It is no secret that the industry product and service offering has remained stoically unchanged for a long time. While there have been new products and coverages introduced to the market, fundamentally the proposition is the same today as it always has been, other than for some niche, low-volume plays. However, there are glimmers of hope that across the insurance landscape, we can see some potential disruptors to the status quo in both General Insurance and Specialty.
In GI, the advent of pricing reforms – which look to address a well-known market practice of offering a competitive price for new business, while increasing the price to existing customers year on year depending on a customer’s likelihood to renew – came into effect in January 2022. The reform will bring into sharper focus product offering and ancillary services, as insurers will need to compete on more than just price. It will not be an overnight shift, but there are already green shoots at many insurance firms as to how they develop their price and service offering that is not just a pure pricing play. It opens an opportunity for more competition from players that have adhered to traditional market norms but now may have a degree of competitive advantage – for example bancassurers and retailers who can leverage their customer data to offer tailored products.
In Specialty, alongside an expected period of price volatility, insurers will need to look at both their core product and service offering with renewed attention. That attention must focus on gaps created by a change in behaviours since the pandemic and be mindful of clients’ increasing desire for sustainable/low impact products that will help them fulfil their own ESG obligations to customers and shareholders. Increasing competition from new capital entering the market, underpinned by more nimble and data-led capabilities, means a competitive response is inevitable.
The push from big tech companies into the industry will put further pressure on insurers to address their core offerings. For example Tesla now features real-time telematics insurance in some of its models. Premiums are based on driving patterns rather than traditional risk factors like credit, age and claims history used by most traditional insurers. They claim that an average driver with safe driving habits could save between 20%-40%.1 Meanwhile, Amazon has partnered with Marsh to offer affordable product liability cover to small businesses. The threat to incumbents is not insignificant as big tech companies have a sizeable advantage due to a wealth of data, a powerful distribution platform and significant customer base. Insurers need to be on the front foot to maintain and grow market share.
It’s an exciting time for the industry with the potential emergence of new products, new and emerging risks and intangible assets. The Insurtechs-enabled, parametric and event-driven panacea that many predicted a few years ago has not yet materialised, but there is evidence that insurers are getting more capable – and savvy – at offering increasingly customised and data-driven propositions.
Alpha's Key Takeaways
- Be clear on your organisation’s core value proposition – who do you serve and why? If you don’t have clear objectives, it will translate into a generic and commoditised offering. You will end up competing in a race to the bottom on price.
- Once you have clarity of purpose, you need to build a longer-term and modular product roadmap, starting with the ‘customer first, digitally’ as obvious as that sounds. Two-year, multi-million pound product development cycles might be a thing of the past. Developing un-sexy, traditional products will not create long-term value.
- Invest time and capital in your servicing and distribution channels – customer experience is now firmly a hotly contested battleground for insurers.
- Take a holistic approach to partnerships – assess where strategic alliances, for example with insurtechs, would be beneficial along the entirety of your value chain. Harnessing the value of complimentary providers is the smart way to inject business agility into your organisation.
How Alpha Can Help
Alpha is already helping a number of our clients to respond to responding to changing customer expectations and insurance product strategy. If you are facing these challenges, we are more than happy to speak to you and provide our expert insights; please reach out to Alpha here.