Insurance boundaries redrawn: Where do you stand?

Industry Perspective

Insurance is entering a truly transformational phase — one in which customers, providers and new entrants are collectively redefining both the nature and boundaries of the industry. In an increasingly global society that emphasizes mobility and connectedness, this transformation is being enabled by rapid advances in technology and the ability to tap into new sources of data.

Nevertheless, these changes have not altered the fundamentals of insurance. The basic business premise remains relatively simple, one in which the focus is a transaction between two parties where payment to and by each party is proportionate to risk.

While the mission of insurance has remained unchanged, everything else has changed. Fueled by advances in information technology, greater connectedness and a continuous stream of rich, real-time data, it is now much easier to price and transfer a customer’s risk across the participants in the value chain.

The resulting transparency and openness are driving three major trends that are impacting the entire market. These include a new form of competition, affecting both incumbents and newcomers; greater demand from consumers; and the changing nature of risk. This paper will explore these trends and assess their impact on the market now and in the future.

The changing nature of competition

As technology and new data change the market, brokers, insurers and reinsurers are under increasing pressure to demonstrate value. As a result, incumbent players are being forced to radically redefine their value propositions, transform operating models and complete acquisitions as they search for sustainable growth.

As traditional players strive to evolve, many are looking to insurtechs, a new wave of companies that have amalgamated technology and insurance to explore and exploit new streams of business. Some offer innovative technology to augment traditional insurer capabilities while others are competitors. These include the likes of Trōv, which allows consumers to select the items they want to insure through a phone app, and home insurer Hippo, among others.

Market leaders in other industry sectors have also branched into insurance, such as Walmart and BMW, as well as technology leaders like Google and Amazon. Lastly, new sources of capital from the investment management sector have already garnered 15 percent of the reinsurance market.

Brokers, insurers and reinsurers are now trying to demonstrate unique value in what is still at the core a contract between two parties. Consider too that “simpler risks” continue their march to direct distribution instead of involving intermediaries. This is leading brokers to take on greater underwriting responsibility and increase control of policies — often creating tension with insurers.

Supported by better technology and large amounts of trusted data, brokers are also positioning themselves more as active risk managers and trusted advisers. Thus, instead of carrying out in-person inspections as brokers did just a few years ago, they can use advanced solutions to carry out risk assessment. For example, to determine the risk profile of an oil rig, sensors are used to assess oil flows through the rig and pressure within the pipes, while diagnostics machinery reports on the condition of the rig and pipes and also monitors service intervals.

Industry Perspective

2

The pressure to reinvent their role is equally felt by insurers, who are now seeking greater relevance and engagement with policyholders to extend their value propositions as they compete for the role of trusted adviser. Some insurers are broadening their product portfolios. Others, through new partnerships, are moving away from pure indemnification to risk management and avoidance. An example is the partnership several insurers have struck with Vitality to create wellness incentive programs by offering customers rewards for staying healthy.

Insurers are also heavy investors in insurtech, with 83 percent of insurtech deals now having an insurer or reinsurer as a sponsor. The French insurance firm AXA, for example, has invested in 20 insurtechs, building a range of expertise — from connected health to artificial intelligence (AI).

Reinsurers are also moving to a diversified business model, providing primary coverage in addition to reinsurance and testing the waters in specialty businesses such as agriculture and cyberinsurance. Some are even partnering with next-generation insurers such as Lemonade to reach customers directly. These alliances benefit both the insurtechs, for whom the partnership means not having to come up with the capital to retain the risk, and the reinsurers, who aren’t encumbered with a broker network when working with insurtechs. However, it does take reinsurers into traditional insurer territory.

Increasing customer expectations

Customer expectations have evolved considerably over the past 15 years. In today’s digital world, customers expect information at their fingertips. While sitting on a beach chair with a smartphone in hand, they can now:

• Research any product online

• Consult their online social networks for advice on potential purchases

• Receive automated, tailored suggestions for items to buy based on previous purchasing history

• Enjoy fast delivery — often within 24 hours from the time the purchasing transaction is completed

The insurance industry has not always been quick to emulate this type of experience. But for progressive companies, data from sensors and social media makes possible the real-time pre-rating of policyholders and, when needed, remote inspections can often be undertaken using AI, as the oil rig example shows.

In fact, insurers are beginning to close the gap, with 60 percent of companies now offering mobile self-service capabilities. Insurers are also using existing data to generate a more complete picture of customers, to retain them and offer more services.

But when it comes to more transformational capabilities, traditional insurers are well behind insurtechs. Indeed, fewer than 30 percent of insurance companies are investing in robotics and machine learning, and just 10 percent use sensors, blockchain or wearables.

60% of companies now offer mobile self- service capabilities

Industry Perspective

3

As we look to the future, these transformational technologies will dominate. The market for wearables alone is expected to reach 350 million devices by 2020, according to Juniper Research.

The changing nature of risk

Risk itself is becoming less predictable. For example, increasing global wealth is leading to greater insurance demands as the number and value of insured risks rise, thereby increasing market penetration for property and casualty insurance. This rise in wealth is being driven primarily by the economic recovery from the 2008 financial crash and the rapid expansion of the middle class, particularly in developing nations transitioning to industrialized, urban economies.

We’re also seeing the emergence of new types of risks such as cyber-insurance and the move to new technologies such as autonomous cars and vaping, which will further shift the nature of risk for insurers. Additionally, the risk environment is becoming more complex with the spread of terrorism and impact of global warming.

Natural disasters and market uncertainty have taken a heavy toll on the industry. In the first half of 2017, U.S. property and casualty insurers experienced heavy underwriting losses to the tune of $5.1 billion. And that was before the impact of hurricanes Maria, Irma and Harvey, which with the California wildfires and earthquakes in Mexico, cost the sector $135 billion.

What does this mean for insurers?

With the growing market complexity, how can insurers accelerate their digital transformations and respond to rising customer expectations?

First, insurers must engage customers more thoughtfully, using big data to develop accurate predictors of risk and thereby reduce the number of questions posed to consumers. They must also build a more comprehensive offering for policyholders by, for example, providing value greater than pure indemnification. At a minimum, this should encompass risk advice and mitigation, as well as contract management after a claim. Another step forward to digital transformation can be undertaken by extending core offerings into related markets, such as the expansive global travel market, and by developing a compelling ecosystem on a broad-based industry platform.

Additionally, insurers must embrace simplicity and transparency across their value chains — from the products they offer down to the infrastructure used to run their businesses. Increasingly, simplification will be driven by AI, especially in customer servicing. Predictions indicate that 50 percent of talk time will be with automated systems within the next 5 years, and machine learning and predictive analytics are expected to drive a 70 percent reduction in back-end application incidents over the same period.

This level of change necessitates new partnerships enabled through ecosystems made possible with seamless API integration. And it requires breaking away from the old business model, which was typified by limited customer interaction, short-term buying cycles for life policies and the deployment of outdated, poorly integrated technology.

Risk itself is becoming less predictable.

Industry Perspective

4

A digital connection

So, what are leading organizations doing to deliver a compelling and sustainable operating model?

Most insurers are investing heavily in redesigning their customer experience. There is also a greater focus on data for individual-level customer underwriting and a greater adoption of pay-as-you-use insurance. For example, Verifly provides a business insurance product for the gig economy in a fully mobile manner — offering general liability insurance, ranging from a single hour to an annual policy. Trōv offers a similar service where customers can purchase insurance for defined items for a set amount of time, such as covering a camera during a 2-week vacation.

Others are striving to drive trust and engagement by redefining the concept of insurance pooling or social insurance. For example, Friendsurance, which launched in Germany and has now expanded into Australia, has developed a simple yet revolutionary concept where a group of friends with the same type of insurance can join a mini pool. A portion of the premiums are paid into a cash-back pool, and if no claims are submitted by any member, each person gets a refund of up to 40 percent of their premium. If claims are made, they are paid first from the pool and then as part of the standard insurance claims process. This not only incentivizes policyholders to minimize claims but also creates a stronger relationship between the insurer and customer, making it more likely that those customers will be willing to buy other products from the insurer.

Insurers are also beginning to differentiate on speed and ease, providing fully underwritten term insurance products direct to consumers through online processes that maximize the efficiency of the buying cycle. For example, Ladder provides fully underwritten life insurance online and enables customers to quickly scale up or scale down their coverage as needed. This type of service is driving a new type of customer interaction, with more than 60 percent of transactions conducted outside office hours and 66 percent completed using mobile devices.

Industry Perspective

5

Other insurers are tapping into sensor technology to provide real-time data designed to change behaviors, reduce risk and build stronger relationships with customers. An example is the partnership between Cocoon and Aviva, in which Cocoon provides an AI-powered home security system that learns about the house and its occupants and then sends an alert when an unusual pattern is detected. The objective is to not only reduce risk but also improve engagement between the insurer and the customer, since people typically engage with their AI home security systems daily.

Another technology that insurers are tapping into is blockchain. Buzzvault is partnering with Munich Re to enable customers to digitally catalog and securely store details of their possessions using blockchain to build a digital asset vault.

Transforming the value chain

Because of these and other partnerships, insurtechs have moved from being marginal players to mainstream competitors.

These digital disruptions are transforming the value chain as cross-industry ecosystems emerge. For example, BMW recently chose insurtech Wrisk as its sole insurance partner in the UK, ending a partnership with a traditional insurance company. Now, any insurance sold via BMW or Mini networks is done via Wrisk’s mobile app.

These and other disruptions demonstrate how vital it is for insurers to build new and deep partnerships to stay relevant and grow market share. Partners must be truly integrated, able to consume services seamlessly or offer their services seamlessly back to insurers.

This external consumption marks the start of platform-based services, which are set to become more dominant in the insurance industry and open the door to limitless combinations of services to improve the customer experience and extend revenue opportunities beyond the core indemnification of risk. Platforms, enabled with seamless API integration, will increasingly become more common, and insurers will need to connect — to engage — more broadly than ever before.

To thrive in this new world order, insurers must embrace not only new products and services, but also clearly defined strategies to invest in digital transformation, prepare for future trends, operate more effectively and discover new opportunities.

Industry Perspective

6

Industry Perspective

Learn more at www.dxc.technology/insurance

About DXC TechnologyAs the world’s leading independent, end-to-end IT services company, DXC Technology (NYSE: DXC) leads digital transformations for clients by modernizing and integrating their mainstream IT, and by deploying digital solutions at scale to produce better business outcomes. The company’s technology independence, global talent, and extensive partner network enable 6,000 private and public-sector clients in 70 countries to thrive on change. DXC is a recognized leader in corporate responsibility. For more information, visit www.dxc.technology and explore thrive.dxc.technology, DXC’s digital destination for changemakers and innovators.

© 2019 DXC Technology Company. All rights reserved. CP_1054a-20. May 2019

Get the insights that matter.www.dxc.technology/optin

Industry Perspective