Insurance has long been viewed as relatively stable offering within the financial services sector. Traditionally, people paid their premiums on a regular basis with monies invested for long term gains. Recently though the underlying assumptions, and indeed the very business model of insurance has shifted to the point where it is now being driven to change by a range of challenges:
- Population demographics change where there are far fewer workers per retiree;
- Elevated risks associated with an unfamiliar, post-global financial crisis, economic environment;
- Heightened global tensions and cyber security influence the debate relating to how our data should be shared;
- The accelerated adoption of technology that disrupts current jobs via automation while creating new ones; and
The overall increasing digitisation of the financial services we consume.
The response of insurers has often lagged in response to these market forces. Many Australian insurers now find themselves endangered from overseas competitors who have been early adopters and beneficiaries of digitisation and are now seeking to globalise their offerings.
As an industry, we cannot wait to innovate. This is now an imperative. The real question is: how do we transform in a sustainable fashion to best leverage current strengths to better fit rapidly changing customer needs?
The challenges below are key drivers of change in the insurance industry.
Customer acquisition and retention
Customer loyalty is deteriorating and it is becoming easier to switch between insurers for an outcome that better suits that individuals need. Comparison sites, such as 'Compare the Market' or 'Canstar' are making it easier for customers to compare competing providers and make decisions that better support individual needs. In the face of such developments, insurers are struggling to differentiate, make it easy to do business with, and hold onto their profitable customers.
Cost reduction alone does not confer a competitive advantage and the focus has switched to revenue growth. Yet in developed markets, where organic growth is low and the market is close to saturation, the key battle is for the share of wallet of existing customers at your competitor's loss. This places far greater emphasis on efficiency, flexibility and competence than ever before.