricing and sharper customer targeting, but a decisive shift in insurers’ value models from reactive claims payers to preventative risk advisors.
Muguto notes: “The emerging game changer is the change in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome).”
New business models
Many forward-looking insurers – and aforementioned new market entrants – are developing new business models. Prescient companies are striving for a faster and more flexible, data-led iterative approach, similar to what many telecoms and technology companies use. Some of them are also working with reinsurance and investment management companies to create a new generation of health, wealth and retirement solutions. The pace of change will only accelerate in the coming years as new innovations become mainstream.
From the impact of analytics, digitisation and more exacting customer expectations to the disruptive effect of regulation, geopolitical instability and rising economic growth, the African insurance industry will look very different in 2020. Facing mounting commoditisation and pressure on prices, forward-looking insurers are already developing ways to capitalise on higher margin opportunities and enlarge their footprint in fast growth African markets.
Muguto concludes: “The actions that insurers in South Africa and the rest of the continent choose to take will depend not only on their national or regional markets, but also on their strategic intent, core capabilities, availability of talent, and capital and organisational culture.
“The changing African insurance market will require considerable product and business model redesign. This won’t be easy, but it’s the new global reality.”
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