Buffeted by accelerating technological change and feverish competition, mid-tier property-casualty insurers are entering a period of unprecedented challenges and opportunities.
The challenges come from giant insurers with far more resources and from small, feisty insurtechs whose speed and agility mid-tier insurers cannot match.
But opportunities for mid-tier insurers also come from rapidly developing technologies. Cloud, AI, APIs and microservices, among other innovations, are allowing them to develop new products and services with greater efficiency, speed and variety than ever before. And at lower cost.
As a result, new technologies aren't just allowing mid-sized insurers to better compete with bigger and smaller rivals. Technologies are forcing them to do so.
Here are challenges and opportunities in technology that will change the world of mid-tier property-casualty insurers in 2023 and the years to come:
Telematics. A key battleground for mid-sized insurers competing with larger and smaller rivals involves telematics - a technology that allows insurers to personalize their products based on each customer's driving habits. Data transmitted by sensors in an automobile give the insurer a far more refined and accurate sense of how much, where and how safely customers drive. Comparable products are becoming available for homes.
While telematic products permit some drivers to lower their premiums, more importantly for carriers, the technology allows the insurer to begin a two-way conversation with customers, helping them save money and avoid accidents. It is still early days for this technology, with only about 10% of consumers currently participating and over 50% saying that they are open to the idea of sharing their data to receive discounts. Potentially, this conversation could fundamentally alter the relationship of an insurance company with its customers, reducing traditional tensions and increasing customer loyalty.
Ecosystems. Carriers are recognizing that they can't rely on a single provider of technology solutions. The idea of using a single provider is becoming as outdated in the insurance industry as is the idea of consumers buying all of their software from Microsoft.
While the insurance industry has come to this realization slowly (in the banking industry, for instance, this is old news), it has profound implications for the way every insurance company uses technology. In the coming years, insurers will increasingly depend on ecosystems of providers, seamlessly connected by open APIs, that work well with each other. These ecosystems will help free companies from being locked in to one vendor and its products.
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Direct-to-consumer offerings. Demand for the direct-to-consumer experience has exploded since the onset of the pandemic. A recent study by the Boston Consulting Group found that 75% of potential insurance customers say they will only contract with a company that offers a simple, digital process for obtaining insurance products.
Spurred by new technologies and the COVID pandemic, many car insurance companies have dedicated websites and applications to reach potential customers. However, insurance agents remain an important part of the distribution channel for most mid-tier insurers because these products are often complicated and consumers like having a trusted expert's advice. Insurers must acknowledge that their products will be sold in a multi-channel environment and must invest in all of them.
Automation. Outdated P&C insurance technology infrastructure is the bane of many players in the industry. Legacy systems obstruct an insurer's growth and ability to regulate operational cost, business demands and customer requirements. And as the prospect of harder economic times grows, insurers will be looking with greater urgency to cut costs and increase efficiency.
With advanced analytics, robotic process automation and other emerging applications, insurers today have opportunities to streamline core operational processes such as sales and underwriting. What stands in the way for mid-tier insurers is that the costs of integrating major new systems appear prohibitive in terms of both time and dollars.
Creating products at a lower cost. As the insurance giants and insurtechs offer an ever-wider variety of technically savvy new products, some mid-sized insurers will turn to new technologies to allow them to compete without expensive and time-consuming system integrations.
One such technology is the Platform as a Service (PaaS), a cloud computing model that allows a third-party provider to deliver hardware and software tools to users over the internet. The PaaS provider hosts the hardware and software on its own infrastructure. This frees developers from having to install in-house hardware and software to develop or run a new application.
Take KOBA, an Australian insurtech MGA pioneering pay-per-kilometer personal auto insurance. It has migrated its insurance program onto Socotra, a third-party provider's policy core platform that allows it to scale and introduce products quickly and inexpensively without major system integrations. The platform provides cloud-native capabilities and the flexibility to plug in multiple raters, claims systems and a single platform to launch any insurance product for any geography or distribution channel.
KOBA's vision is to enable mid-sized carriers around the world to sell white-labeled versions of its innovative and tech-driven products, including boat, motorcycle and ride-sharing products, without having to spend the time, money and effort to create these products themselves.
The moment that matters for mid-tier insurers
For decades, large insurers had advantages over their mid-tier rivals due to the cost and complexity of new technologies. Today, we see a democratization of new technologies that can provide them with a competitive advantage. Combine this with their greater agility to introduce products and serve smaller niche markets, and a new environment emerges that gives these organizations a leg up. No doubt, the next few years will see an increasingly competitive insurance market.