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May 19, 2017

Convergence: The Inevitable Reality

Summary:

Insurers that already possess licenses for different insurance segments must leapfrog in offering converged insurance products.

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The insurance industry is expected to converge soon. It is an inevitable reality. The question is how quickly such convergence likely to happen? The answer is soon. Definitely within a decade. And needless to say, customers are going to drive the next wave of convergence for the insurance industry.

The insurance industry must examine the convergence journey of banking industry closely. Today, banks offer varied converged portfolio of products for customers. It ranges from various account types, deposit and savings products, range of loans, various cards, investments, portfolio services to numerous products as per need of customers. The question is: if today, insurance buyers shop for P&C, life and health insurance products for their needs at different places, why such insurance is not readily available in a converged manner? This is definitely a big opportunity for the insurance industry. Insurers that already possess licenses for different insurance segments, must leapfrog in offering converged insurance products for competitive advantage.

Market and Product alignment: P&C, Life and Healthcare industry

Insurance industry traditionally has been operating differently for property and casualty (P&C), Life and Healthcare segments. It followed such industry alignment as per needs of various buyers since its formation time and historically such alignment continued over decades with minor tweaks as per market demand. The regulatory frameworks were built around an industry structure to protect the interest of buyers and encourage healthy competitions in the marketplace.

Today, the insurance industry has reached the multi trillion dollar in size globally and it is one of the key contributors for every economy serving billions of people in the world. Although there a few handful insurance companies that offer personal, life, annuities, disability, health and other range of insurance products for its customers, such products are typically sold either as separate policies or different business lines under a different legal entity or divisions in a fragmented manner. The overall market is fragmented today in terms of serving the customer holistically. And this is a great opportunity for the insurance industry in offering converged insurance to its buyers.

See also: Model for Collaboration and Convergence  

Why worry about it now? It is an opportunity that cannot be ignored!

Today, every individual or corporate buyer cares for the insurance. It is different thing that many lack understanding of insurance products, few find them too complex to understand and many think companies are not selling or offering the right products for their needs. However, this issue is more related to customer education or awareness and can be addressed.

It is very likely that within a family or household, you may find a minimum of 3 or more different policies for personal, life insurance and healthcare needs that are purchased from different insurance companies. This is definitely a missed opportunity for many insurance companies and shows the poor state of the industry in not serving the customer holistically for their basic insurance needs. The question is not about whether the buyer understand insurance or not, but more about whether insurance companies offer adequate products catering to common/generic needs of buyers. Few people may cite regulatory hurdle, licensing challenges, underwriting/actuarial complexities and operating models as potential bottlenecks in adoption of converged insurance, however such doubts may become irrelevant in case the market start maturing or your competitor’s starts moving in that direction or customers start demanding such converged insurance. It is the time to assess the demand holistically, assess market future demand and measure customer feedback and inputs.

Product bundling as a strategy is certainly good for competitive advantage

Within a household, if we assess the personal lines insurance products that are purchased, one may mostly find that auto insurance is being bought from one insurance company, homeowners from another and travel insurance from different insurance company.

The product bundling is a good opportunity not just within a segment (e.g. Personal insurance within P&C) but it makes more sense to bundle products across various insurance segments (e.g. P&C, Life, Healthcare) to serve the customer needs. And there are many successful companies today, who have been doing it with very positive results consistently. State Farm, Progressive, Liberty Mutual are a few good examples who have attained market leadership position in personal insurance in the United States by offering bundled Auto and home products for its customers for quite some time. Nationwide Insurance has been helping customers with bundling Auto, Life and Home products. Similarly, there many other leading brands globally who have been benefitting from product bundling. For example, in the UK, the market leader Aviva is the first mover this year (2017) in offering the converged insurance and made a formal commitment by merging its General, Life and Health insurance business units across the organization to offer simple, convenient and improved value service to its customers. The shift towards converged insurance is just starting in the marketplace and not very far to hit the industry in a big way.

Convergence of products is becoming more critical in today’s digital age

In today’s digital age, customers are inclined towards digital products that can be purchased seamlessly with ease with some initial research. If the brand is strong and insurance product(s) offer adequate value at affordable price, customers mostly would prefer to buy it from the same insurance company. The days are not very far when many insurers will adopt “one-stop-shop” strategy for serving customer in the new digital age by offering converged insurance products.

It is the right time for insurance companies to start preparing for the new converged world, develop cross functional capabilities, identify changes required in processes, operating model and develop platforms that caters to the needs of the new digital world. Emerging Technologies definitely play a critical role in shaping the new converged digital ecosystem. It also offers an opportunity for IT players, software vendors and insurtech companies develop fit for purpose solutions that can address the need of the new digital and converged insurance economy.

See also: Convergence: Insurance in 2017  

Avoid market distractions: Focus on core capabilities and customer Centricity

Many insurance companies today are concerned about the disruptions in the industry. The influence of emerging technologies, insurtech and sluggish growth are adding to the anxiety of insurers globally. While many insurers are focusing on digital themes today trying to keep pace with digital technologies, few are unknowingly tilting themselves away from their focus for core capabilities. Underwriting, risk management, claims management and customer Service are the core capabilities of any insurance company and they must continually refine, invest and improve these areas irrespective of the state or direction of technologies for its competitive advantage and market leadership. The technology investments and core capabilities, investment must be detached. Any trade off here is harmful in the long term for insurance companies.

In today’s digital age, convergence of insurance is an opportunity for insurers to address the fragmented products and services landscape. Convergence of insurance is inevitable. The market shifts had just started and customer will drive the next wave of convergence for the insurance industry. Are you ready to be part of the industrial transformation? It is right time to think about it as a long term business strategy and distinctive tool for competitive advantage.

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About the Author

Girish Joshi is an insurance industry visionary and a business leader. Over the past 18 years, he has been advising insurance clients in North America, Europe and Asia Pacific across business strategy, consulting, business and IT transformations, technology adoption and related areas.

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