When Jürg and I met over lunch to discuss what we’d learned at the events, it seemed that we had heard about insurance from two different planets. The impressions we had gotten from these two events couldn’t have been more divergent.
Jürg learned about a connected world that was paving the way for smart insurance, placing insurers right next to their customers and their digitally recorded (and constantly updated) profiles and preferences. In this new world, insurers would be able to deliver exceptional experiences by entering customers’ everyday lives, without the need for intermediation.
In the insurance world I learned about, the focus was squarely on the value of insurers’ traditional distribution organization—usually a widely branched network of personal advisors that assist customers in their product choices. The strategic role and significance of this network are currently being reconfirmed by most (if not all) insurers as they implement the European Commission’s Insurance Distribution Directive (IDD), which is now becoming applicable national law across Europe.
What insurance planet are we actually on today?
Some people say that the insurance industry is going to be disrupted in a fundamental way, caused by new consumer behavior, the Big Four (Google, Apple, Facebook, Amazon), and the rise of InsurTechs. The implication of this is that fundamental change requires fundamental responses. As one presenter openly asked at the event in London, “Are the old methods and approaches still suitable in the Digital Age?”
Meanwhile, I experienced a group of managers in Cologne who felt confident about achieving further income growth in a generally buoyant economy—insurance premiums rose by 3% on average last year. And they rely precisely on their traditional product lines (especially car insurance), business models, and distribution channels.
“The potential for direct sales is limited to 10, perhaps 12% of the market,” one executive explained to me over dinner, adding that “everybody here” knew that. “Regardless of how many devices they own, the customer wants to be carried over the threshold by their agent,” he said. What a nice analogy!
So, between disintermediation and IDD, where is the insurance industry heading? Today, it seems safe to agree on the drivers of change: evolving customer expectations, new digital competitors, increasing regulation, cost pressures, demographic changes. However, their consequences invite healthy disagreement. Oliver Wyman consultants, for instance, propose five future distribution models that could all turn out to be true, in different combinations. Will digitalization and regulation further empower personal sales or end up weakening it? How strong is the momentum for alternative distribution models that are arising out of the more customer-centric ecosystems (a health ecosystem or a mobility ecosystem, for instance)? Lastly, will cost pressures lead to the greater commodification of insurance products, thereby favoring more direct sales?
Not only do all of the implied hypotheses have some degree of plausibility, they also have one important trait in common: they require your insurance company to be prepared. No matter where the above-mentioned drivers are taking the industry, complexity is increasing. To stay in control, insurers need to be able to connect the dots between their agents, customers, ecosystem partners, and all those contributing to the value creation— when and where required. And for those insurers that successfully make this leap and offer their clients more, it could justify their next premium rise in what is an increasingly multifaceted and competitive marketplace.