On the road to insurance 2020

We are just a few days away from the publication of our next IBM Institute for Business Value insurance study (first preview here). New studies often prompt me to look back at previous publications, to see how inferences we drew about the future of the insurance industry held up.

For our study Insurance 2020: Innovating beyond old models , which was published in 2006, we interviewed a group of people around the world – insurance CxOs, chief strategists and other smart people who had some insight into the industry – and asked “When you think of the year 2020, what will the insurance industry look like? What are the drivers of change, what are the inhibitors?” Those discussions were then distilled into four mega-trends:

1. Active and informed consumers across demographic groups will reward non-traditional insurers
2. Technology will virtualize the value chain and lower barriers to entry
3. The building blocks of insurance will be granular and provide more even revenue streams
4. Regulatory coordination and affirmed industry standards broaden to international scales

I did my last series on the Insurance 2020 study three years ago, and a lot has happened in that time: Watson and cognitive computing came along, consumer shopping behavior is evolving even more rapidly than we thought with the proliferation of mobile devices, Big Data is the next oil, and the cloud is showing a shift in computing. So I thought I’d take another look, at least at the first mega-trend. (This will probably be a series again.)[1]

At the time, the first mega-trend, about the active and informed consumer, generated the most push-back. Looking at it closely, it has three implications: 1. Consumers in the future will be more active and informed, i.e. more empowered, 2. this will generate new business models that serve the empowered customer and 3. those insurers will do at least as good or better than “classical” insurers.

Implication #1 was the one questioned most at the time – which led us to do several studies centered around insurance consumers and their attitudes and behaviors. As a consequence, we looked at some of the conventional wisdom surrounding insurance and consumers – and found they were myths, or have become myths by the year 2014.

Myth #1: Insurance is a low interest product

In 2007, we conducted focus groups with a random sampling of consumers in several European cities, across all age, income and education groups. All of them were interested in insurance, had gathered information and formed an opinion, both about insurers and coverages. Why is insurance deemed low interest? Because it is not an intrinsically likeable product. The risks you insure against are things people would prefer not to be reminded of – but it is accepted as necessary. In the T3 study and its offshoots, 82% of respondents stated that it was important to be insured against all possible risks, but 44% want to think of insurance as little as possible.

Myth #2: Insurance is a push product

The statement “insurance will always have to be sold” is not quite a myth, but more a self-fulfilling prophecy. Most insurance products are fairly complex and so have to be explained. The question is: do products have to be complicated? The answer, obviously, is no – there are insurers that purposefully keep it simple. (Instead of quoting them here, I invite our readers to give examples in the comments ) Of course, this relinquishes control to the consumer – which they will get anyway, in the long run, them becoming active and informed…

Myth #3: All consumers care about is price

In short: it is not that simple. If you ask “all else being equal, which product would you buy”, nobody would seriously answer “the more expensive one”. In the real world, though, all else is seldom equal, and insurance is not really a commodity. (Some countries are trying hard to make motor insurance into one, though.) Once you include more variables, price become just one of the decision points, albeit an important one. The more empowered consumers become, the more value trumps simple price. For the 2014 Digital Reinvention study, we compared Millennials’ attitudes to those of Boomers. Millennials arguably are the customers of the future – and they do care more about value than price. (Yes, also in the US )

Myth #4: Everything will move online – the agent channel will disappear

To be fair, I have never heard insurers actually say that, and it is also not true. Rather, our data point to the conclusion that the more access points to insurers there are (agents, brokers, branches, call centers, insurer websites, aggregator websites etc.), the more consumers are using, at least to gather information, and probably also for servicing. To buy, ultimately, consumers buy at the point where trust is highest – and that is generally other people. Comparing survey data from 2010 to 2013, the big shift toward online has happened when searching for insurance – 17 percent in total. In purchase the shift was minimal, just 1 percent away from the personal toward online interactions.

Has the rise of the empowered customer already led to new successful business models. Thinking about pay-as-you-drive or pay-how-you drive models and the likes of Friendsurance, I’d say yes, but you can disagree in the comments (or again, find better examples). In 2020, now only 6 years off, we will definitely have them…

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[1] Much of this post is reused from October 2011: http://insights-on-business.com/insurance/where-are-we-on-the-path-to-insurance-2020-part-four-consumers/.