The P&C sector has been witnessing slow but resilient growth in premiums, with the real premium growth rate stabilizing gradually after the financial crisis. However, in 2017, there was a decline of 0.5 percentage points in the real growth rate of premiums and profitability also trended down for the third consecutive year.
Table of Contents
- P&C LandScape
- Enhanced Customer Experience
- Simplified Claims
- Voice Assistants
- Dynamic Coverage
- Enhanced Cyber Risk Management
- Insurance BlockChain
- AI & Analytics-Driven Fraud Detection
- Automation & Real-Time Data Handling
- InsurTech Leading R&D
- Open Platform For Seamless Delivery
The P&C sector has been particularly affected by heavy underwriting losses due to the rise in natural catastrophe losses and overall auto claims costs. Spurred by rapid technological advancements, the industry is coping with a change in customer expectations, in which insurance customers increasingly demand a digital, simplified, and personalized experience. Therefore, insurers must now cater to changing customer expectations to ensure retention and stabilize the top line. Margin pressures brought on by heavy underwriting losses in recent years must also be tackled.
Insurers have responded by leveraging voice assistants and connected devices to increase customer touch points and by providing a variety of value-added services to improve meaningful customer engagement. P&C insurers have also started offering new models of insurance such as parametric and on-demand insurance and have developed sophisticated cyber risk assessment tools to address gaps in coverage and to gain access to new avenues of revenue generation.
Insurers are exploring artificial intelligence (AI), analytics, and distributed ledger technology (DLT) to enhance fraud detection and loss prevention capabilities, improve operational efficiency, and streamline their internal processes. Insurers are also considering strategic partnerships with appropriate InsurTech firms to foster innovation and gain cost efficiencies.
Finally, insurers have begun to open their platforms through APIs for seamless delivery of services to customers and better integration with ecosystem partners. P&C insurers are gradually moving to a digitally integrated, efficient ecosystem, with seamless information flow between ecosystem partners.
Property & Casualty Insurance Industry Landscape
Over the last 10 years, the P&C business has been witnessing slow but resilient premium growth, with real premium growth declining 0.5 percentage points in 2017 to 2.8% as compared to 2016 (Exhibit 1). The decline was primarily related to a slowdown in emerging markets, with 2017’s 6.1% real premium growth rate down 3.7 percentage points from 2016. Meanwhile, advanced markets witnessed a steady 1.9% real premium growth in 2017. Industry profitability is also under pressure, trending downward for the third consecutive year, with sector return on equity (ROE) declining to 5.1% in 2017. The overall combined ratio for the eight major non-life markets1 deteriorated to 101.8% in 2017 from 99.4% in 2016.
The decline was primarily driven by heavy underwriting losses due to rise in natural catastrophe losses across the globe as well as an increase in overall claims costs in the auto insurance sector.
Insured natural catastrophe losses surged to $135 billion in 2017, marking an increase of 165% over the previous year and making it the costliest year for insurers since 1980.
Auto insurance claim loss costs have been increasing steadily since 2012 because of an increase in claims frequency and severity. Claims frequency is driven by increases in miles driven and occurrences of distracted driving, etc. Increased claim severity is mainly driven by rising medical treatment costs and increasing usages of the sophisticated and expensive sensors and other high-end devices in today’s vehicles, which raises repair costs.
Trend 01: Value- added services enhance customer engagement
P&C insurers are offering value-added services to increase customer touch points and drive meaningful engagement.
- Insurers are providing value-added services to customers in the form of easy-to-use mobile apps.
- When combined with core offerings, value-added services can increase interactions with customers and drive meaningful engagement.
- Customers, especially the Gen Y and tech-savvy segment, desire for convenient, personalized services with frequent touchpoints, similar to the experience they get from BigTech firms such as Amazon. Hence, there is a need for insurers to create a new ecosystem around the customer to engage him as often as possible.
- Insurers’ need to increase customer touchpoints to improve customer satisfaction.
- Smartphone penetration and the growing popularity of mobile apps that enable insurers to engage with customers better.
- Increased adoption of connected devices such as safety sensors and telematics are enabling preventive risk and monitoring services.
Trend 02: Connected devices simplify claims and enrich customer engagement
P&C insurers are leveraging connected devices to streamline claims processing and improve customer engagement.
- With today’s focus on loss prevention and control, connected devices – sensor-based devices with the ability to transmit data – are being adopted more often.
- Insurers can leverage connected devices to increase customer interactions and to provide timely insights from analysis of collected data.
- Insurers face rising customer demand for personalized and proactive services.
- The connected device market is growing, with 125 billion connected devices estimated to be in use by 2030.8
- Advanced sensors in mobile phones enable mobile apps to act as connected devices.
Trend 03: Voice assistants make meaningful customer engagement a reality
P&C insurers are enhancing customer experience by leveraging voice assistants across the value chain, including claims management.
- Voice assistants are gaining popularity and user adoption riding on the coattails of successful BigTech and retail giant voice assistants:
– According to a research by Capgemini Research Institute, voice assistants would become a dominant mode of customer interaction, with 40% of consumers preferring to use a voice assistant rather than a website by 2020.13
- Voice assistants have the potential to be a cost-effective and meaningful customer engagement tool with the ability to personalize interactions.
- Insurers’ need for more customer touchpoints and outstanding experience at each touchpoint.
- Advancements in AI areas such as Natural Language Processing (NLP), speech recognition, etc. have led to increased voice assistant popularity:
– The number of customers using voice assistants is estimated to reach 1.83 billion by 2021.14
– The rise in the integration of voice assistants in mobile has increased voice adoption even more.
Trend 04: New business models make coverage for previously uninsured risks possible
P&C insurers are exploring offerings that allow dynamic coverage and insuring previously uninsured risks.
- Insurers can now provide flexible offerings as well as cover previously uninsured risks thanks to the rapid evolution of technology that allows real-time and automated transactions.
- These new models allow insurers to gain new revenue streams as they extend coverage opportunities by closing existing gaps.
- Customers are demanding innovative offerings and acknowledgment of their unmet needs.
- More data is available today that can be used to perform a granular-level risk assessment to personalize insurance offerings.
- Advancements in real-time data capturing and processing systems have paved the way for sophisticated business models.
Trend 05: Cyber risk management supported by sophisticated tools
The cyber insurance market is expanding with the entry of new players and sophisticated tools for assessing cyber losses.
- There has been an increase in global cyberattacks with assaults becoming progressively sophisticated.
- Such cyberattacks have spurred awareness among organizations and increased security spending:
– Worldwide cyber security spending was predicted to increase by 8% by the end of 2018 to reach $96 billion.24
- Cyber incidents are making comprehensive cyber protection a critical business need.
- Vast data is available and can be leveraged to develop comprehensive cyber-risk assessment models.
- Sophisticated cyber-risk management tools are the result of advancements in data processing and risk-modeling techniques.
Trend 06: Distributed ledger technology brings efficiency to operations
Distributed ledger technology (DLT) is enabling P&C carriers to improve operational efficiencies and optimize costs.
- A distributed ledger digitally records static/transactional data – in multiple places at the same time – based on consensus, which imparts veracity.
- DLT-based systems allow information to be stored immutably in a decentralized manner, extending security, transparency, and efficiency.
- Insurance blockchain is projected to grow from a $64.5 million market in 2018 to $1,393.8 million by 2023, an 84.9% compound annual growth rate, according to a Report Linker study.30
- Insurers and ecosystem partners critically need easy and secure data transfer capability.
Trend 07: AI and analytics aid fraud detection and loss prevention
P&C insurers are leveraging AI and analytics to bolster fraud detection and loss prevention capabilities.
- The insurance industry is moving from the traditional risk-transfer model to a risk-prevention model that helps to prevent losses and reduce claims costs.
- 3 to 4% of all claims are fraudulent and carriers that use machine learning report an end- to-end time reduction of up to 15 days for fraud cases, according to a Reinsurance Group of America study.37
- Advancements in AI and analytics enable organizations to process huge volumes of structured and unstructured data captured from multiple sources.
- High margin pressure is forcing P&C carriers to intensify cost optimization and operational efficiency.
- According to estimates, insurance fraud costs P&C carriers $34 billion each year, which is encouraging better prevention capabilities to help reduce margin pressures.
Trend 08: Automation for real-time data handling is on the rise
Insurers are investing in automation of internal processes to improve real- time data handling and offer customers seamless services.
- P&C carriers are increasingly using real-time data capturing tools to build a rich database of customer information:
– According to the World Insurance Report 2018, 18.3% of respondents said they had developed full real-time data collection infrastructure while another 24.4% said that they were building a front-end interface for real-time data capturing.42
- Carriers can leverage automation to gain actionable insights from advanced analytics platforms.
- Ways to deliver seamless customer service, reduce waiting times, and execute error-free processing keep insurers up at night.
- Carriers need systems that can immediately handle and process huge volumes of real-time data that is now available.
- The rapid pace of technological evolution is enabling intelligent automation of systems.
Trend 09: InsurTech firms becoming the industry’s R&D hub
InsurTech firms are becoming the R&D hubs of insurance carriers with a gamut of enabling services.
- Partnership with innovative startups is a tactic to develop desired competencies quickly:
– In the pharmaceutical industry firms collaborate with research organizations and university groups to drive innovation.
- Now, the insurance industry is similarly prepared to leverage InsurTech firms as its R&D hub.
- Customer demand for innovative, customized services is up.
- The cost of establishing and maintaining an in-house R&D center is high, and established insurers’ legacy systems compound the challenge.
- InsurTech collaboration offers a way for faster innovation and technology adoption.
Trend 10: Open platforms deliver seamless services
Insurers are coming up with open platforms and APIs to partner more efficiently with other ecosystem players.
- Open platforms are flexible, facilitate better customization and support from the community, and extend plug-and-play option via APIs for easy collaboration.
- Banking industry is already moving towards open platforms at a fast pace due to regulatory changes and emergence of players with digital ecosystems such as BigTech firms:50
– With BigTech firms also testing insurance waters and the emergence of InsurTech firms, the insurance industry is also gearing toward the adoption of an open ecosystem approach.
- The need for providing a seamless digital experience to customers by integration of data from various sources is driving the P&C insurers to open their platforms.
- Carriers also need to simplify insurance services for customers and make it more accessible.
- Insurers also need to improve data sharing and collaboration with other stakeholders in the ecosystem.
P&C Insurance Industry Evolving Into a Digitally-Integrated Ecosystem
Advancements in technology are driving new and disruptive models in the P&C insurance sub-sector while also gradually reorienting the industry around the customer. P&C insurers will form a digitally-integrated ecosystem with customers and partners to streamline the customer’s entire insurance journey. Thus, rather than customers transacting separately with intermediaries, insurers, third-party vendors, etc., these players will work with each other through integrated, digital interfaces to deliver a seamless experience to customers.
- Real-Time Interaction with Customer using Digital Tools
- Personalized and proactive services using connected devices Customers
- Real-Time Customer Data through IoT
- Continuous engagement through voice assistants
- Value-added services for meaningful engagement
- Sophisticated cyber risk assessment tools
- Fraud detection and loss prevention using analytics and AI
- InsurTechs as R&D hubs
- Insurance Company
- Dynamic and flexible product offerings
- Operational efficiencies through DLT
- Automation of internal processes
- Open platforms and APIs
- Seamless Sharing of Information in Real-Time using Digital Tools
- Intermediaries (such as Banks, Agents, Brokers), Third Party Service Providers, and Collaborators (such as InsurTech firms)
Source: Capgemini Financial Services Analysis, 2018
Insurers are enhancing customer connectedness by enabling anytime/anywhere service access through voice assistants and by raising customer engagement frequency through value-added services. They are leveraging digital tools and analytics to cater to customer needs by providing dynamic and flexible products and highly-personalized offerings.
Technologies such as APIs are enabling insurers to more effectively integrate with partners such as agents and intermediaries, InsurTech firms, third-party vendors for claims, and third- party applications for distribution. This partner ecosystem may eventually expand to include BigTechs such as Amazon as new distribution channels.
Better integration within insurance organizations has become a priority with the help of technologies such as RPA, AI, DLT, and advanced analytics to execute data-driven, automated processes.
In a changing market and ecosystem, it will be important for insurers to build underlying attributes to remain relevant and competitive. They should become intelligent insurers by building real-time data capture and cognitive processing capabilities to derive richer insights for decision making and design of offerings. They should build a deep customer focus to enhance customer access to services and realign strategies to meet changing customer expectations.
With the rising adoption of mobile apps and connected devices by both insurers and customers and with more real-time customer data being stored, data-driven compliance will be critical for insurers. Finally, becoming an open insurer to collaborate effectively with other players will enable strong competitive positioning in the future ecosystem.
Source: Capgemini Financial Services Analysis, 2018