The threat for insurers is that others seize the emerging opportunities presented by telematics - the technologies that send, receive or store information relating to remote objects via telecommunication devices. "The opportunity is that incumbent insurers, who are familiar with telematics, can enjoy a significant first-mover advantage in data and insight," says Dirk Kotze, director in Strategy and Innovation for Financial Services at Deloitte.
Recent research conducted by Deloitte identified nine digital technology applications that have the greatest potential to disrupt or change general insurance (GI) over the next decade, as well as the opportunities and threats they pose for insurers.
Telematics technology allows for the flow of data from connected devices to insurers, who then used the information for motor, health and home risk assessment and pricing, as well as to offer customers premium discounts or benefits such as assistance in an emergency.
Kotze says telematics-based motor insurance has been available in some countries for many years, with health and home insurance more recent entrants. "In its current form, that is, only offering the possibility of a lower premium, telematics-based insurance is unlikely to win many more customers. It does, however, have the ability to disrupt GI if it facilitates new connected services such as providing people with information they really want e.g. how to minimise risk, either by the way they drive or by choosing safer routes."
OEMs suggest self-driving cars will be launched within the next four to eight years and Deloitte estimates that by 2025 up to half of the cars in developed markets will be 'smart'. Self-driving cars will make the risk motor pool more heterogeneous and complicated because the new vehicles will be safer than human drivers, but will not eliminate risk completely. In fact, they could introduce new risks.
Kotze says in the long-term, self-driving cars could shrink the motor insurance market by reducing accidents and premiums. "In the short-term, the introduction of these cars and the increasing complexity of the risk associated with them presents an opportunity to certain insurers and those with the most sophisticated understanding of the how risk could change will be likely winners."
Smartphones give insurers the chance to improve customer experience, for example, allowing them to instantly photograph damage and submit photo's to insurers, a convenience which is not possible with a laptop or PC. Insurers who migrate customers to smartphones most effectively and then provide a good multichannel experience are likely to have the most satisfied and loyal customers.
Price comparison websites (PCWs) are often seen as the most obvious and dramatic example of digital disruption in GI. The increasing use of PCWs could commoditise some of the largest insurance markets by making customers more price-sensitive. In a more commoditised market, low-cost insurers would likely gain market share. Scale, and other sources of efficiency, could become more important as a mechanism to compete on price. Insurers might merge to achieve greater scale and new entrants would be well placed to gain market share from incumbents in such a scenario.
Social media facilitates peer-to-peer insurance (P2PI) by allowing insurance customers to form online networks that share risk. Members of a network pay a portion of their premium into a mutual pool and the balance to an insurer. Money left in the pool at the end of the year is refunded to members or carried forward to the following year.
Kotze says P2PI could win many customers due to the savings it offers and would lead to a reduction in demand for traditional insurance without an equivalent reduction in supply, with lower prices the outcome.
Social brokers are a new type of online intermediary - who identify customer segments with poorly-served insurance needs, e.g. people with heart conditions who need travel insurance - and negotiate insurance on their behalf.
While social brokers represent opportunities for insurers, they could also be a threat. Presently, they are intermediaries and do not carry risk. However, they could use their customer insight to become successful underwriters.
Kotze says a range of digital technologies is increasing the threat of cyber-attacks. "Customers and regulators' concerns about data security are increasing, driven in part by a greater awareness of data security issue, websites, the cloud and the systems of the partners insurers work with. In this respect, cyber risk insurance represents a large and under-developed market."
Social media allows buyers and sellers to transact in online marketplaces such as Uber and Airbnb and creates new markets for new types of insurance e.g. those who sell service in online marketplaces could need liability cover for buyers. This could result in the emergence of 'omniline' policies - policies that cover people from all risks. Composite insurers would be better placed than other insurers as they could offer a broad range of covers.
Value comparison websites (VCWs) are a new type of online intermediary, such as Fluo, which helps customers to choose policies based on value rather than price. VCWs could become a major distribution channel because many customers struggle to work out the value of GI policies. Increasing use of VCWs means that customers could develop a deeper understanding of GI product and make better informed purchases as a result.
