The Future of the Insurance Industry – Life & Risk Insurance in 10 years
Disruption, innovation, change - in this fast-moving world these are words that we hear a lot of in business today.
But change is constant in commerce, no matter what the era, no matter what the economy and no matter what goods & services you provide.
Disruptive technologies are going to explode in the next 10 years at an incredible rate and you will need to be ready to embrace these changes. The Insurance Industry will be no different to any other.
I want you to imagine it is the year 2024 a mere 9 years away. Sara has just started her 6am gym session, sneaking it in before work. The sensors built into her “smart clothing” are feeding information via Wi-Fi into her individual “Risk” Profile in the cloud. Each machine at the gym is connected to the internet of things and sensors recognise Sara even before she approaches. They automatically adjust to her individual preferences including the music she likes to listen to and the intensity of her work out. As she exercises they stream data about her heart rate, blood pressure, Mass Body Index and other vital statistics into her risk profile. As she gets changed back into her work gear she grabs her smart phone swipes her finger over the scanner. The scanner does a rudimentary Genome sequencing test which calculates the risk of hereditary cancers and heart disease. As she leaves the gym her car tracks her movements via GPS and automatically opens as she approaches. Sara drives to her favourite café, grabs a quick coffee and a healthy snack paying for it using her mobile payment system via an application on her phone.
Checking her bank balance she sees that Amazon Life Insurance must have been the cheapest insurer that day at .89c via her crowdsourced life insurance app. Traditional Insurers not only compete for her business but a raft of new start-up companies bid for her daily insurance.
Crowdsourcing has brought the cost of insurance down dramatically. These new breed of insurers crowdsource their capacity and compete for the consumers life cover, entering and exiting the market on a daily basis (the lowest daily spot price for the day wins the cover on an agreed wording for a 24 hour period) based on the data provided from an individual’s online Risk Profile.
Every now and again they have a claim but with 9,600,000 registered “NAMES” worldwide they can fund any claims by deducting .02c from every user’s online account. These new insurers were slow to start but since Uber Life started the TRUST issue for consumers has largely been resolved. Uber Life use their technology to ensure the flow of funds to the beneficiary and collection of premium. They outsource their claims handling to an overseas company to ensure any claims meet the definition of the policy wording.
These new insurers base their calculations on big data and Sara’s own individual Risk Profile. They mash this data together to come up with actuarial results never before dreamed of using meta-data (when you do stuff and for how long and from what locations) and content – data (what you actually say, do or create via social media). If any of these small imperceptible differences change (on their own they mean nothing but crunched together they provide remarkable insight and underwriting data) the insurer can use this to alter the premium they charge. A person’s digital identity will become a new sort of currency.
The above scenario may be a reality in as little as 10 years. There is no doubt in my mind that the insurance industry will be disrupted.
Traditional Insurers will be slow to recognise the threat at first and will largely rely on their ageing adviser force to distribute their products. Their pool of premium will remain static as they fight for the same clients over & over again. Eventually they will respond with their own on-line offerings competing against their adviser force. Some companies will bet large by purchasing start-ups for huge sums of money. Some will even try to build their own online distribution channel but most of them eventually concede defeat and concentrate on the higher end clients which value an advice driven model. The old traditional life insurers will no-longer be the dominant players they once were. Some of the smaller life companies will thrive by offering niche product offerings that are highly targeted to specific consumer groups. It will be the non-relationship commoditised end of the market that will dump their bank or direct insurer in favour of newer funkier start-up companies.
There will be 2 main ways the insurance industry will change:
Technology Driven Change
Distribution of Products – disruptive Change
Technological Driven Change
Risk Profiling and Big Data
Medical Advancements in Treatments
Internet of Things
Data Collection and Mapping
Applications on any device (smart phones, tablets, computers and basically any device with an inbuilt scanner and connected to the internet)
Distribution of Products – disruptive change
New entrants to the market like Google who own huge amounts of data collection and will sell insurance on a worldwide scale
Disruptive Start Ups - With a determination to challenge traditional insurance products, suppliers and intermediaries.
Manufacturer of Products also wholesaling direct to consumers
Internet sales - websites
Risk pooling i.e. peer to peer insurance of like-minded individuals
The future is bright for Advisers However.
You could be forgiven for thinking advisers will become redundant with the advent of new insurance models and distributive technologies.
I would in fact argue the opposite. The need for Professional Advice will never go away. The adviser will only become more valuable – not less valuable.
It is true the lower end of the market will purchase their insurance differently and it will quickly be commoditised but the higher end of the market will still demand Professional Advice.
Somethings will never change. It will still be over to the adviser to find those clients, highlight the need, advise on the best application of the product and the amount of cover required.
It reminds me of a saying that insurance is SOLD and not BOUGHT.
The opportunity is huge for the professional insurance adviser. There is no doubt the industry will change and if we as an industry can reach more people and educate them to the importance of protecting their livelihoods then this is a good thing.
About Damian Alexander
Damian is the director of New Zealand Financial Brokers. He has been an insurance broker for over 20 years providing advice to some of New Zealand’s leading companies and individuals. He is a Registered Financial Adviser based in Wellington and was recognised by the Australian and New Zealand Insurance Institute as Insurance Broker of the Year 2012. Damian can be contacted on +64 4 3858448 or firstname.lastname@example.org web www.nzfb.co.nz
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