In recent years, the banking sector has experienced massive change and disruption due to increased regulation, aging legacy systems, advances in technology and changing customer demands. Today’s digitally driven customers expect fast, constant and convenient access to services via any device. They also expect businesses to know them intimately and treat them as unique individuals.
This dramatic change has now caught up with the insurance sector. In Australia, increased regulatory demands and digital disruption have shaken up the sector, bringing new players into the arena, such as fintechs and insurtechs.
Interestingly, in 2016, Australian fintechs scored $US600 million in new deals, despite investment plummeting worldwide, albeit still significant. Along with the US and Europe, Australia is seeing legacy players invest in fintechs and insurtechs, working with relevant technologies while improving their own direct-to-consumer digital interfaces.
5 key trends in the insurance sector in 2017:
- Insurtechs on the rise.
On the back of the fintech movement, insurtech is building momentum in 2017. Insurtech is set to create great opportunities for the insurance industry and traditional players to innovate and evolve.
However, it will also create serious competition, as entrepreneurs and start-ups seek to deliver better and smarter insurance solutions – a trend we have seen previously in the banking sector. Insurtechs may be a disruptive threat to legacy players as they can solve historical industry issues faster and more efficiently.
- Technology and IoT continue to disrupt.
Insurance companies are seeing many of their insurance product lines facing a premium squeeze as claims reduce through advancements in technology, such as safer cars. For example, Usage-Based Insurance (UBI) is an IoT innovation that aligns driving behaviours with premium rates for vehicle insurance. In near real-time, driving behaviours are tracked using a telematics device installed in the vehicle.
This trend will only continue and advance as autonomous cars come online, and IoT provides greater available information on all aspects of our lives, reducing the likelihood of incidents.
- Customers demand individualised insurance
Increasingly, consumers are expecting individualised insurance, which allows them to insure only the individual products they want for the period they need. As insurers seek to modernise and stay relevant, they must cater to the customer’s growing appetite for more affordable, streamlined and transparent services.
Individualised insurance will require new streamlined technologies, systems, procedures and pricing; and most importantly, flexibility. These requirements are very different to how most legacy core insurance systems and businesses operate today.
- Customers go mobile
The demand for access via mobile devices has now reached the insurance sector. Consumers want to be able to engage anywhere, anytime, with services tailored to their own requirements.
Collaboration may assist in tailoring customer service to the needs of the individual. Legacy players can leverage new players to improve customer service through more personalised products and seamless interfaces.
- Compliance and cyber security key concerns
Insurance faces the challenge of evolving while remaining tied to traditional legacy technologies and systems. The industry must balance new innovations and technologies with ever-increasing compliance demands and expectations.
For an industry relatively new to digital services, cyber security risks are also a concern. A potential weakness in the sector’s cybersecurity comes from third parties. Breaches in third-party service providers can create damaging issues for insurers that rely on their services. Cybersecurity is not just a technical challenge for insurers, but a business management challenge – and one that needs serious focus and attention.
To innovate and fast-track results, Australia’s insurance sector has the advantage of being able to review the challenges faced by the banking sector and assess what solutions worked. Just as heavy investment and interest in fintechs has shaken up banking, insurtechs are set to disrupt insurance as we know it.
At the same time, the changing demands of the customer, including increased demand for individualised insurance and mobile services, will need to be addressed in 2017 and beyond.
Working with partners who have played a key role in the recent evolution of the banking sector could be the go-to solution for the insurance industry. Allowing insurers to leverage the experienced gained will fast-track progress.