For an industry that seeks to provide peace of mind to clients, insurance could sure use some of its own. Over the past few years, insurers and brokers have grappled with a surge of disruptions, including increasingly fierce competition, rapid technological advancements, and deteriorating rates of customer trust and loyalty. 

It appears this is just the beginning. We’re not witnessing a string of bad luck or some temporary turbulence, but an extensive, top-to-bottom shift in the market. Brokers can no longer afford to merely sell insurance; they need to offer additional value to their clients. 

If you’re a regular reader of the KPA blog, you may recognize this as a topic we’ve written about several times recently. This week, we’d like to turn your attention to an article in the Economist titled “The coming revolution in insurance: Technological change and competition disrupt a complacent industry.” 

Published in 2017, the article highlights a number of now-endemic disruptive forces that were already beginning to shape the insurance industry then. Take a look at how P&C brokers were contending with an unfamiliar environment of “relentless pressure”:

“[P]rofitability has steadily deteriorated. The American P&C industry, for instance, has seen its ‘combined ratio,’ which expresses claims and costs as a percentage of premium revenue, steadily creep up from 96.2% in 2013 to 97.8% in 2015, and to an estimated 100.3% for 2016 (ie, a net underwriting loss). Henrik Naujoks of Bain & Company, a consultancy, says this has left such insurers facing a stark choice: become low-cost providers, or differentiate themselves through the services they provide.

One fairly simple way to offer distinctive services is to use existing data in new ways. Insurers have long drawn up worst-case scenarios to estimate the losses they would incur from, say, a natural catastrophe. But some have started working with clients and local authorities on preparing for such events; they are becoming, in effect, risk-prevention consultants.”

Just two years later, such risk-prevention services have become an everyday part of doing business—many P&C insurance clients now expect them.

The article goes on to prognosticate about how nascent technology may threaten the very existence of insurance, and how firms aren’t certain how to keep up. In 2017, Volvo was considering dropping its product liability insurance coverage entirely in favor of investing fully in self-driving technology—and paying accident-related costs out of pocket. Since then, the company has doubled-down on its convictions and begun testing autonomous vehicles.

Per The Economist (emphasis added):

“Insurers face many hurdles, however, to becoming service providers and risk consultants. Maurice Tulloch, head of the general-insurance arm of Aviva, admits that such services are yet to catch on with most customers. So far, his firm, like its peers, has focused on enticing them to adopt the new offerings by cutting insurance premiums, rather than on making money directly from them. …

One example of what the future may hold comes from the car industry. Carmakers have traditionally bought product-liability insurance to cover manufacturing defects. But Volvo and Mercedes are so confident of their self-driving cars that last year they said they will not buy insurance at all. They will ‘self-insure’—i.e., directly bear any losses from crashes.

Some think that such trends threaten the very existence of insurance. Even if they do not, Bain’s Mr Naujoks is not alone in expecting the next five years to bring more change to the insurance industry than he has seen in the past 20.”

Read “The coming revolution in insurance.”

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