There Are Only 3 Scenarios for Insurers

Incumbents will go out of business, be acquired or reinvent themselves, through one of these six strategic approaches.

Incumbent insurers are facing headwinds in increasingly complex markets, with new distribution models and entrants coming from all corners of the world. Few incumbents have the overview of what’s happening and at what speed, and even fewer have action plans for the market changes.

Looking at the insurance industry players across the continents, they can be placed on the infamous S-curve as leaders, followers or laggards. The position can, and should, of course be seen in the context of the market the insurer is playing in as well as the product lines offered. Bear in mind that digitization and diminishing borders pose significant threats in terms of new distribution channels and business models adjusted to customer expectations and needs.

Uncumbent insurers are faced with three scenarios for their future that are vital to understand to decide the future strategy and direction of the company.

1. Out of business

The worst-case scenario happens when the insurer has been sustaining losses for too long and no longer can meet the requirements from insurance authorities. The insurer has to stop writing business and ultimately must close.

In most cases, the "out of business" future ends with the second scenario, an acquisition.

2. Acquisition target

Declining business and inability to stay competitive makes an insurer a great acquisition target, and combining two insurance portfolios is a great way to create a stronger company.

But that won’t last long. If two similar insurers are merging, chances are that the reasons they merged in the first place will prevail – the larger portfolio will enable the new company to reach out to new customers, but that does not necessarily change the overall competitiveness of the insurer in the longer run. So, the problem resurfaces over timem and the insurer starts losing business again – and becomes an acquisition target in itself. History repeats.

3. Re-invention

All insurers face the grim truth about losing market share caused by market developments, regardless of the current position on the S-curve. Even today’s leaders will be threatened by emerging business models and therefore need to focus on how to stay ahead. There’s a trap here: Leading companies can be complacent and not see or feel the need for change.

To stay as a leader – or to become one – the insurer must understand the current business environment and make a strategic decision on how and where to compete.

If the market isn't overly mature, the first steps to becoming a leader can be simple; matured markets require a more focused and specific market positioning and execution strategy.

In less mature markets, it could be possible to lead the industry simply by creating a leaner and more efficient insurer, offering fast turn-around times and lower prices, made possible by internal process optimizations.

See also: Innovation: ‘Where Do We Start?’  

This strategy would not work in mature markets, where optimized processes and partnerships are nothing more than a ticket to play. In these markets, the insurer needs to reinvent itself and define a new target operating model for the future.

Taking the rise of the mega-platforms and industry consolidation into consideration, there are basically six strategic options for the insurer to choose from:

  • Technology provider, specialized in one or more of the core insurance processes, like claims systems, underwriting tools, customer relationship management, etc. They will provide an invaluable part of incumbent insurers’ value chain in the future – this is the position taken by most insurtechs; a recent study shows that only around 10% of insurtechs aim to challenge the insurers directly.
  • Niche product provider, creating and selling a strong, very specialized product where sheer product expertise is the core competence of the insurer – this product can be sold directly or through insurance platforms and other platforms (e.g. insurance- on-demand products, home insurance through AirBnB, pay-as-you-go passenger protection through Uber, etc.).
  • Boutique provider, creating products and services tailored for a specific segment and sold directly – e.g., personal insurance product suite for pilots sold through pilots’ associations. This is somewhat similar to the niche product provider, but the value provided from the boutique insurer is deep knowledge not only of a product but also of a target segment of users and their specific needs.
  • Raw capacity provider, offering other insurers and startups insurance capacity – this is likely to be a future provider for the tech giants if they enter the personal insurance market. This strategy could be relevant for insurers that follow an acquisition strategy, buying insurers with stagnating or declining business, creating a larger capacity and thus staying relevant due to sheer size and pricing.
  • Underwriting specialist for one or more products, based on high level of data analytics, usage of Internet of Things and artificial intelligence/machine learning – these specialists will provide their expertise to other insurers that are participating in the insurance platforms or as part of a boutique insurance solution.
  • Platform provider, the “Uber of insurers,” connecting other insurers with a wide range of products to a large user base, thus establishing a strong distribution channel – this is the expected strategy of tech giants like Amazon or Google as they already have the user base, creating a very attractive platform for insurers to participate in. It's expected that very few insurers will have the size and investment appetite to create a platform insurer like, for example, PingAn has done

There are still many options for incumbent insurers to become leaders in their markets – and to conquer new ones. But one thing is for sure: If insurers don’t accept and understand the pace of market changes and what consequences they will have, insurers will move from leaders to followers to laggards – and then they’re out or being acquired.

Frederik Bisbjerg

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Frederik Bisbjerg

Frederik Bisbjerg is chief digital acceleration officer at Noor Takaful.


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