– Felix Schachter, insurance advisory leader at Tata Consultancy Services, believes that the insurance industry needs to focus on customers and the value they can offer to stay relevant in a rapidly evolving market.
– The commoditization of insurance has been happening for a while, particularly in personal lines insurance, and has affected both life and non-life insurance.
Commoditization has been prevalent in insurance for quite some time, predominantly in general insurance personal lines although other segments in life and non-life insurance have also been affected. The forces that have commoditized insurance are now essentially slowing and may indeed be partially reversing.
Up until recently, products seemed to come first followed by how technology could enable them to be delivered and serviced. Today, the starting point should instead be the needs of the customer and what technology and data can enable to meet these requirements at scale and efficiently. In such a challenging low margin environment, the strategic winners will be those that create deep, long lasting relationships with customers by uncovering and meeting their needs.
Technology has advanced to such a level it has become an integral part of the business model. Traditionally, insurers would pioneer an product, develop pricing and establish delivery channels, for example, for home, motor or small business. Startups are increasingly disrupting through focusing rigorously on specific customer requirements, initially establishing a niche and then expanding through the delivery and exploitation of these customer connections. Established carriers should act quickly to avoid revenue loss and market share leakage.
The consequences of these trends can already be seen as the service and convenience levels of carriers like Amazon, Uber and Airbnb begin to impact significantly on the customer expectations of insurance providers. Quite simply, the bar has been raised and the customer is increasingly an informed, demanding shopper. Looking forward, further advances in technology and connectivity will push this competition-led race forward.
Fundamentally, the role of the insurance industry, in any developed country, is to drive and protect the economic viability, growth and security of that nation. This drives a highly regulated environment, particularly as insurers handle huge amounts of customer personal and financial data that must be carefully monitored and controlled. In contrast, other aspects of the value chain have undergone greater disruption driven by technology.