Disruption is bringing ever-fiercer competition for the insurance sector. New entrants, new technologies and new business models are emerging at an increasingly rapid pace. Insurers need to focus on both short-term and longer-term opportunities, scanning the horizon for potential risks and disruptions while focusing on innovation to deliver long-term value.
For the time being, it seems unlikely that Apple or Google will make a dramatic entry into the insurance game in a significant way. But other—equally nimble—FinTech competitors are trying to undermine and disrupt the status quo. Many insurers are already feeling their impact.
With almost half of all survey respondents saying that their business models are already being disrupted by new, more nimble competitors, many are clearly concerned that innovation may bring more disruption than value. “Many firms spend an inordinate amount of time simply defending against potential disruptors rather than using their energy to create value for their customers and shareholders by becoming disruptors themselves,” noted Louis Régimbal, partner, KPMG in Canada.
Interestingly, respondents from North America were significantly more likely to say they had experienced disruption than their European peers and somewhat more likely to do so than their Asian peers.
Our survey suggests that larger organizations may be more prone to disruption with just 39 percent of smaller organizations saying they had experienced disruption, versus 54 percent of large organizations. Life and health organizations reported lower levels of disruption compared to P&C.
Some perceived disruptors, however, may actually be partners for insurance organizations seeking to innovate. “We firmly believe that the insurance sector is ripe for disruption; the vast majority of insurance across the world is still sold through face-to-face meetings with brokers doing exactly the same job they’ve done for the last 100 years,” noted Steven Mendel, Ce and cofounder of Bought By Many, a UK-based start-up leveraging social media to target niche insurance segments. “But while we want to disrupt and change the current process, our real focus is actually on partnering with insurance organizations to drive new business and help them build longer-term relationships with their customers. We’re much more of a friend to the insurance sector than we are a foe.”
Increased competition—both from new entrants and from the more agile incumbents—is creating challenges for insurers around the world. Four-in-10 respondents to our survey said increased competition from known competitors would create challenges over the coming two years. Twenty-eight percent said they expected nontraditional providers to start providing significant challenge.
North American respondents seem particularly worried about the threat of new competitors with respondents more than twice as likely as their European-based peers to cite new competitors as a major challenge. Similarly, respondents from the P&C sector were more than twice as likely as their life and health peers to suggest they would face disruption from new competitors.
“Our leadership has their eyes wide open about what is at stake here. But we firmly believe that—if somebody’s going to disrupt our industry—it might as well be us,” noted John Geyer, senior vice president of Metlife’s
Innovation Program.
While North American respondents seem also very concerned about increased competition from their existing competitors (versus new competitors), Australian organizations are more concerned that current competitors will overtake them. And, once again, P&C industry respondents were the most likely to say that increased competition from existing competitors would create short-term challenges, compared with both life and health and composite respondents.
KPMG insights
Innovation can’t be viewed in a vacuum. As your organization is fighting to innovate, so too are your competitors. Strategies must be flexible to quickly respond to shifts in the competitive landscape.
We see exponential change in business models as digital technologies and mobile payments lower marginal costs and weaken competitive advantages associated with scale.
There is no avoiding the fact that disruption is coming. As John Geyer from Metlife aptly noted, if somebody is going to disrupt your business, it might as well be you.
While larger organizations may have more resources to invest in innovation, most suffer from legacy systems and have deep silos inhibiting agility. Larger organizations may face a short-term disadvantage compared to smaller or
newer competitors.
Similarly, more globally diverse organizations may face challenges from disruptive competitors on multiple fronts. Multinational P&C insurers, in particular, may face fierce competition.
Actions
Build flexibility and agility into innovation strategies and processes to quickly respond to new competitive threats
and opportunities.
Analyze your organization’s weak points that could be attacked by new entrants. Develop strategies to defend and protect these lines of business first.
Rather than resisting every new competitor that emerges, consider how you might work with or acquire innovators to improve competitive positioning.
Consider alliances with partners outside of insurance. For example, developments in automotive, technology and telecommunications are changing the nature of auto insurance; working with these sectors could accelerate customer benefits and expand the value chain.
Continually scan the horizon for new competitors and FinTech players that you may want to partner with.
The view from the disruptors
The good side of disruption—Steven Mendel, CEO and cofounder of Bought By Many
Over the past few years, I’ve often been quoted as saying that the insurance industry is due for an overhaul. This isn’t a threat; rather, it’s a practical observation.
The fact is that the insurance sector has changed very little over the past hundred years. For the most part, products, price points and channels have not changed; insurance is still most often sold through face-to-face meetings with brokers.
But with the rise of social media, the availability of advanced analytics capabilities and the introduction of new technologies, it seems clear that the insurance sector must change. Customers no longer want to go meet with brokers and they no longer want generic products. What they want is a tailored experience and product offerings that reflect a deep understanding of their needs and risks.
That’s where Bought by Many comes in. We bring together groups of people that share “niche” risks—such as medical insurance for entrepreneurs or people with Crohn’s Disease who want to travel—and then we work with insurance organizations to find products that respond to those needs.
We’ve already got more than 250 groups that we serve and we have hundreds more in development.
While this may make us seem like “just another aggregator” or a potential competitor, the reality is that we are actually a keen collaborator and partner with the insurance sector.
Our objective is not to find a group of underserved people and then browbeat insurers into low price points. Our objective is to help insurers find and develop customer segments that fill specific areas of business that they want or need to write, and then we develop the right communities to achieve those goals.
For example, many of our insurance partners are currently looking to deal with the new Solvency II requirements that influence how diversified an insurer’s book of business must be. They come to us with lists (sometimes lengthy) of areas where they feel they are currently underexposed and then we leverage social media and Internet searches to build, encourage and deliver the right customer segment to fill that exposure requirement.
And since we have a deep understanding of what makes our groups so special, our business model also allows insurers to build real and lasting relationships with their policyholders. That’s not something that direct insurance or aggregator
web sites can do, but we can.
What we have found is that those insurers who take the time to understand our offering and value absolutely love us and—very quickly—come to realize that some disruption in the insurance sector may not be all that bad.
The article was taken from KPMG’s special publication entitled A New World of Opportunity.
R.G. Manabat & Co., a Philippine partnership and a member-firm of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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