Editor’s note: This is an excerpt from Matthew Griffin’s upcoming paper The Future of Insurance 2020 & Beyond.
It is clear from the developments and progress made in 2016 though that the industry’s appetite, pace, and propensity for change, albeit partially fuelled by an increasingly competitive and dynamic marketplace, is accelerating.
It’s unlikely that 2017 will be a breakout year for the insurance industry, nor will it be the year when the industry stares its Uber moment in the face, however, as we’ll discuss later on in this chapter, we can already see that event materialising on the horizon – just not necessarily in the way that most people expect.
The journey to the future is made up of many steps. Here are my predictions for 2017:
1. Artificial Intelligence
Artificial intelligence (AI), which is an umbrella term for four different classes of AI – namely cognitive computing, data science, deep learning and machine learning, which all have different traits and capabilities – will play an increasingly important role in helping insurers create, discover and unlock new value in their back and front office operations.
In 2017 data science and machine learning will continue to be the two most dominant forms of implementation of AI because they are the best understood, the most widely distributed and the most predictable forms, then will come cognitive computing and deep learning respectively.
Most of this year’s new AI implementations will be discrete and focused on automating and improving operational efficiency and productivity as insurers, and regulators, try to bottom out the implications and risks associated with embedding what is quickly becoming to be regarded as “Black box” technology into the fabric of their organisations.
Over the longer term, we can see insurers increasingly replacing their front end and back end staff with engineers at a ratio of approximately 4:1 as organisations slowly eke towards creating what will eventually become fully autonomous organisations.
2. Blockchain and DLT
The insurance industry’s interest in blockchain and other distributed ledger technologies will continue to increase and proliferate.
In 2017 there will undoubtedly be an up tick in the amount of insurance led blockchain patent activity, led by the US, and I expect insurers to predominantly limit their activities in this space to engaging with, and navigating, the burgeoning international blockchain ecosystem – especially in Asia, North America and the UK – as well as working with thought leaders in the space, to bottom out the technology’s limits and potential use cases, and its disruptive power for business transformation and re-invention.
Meanwhile, taking a longer view, I expect the first production ready blockchain B2B and B2C applications to appear 2019 – two to three years behind a number of other industries, such as retail and utilities, who already have production applications running in the wild. I also expect these applications to be predominantly focused on improving back-office efficiency, collapsing and simplifying processes and cost take out.
3. Brokers Under Attack
Direct players will continue to gain share with the disintermediation of brokers within the general insurance space unlikely to slow down, and as income from add-ons continues to come under pressure insurers, particularly those without agile pricing models, will find it increasingly challenging to profit in the mass market.
4. Connected Insurance
Many insurers are still busy architecting, building, and re-wiring the digital fabric of their organisations. In today’s world becoming a “digital insurer” simply gets you to the starting line – the point at which it becomes easier for your organisation to broker, integrate and manage new partnerships, ingest and analyse a greater variety and volume of data, and, ultimately, create new connected customer propositions and experiences.
As the depth and breadth of the global connected environment continues to evolve and grow at an accelerating pace, keeping up with it, let alone getting ahead of it will continue to be a challenge for insurers who, it is fair to say will likely remain around three to five years behind the main wave of change for the foreseeable future.
In 2017 we will continue to see insurers invest more time and resources in building and scaling new global platforms and ecosystems – both with peers in complementary markets, as well as with established insurtech start up ecosystems in Asia, Europe and North America.
We will also see more connected propositions hitting the market – ones that not only address risk in a traditional way, but that also try to pro-actively identify and manage emerging risks before they turn into larger claims. While I expect the number of connected propositions to increase I also expect them to remain a relatively small percentage of the marketplace as insurers core systems and governance models continue, for now at least, to slow their roll out and widespread adoption.
Meanwhile in commercial lines we will continue to see an increase in the number of corporations, led my the manufacturing sector, who use advanced analytics to analyse the data streaming from their own connected ecosystems of things and devices. Increasingly I expected that this data, for example — from infrastructure and vehicles to healthcare and security — will help customers better model and quantify areas of risk, giving them several new bargaining chips at the insurance table.
5. Core Systems Replacement
Many insurers remain in a period of intense core systems replacement which I expect to last at least until 2020. Agility and the ability to operate at “Digital speed,” or as some put it the “Speed of business,” will continue to be the primary drivers that influence architecture and procurement choices. These drivers will inevitably lead insurers to favour multi-cloud solutions that can be implemented more rapidly and which can help insurers adapt, respond to, and support new products, new business models, new distribution partners, and new customer demands faster and more efficiently than before.
6. Cultural Shift
Many, but not all, insurers have come to the realisation that in order to embrace and prosper from the opportunities that are emerging before their eyes it is not enough to simply maintain the corporate status quo and operate business as usual.
Insurers, like many other incumbents in their privileged position, are increasingly finding that procedural, structural and technological reforms by themselves are not enough to ensure success in the new marketplace and that they must inspire a cultural revolution in both behaviour and thinking.
In 2017, we will continue to see insurers attempt to refashion and realign their corporate cultures and hiring practises with the new world realities, but these initiatives will likely remain restricted to specific areas of the business that are influenced by, or run by, forward-thinking change agents who have the authority, resources, and vision to push the industry forward.
7. Customer Control
Customers are increasingly informed and the number of options and channels they have open to them, whether that’s a function of an insurers go to market or the type of proposition they’re selling, is increasing.
In 2016 we saw more home insurance customers behaving like motor insurance customers and switching if they were unhappy with the service, or price, they were receiving.
Customers are increasingly getting used to the idea of having more control over their everyday lives and many customers still feel the relationship they have with their insurers is one sided. As customer behaviours continue to morph in 2017 I expect we will see an above average, albeit still incremental, increase in the number of consumers who explore and embrace new models of insurance, as well as insurers who are invested in their communities, or causes.
8. Customer Experience
The majority of insurers have been busy trying to reinvent their customer experience for the past couple of years, however, customer engagement and opinion in this area is still relatively poor.
In 2017 insurers will continue to bolster and invest in their efforts to improve customers end to end experiences – moving away from focusing on individual transactions to building frictionless, connected customer experiences – a key insurtech battleground.
Furthermore, as insurers continue to make progress against their other, inter-related connected and digital transformation goals I expect there to be an overall cumulative net benefit, however, I expect these benefits to emerge with more vehemence in 2019 and 2020.
9. Data Democracy
A buzz word since early 2010 most insurers are fed up with hearing about Big Data and it’s purported benefits. However, the continued explosive growth in data volumes and data sources from today’s and tomorrow’s burgeoning ecosystems of connected devices, things and people, as well as the proliferation of new open data platforms, still present insurers with huge opportunities and tremendous scope for reinvention.
As new data sources, which include everything from nano-scale computer devices and machine vision systems to embedded electronics and genomic databases come online, and continue to mature and proliferate, they will offer insurers and insurtech companies the opportunity to acquire, scrape and analyse vast quantities of data that would have either been to expensive, or too difficult to acquire in the past.
In 2017 we will continue to see insurers invest large sums of money in big data initiatives. Furthermore, as insurers, corporations and consumers alike become increasingly adept at tapping into and interpreting these increasingly ubiquitous data streams we will see the establishment of a data democracy that can be leveraged to increase personalisation and transparency, and which will lead to improved risk management practises and fairer premiums.
10. Digital Transformation
Up to this point, most insurers have taken an outside-in approach to digital transformation, focusing on agents and customers.
In 2017, we will see an increase in the amount of resources that are focused on transforming insurers internal business operations that help to further automate, enhance and support these other external programs.
It is clear that insurtech is here to stay and that is has already made it’s presence felt. With the number of new insurtech start ups entering the market up 46% year on year it’s certain that we’ll see the net number of new entrants in 2017 increase to new record highs and that they will continue to find new ways to compete against and disintermediate the incumbents.
That said, though, in 2016 we saw, for the first time, incumbents Corporate Venture Capital (CVC) investments in insurtech outstrip and outpace that of private venture capital firms. Therefore in 2017, I expect this trend not just to increase but accelerate, particularly in the area of digital distribution. It is also highly likely that we will see more joint propositions coming to market particularly in the B2C and mid-market space and that European and North American insurtech companies will begin expanding East.
Innovation, specifically primary, not iterative innovation, will be the key weapon that helps insurers ensure they remain relevant and at the forefront of the market. However, in 2017 it’s likely that the gap between those insurers who are pushing innovation and re-invention hard, and whose executive teams “get it,” and those who aren’t and “don’t” will continue to widen and accelerate as proactive innovators continue to assess and challenge the fitness of their organisations and product portfolios against the backdrop of a rapidly changing marketplace with an almost religious fervour.
13. Quantum Computing
As the race to create the world’s first commercial, re-programmable quantum computer continues to heat up insurers can, for the first time, see that the potential to perform calculations and complex operations hundreds of million times faster than today’s systems are slowly coming within reach.
In time these new capabilities will give insurers the ability to hyper-personalise their products and services in real time. As a consequence in 2017, I expect to see a small number of insurers partner with some of the fields emerging quantum algorithm companies and begin experimenting with quantum algorithms.
14. Regulators’ Stance
The scale, pace, and voracity of global change is a significant challenge for regulators with many openly admitting that they’re struggling to adapt and keep up. However, as rapid change, and all of the systemic risks that is brings, increasingly becomes the new norm, some regulators, particularly those in Asia, Europe, and North America, are doing their best to embrace it.
In 2017 we will see a rise in the number of regulators who are providing regulator sponsored and funded innovation hubs and sandboxes where insurers can test new ideas, products, and services without the fear of penalised.
One of the biggest criticisms that have been consistently leveled at the insurance industry over the past few years is its pace of change, but then again, the same can be said of many of their peers in alternative sectors.
In 2017, as the insurers continue to invest in transforming their core systems, and re-wiring their digital fabric I expect their pace of change within the industry to accelerate. That said, though, macroeconomic and sociopolitical factors, as well as a changing regulatory environment, will continue to act as anchors.
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Matthew Griffin was recognised in 2013 by the public as one of Europe’s leading emerging technology and disruptive innovation experts. He works with Her Majesty’s Government and Private Sector organisations around the world to help them foresee the opportunities and threats that emerging technologies and trends will have on business, culture, and society at large. Follow or contact him @mgriffin_uk