A question posed by any manager in the insurance market today is how to seek new business opportunities in an ever-changing world that is undergoing a complete technological revolution. This is undoubtedly one of the most intense and widespread periods of social and economic transformation. Effects including digitalization, a new global reality, and recent evolutions in the economic model cause significant changes in the area in which insurance activity occurs.
First, consumers' expectations are changing. The evolution of devices and the increasing use of social networks have led to more active and sophisticated customers who value immediacy, simplicity, and accessibility to search for and find infinite and increasingly more innovative options. Customers enjoy the use of goods without actually acquiring them. They give their opinions and rely on others to make decisions. This motivated a change in how we understanding a business wherein a novel customer approach is required. This view should be changed from a wide-angle perspective overview to one that zooms in on each customer.
Second, there is the issue of "new consumption". The economic crisis has led to shared and pay-per-use services, and this is detrimental to the concept of exclusively possessing assets. The services of the collaborative economy require a sophistication that only a few traditional insurers can provide, namely simplicity and immediacy in use while simultaneous personalization in coverage and requiring payment only for what is necessary. Short-duration and activation-on-demand policies (insurance on demand) and the atomization of coverage (micro-insurance) require profound changes in customer experience and actuarial roles.
The digital talent crisis is the third aspect that should be considered. In 2020, millennials will represent approximately 50% of the active population. In 2025, this figure will correspond to 75% and will represent customers between 25 and 40 years of age, as indicated by the latest report from Fujitsu and PAC consultancy on jobs in the future. Customers will continue to prioritize autonomy, freedom, and flexibility. They will continue to be characterized by their fast and easy adaptation to change, and this is mainly due to the fact that they are digital natives. The remaining 50% of the active population will constitute Generation X. In 2025, centennials will begin to enter the working world (Generation Z). This implies that three generations will always coexist in organizations regardless of the time and percentage associated with each of them. Hence, the key to success will involve comprehension, segmentation, adaptability, and personalization.
Although the insurance sector is characterized by significant changes in recent years, the changes will be even faster and more intense due to digital transformation. Additionally, organizations are facing the most crucial challenge, namely speed. Traditional companies lack the speed to change to enable them to adequately compete in the digital economy. This economy competes in terms of agility and not in terms of size. It generates new environments and new business opportunities where a few digital players have been positioning themselves for several years due to the passiveness of large organizations that are unprepared for a qualitative leap in an environment characterized by constant change and uncertainty. Furthermore, the future is clear. Specifically, we are moving towards a hybrid, technological, and agile organization model.
Digitalization adds complexity to the day-to-day operations of companies in the sector, and thus three regulatory components must be added to digitalization. For example, the IDD Directive will affect the relationship with the regulator and internal procedures. It will also affect investment products based on insurance, exhibit similarities to Midif II ( Markets in Financial Instruments Directive II), and introduce the convenience and suitability test for complex IBIPs (insurance-based investment products) in addition to marketing based on providing sales advice. Finally, it will affect insurance distribution by defining the target market, increasing pre-contractual information provided to the customer, and differentiating between an informed sale and an advised sale.
All the aforementioned factors are added to other factors because the insurance value chain will be affected in the future due to the appearance of more intervening parties, thereby forcing companies to redefine the business model. This includes cybersecurity following the appearance of the cyber policy or an insurance solution to cover potential disasters of a digital nature. Potentially, new offers should consider aspects such as the socio-economic impacts of the public pension system or the aging population.
In this context, it is necessary to consider the entry of new players in the sector. The growth of digital intermediaries is increasingly attractive to technological giants such as Google, Apple, Amazon, Facebook, and Alibaba. Given the development of driving aids, sensor systems, and the development of autonomous vehicles, a few manufacturers including Tesla, Mercedes Benz, and Volvo have already announced that they will insure their own vehicles. Finally, the attractive profitability of the reinsurance business implies that almost a third of the market is currently in the hands of investment funds as opposed to traditional reinsurance entities.
Finally, the new paradigm of the sector poses a dilemma: transparent insurance or service company. Currently, technology enables increasingly accurate risk measurement that can turn insurance into a commodity in the long run. Conversely, users tend to increasingly focus their time and attention on a few brands that act as platforms and points of entry for a whole universe of services. Generally, these entry points include technological giants such as Google, Apple, Facebook, and Amazon.
everis is continuing to evolve the insurance industry because it is aware that this constitutes the beginning of a fundamental stage. This is evident from the latest Insurance Trends 2020 report. A few disruptions that will cause significant changes in the dynamics of the sector include the constant evolution of the market: self-driven cars, DNA tests that identify future diseases, and Internet of Things (IoT) with Blockchain technology to identify cyber risks in real time.