Analytics potentially undermines the principle of traditional insurance—that premiums collected from low-risk policyholders contribute to the claims of high-risk ones. That may no longer hold if an Amazon or Google used their world-leading analytics skills to cherry-pick low-risk customers.
McKinsey research shows that effective first movers that digitally transform the business win the lion's share of profits. See "Winner takes most in digital transformation" The remaining traditional insurers are therefore under four major threats:-
- From the current carriers that are digital first movers
- From the new specialists like Lemonade that target niche insurance
- From digital gorillas like Google & Amazon that decide to compete
- From point-of-sale insurers/suppliers e.g. Tesla bundling insurance with new car sales
The answer? the speed with which they digitize existing businesses, using the enormous cost savings and newfound skills in areas such as analytics to drive new sources of growth and maintain profitability of current products and lines of business.
Growth will come from new products fit for a digital age
The global WannaCry Ransomware Attacks show the potential for cybercrime insurance.
Global Supply-chain insurance
facilitated by tracking sensors; farmers in emerging economies already embrace the IoT and sustainability software to improve yields and demonstrate compliance. Are there partnership opportunities for insurers to "embed" insurance in those solutions?. Claims adjusters can use data analytics to determine if weather conditions have damaged crops and once they no longer have to trek to remote locations to assess claims micro-insurance becomes more affordable and profitable.
“Shared economy” products
for car owners who suddenly become cab drivers or home owners who become hoteliers each time they respond to demands from an Uber or Airbnb user are growth insurance markets.
Data- internal structured and unstructured & external real-time and current data - gives traditional insurers the chance to plan the digital transformation to stay number one in specific markets. Luckily for the many player, even the major insurers have a patchy record of success. Strong in one insurance line in UK and the opposite in Italy, or the US, Australia or Paris.
A battle royal has started between today's insurers made fiercer by the new insurtech invaders like Lemonade, innovators like Tesla and the Google & Amazon digital gorillas.
Remember, first movers will steal the profit!
companies that own and analyze data are increasingly powerful. Insurers might have valuable historical data; will they be able to compete with players that are able to gather real-time data from sensors in cars and homes, or from social media, credit-card histories, and other digital records? Knowledge about how fast someone drives, how hard they brake, or what activities they share on social media is arguably more helpful to assessing risk than age, zip code, and past-accident record. And what if those with the data and analytical skills and with platforms that reach hundreds of millions—an Amazon or a Google—not only offered well-targeted, tailored products but also began to cherry-pick low-risk customers? If they do so in significant numbers, the underlying principle of traditional insurance—that premiums collected from low-risk policyholders contribute to the claims of high-risk ones—may no longer hold.