The insurance industry in Australia is one that is dynamic and has great potential for growth. Here are 10 trends that insurers would do well to keep an eye on:
Having seen the first wave of digital through, there is a need to prepare for the next wave. C-level executives of general insurers have ensured that digital transformation has been a part of their strategies. This has sped up investment in much needed basic capabilities such as seamless interaction between channels, data and analytics, mobile apps, cloud and more flexible ways of working. This in turn has given rise to their organisations being more agile – with a greater customer focus that has paved the way for bespoke products, better customer experiences and much greater operating efficiencies. Today, insurers need to further transform into a truly connected enterprise by joining their front, middle and back offices digitally.
New start-ups that target lucrative segments of the industry have been quick to take advantage of the profitable trends including new technologies and the ever increasing demands of customers. The sluggish response by the incumbents, easy availability of investment funds, high degree of agility and flexibility in operations are transforming the industry. While most insurtechs began with a passion to be big time disruptors in the field, their trajectories have been tempered by the realities of regulatory requirements, capital management norms and the challenges of breaking through a traditionally hyper cautious segment of customers. The call today is for insurtechs to reconfigure themselves as enablers of all customer centric creativity and innovation in insurance and to align themselves with the incumbents to bring about a lasting, positive impact in the sector.
While blockchain projects in the financial services and insurance sectors have developed many proofs of concept and pilots across the entire value chain, it is expected that blockchain will evolve mainly in line with these three trajectories:
- Graduating past the proof of concept – The coming years will have segmented projects across claims management, reinsurance, know your customer and marketplaces that move one piece at a time into production and then begin to reap the benefits of blockchain.
- Internet of Things enabled automation – With the coming of age of sensors that are IoT-enabled and new technologies that facilitate real-time monitoring, blockchain is going to see greater use in automated updates, validation and trigger and alert mechanisms for insurance related events.
- Insurers as participants in the blockchain ecosystem – There will be more opportunities for insurers to join the ecosystems of trade, finance and supply chain traceability using blockchain and deriving value from real-time trusted data.
4. Artificial Intelligence and robotics
The use of AI and robotics will allow insurers to carry on their business with about 20% of the workforce that is required by traditional insurers. Machine learning has given insurers the ability to stay ahead of the curve of insured risks and allows them to actively prevent and manage their risks. Connected devices allow customers’ individual behaviour and actions to be automatically monitored and analysed in real time giving customers a never before insurance-as-a-service where customer actions will be rewarded, got less risky actions or penalised for actions that are more risky. Insurers today need to think out of the box and harness the emerging technologies of AI and robotics to reengineer and reposition their products and services to meet the growing demands of their customers.
Having been pampered with the best of customer centric features as a result of emerging technology by a host of other businesses and products, the insurance customer today expects no less from their insurer. Customers today expect insurers to be completely in sync with their preferences, circumstances and way of living. Customers want immediate, one-click and always available access to a highly personalised experience based on their individual context. Customers demand a seamless engagement with the insurer throughout their engagement – right from first contact to purchase a policy and through every claims experience. Insurers need to be agile and flexible in order to ensure that they are prepared at all times to meet and exceed the demands of their well informed and aware customers.
6. Climate change
There has been a growing trend of climate related losses around the world and in 2018, these losses reached $US 76 billion according to the annual catastrophe report from Munich Re. Although, still below the climate related losses incurred in 2017, this is clearly going to be the new normal. An analysis of climate related losses shows a clear trend of moving from a small number of large natural events that brought about heavy destruction to a higher frequency of severe localised climatic events causing high levels of damage. It is critical that insurers continue to play the principal supporting role in helping communities recover from catastrophic natural calamities, and to proactively help customers and communities improve their resilience to severe climatic events.
7. Cyber security
The cyber threat environment continues to be a challenge to all industries. Many countries and regions have passed stringent laws governing cyber security. The recent EU General Data Protection Regulation (GDPR) passed in May 2018 is one such regulation. With penalties that run into millions of dollars for serious or repeated non-compliance, this is a serious additional concern for insurers. For example, the GDPR states that serious infringements of its requirements may be punished by a fine of whichever is greater – 4% of annual worldwide turnover, or €20 million ($32 million). However, regulatory fines are only one of many costs associated with a data breach. The other costs associated with breaches of data could be far-reaching and include legal and litigation fees, business interruption, remediation, public relations, customer compensation and notification costs. The call for insurers is to ensure that the risk of a cyber security breach is transferred through the utilisation of an appropriate cyber insurance policy.
8. IFRS 17
There continues to be extensions to the implementation of IFRS 17 Insurance Contracts as the proposed changes to the Standards were exposed and then widely commented upon. IT is expected that the International accounting and Standards Board (IASB) will reconvene and after further deliberations, finalise the road ahead. The delay in this implementation gives insurers a clear extra year in which they can proceed to further develop and strengthen their implementation plans without having to rush it through at breakneck speed. With the gap that has now cropped up, it is imperative that insurers do not lay back and wait for the imposition of the new Standards, but rather, keep the momentum going and not lose sight of the global standard that will help them to implement a standardised comparability and transparency of reporting.
9. Regulatory agenda
The recent report from the Royal commission into Misconduct in the Banking, Superannuation and Financial Services Industry put out 15 regulations that are relevant to the core areas of insurance. The Government then went on to announce its intention to ensure that each of the recommendations of the royal commission was implemented. This has set up an ambitious regulatory environment for insurers to comply with. With the critical focus on identifying and addressing potential causes for harm to consumers, the regulatory agenda touches all aspects of the relationship and the interactions between insurers and their customers. This includes selling and distribution practices and methodologies, pre-contractual disclosure obligations, the claims handling process and ensuring that the contract terms of insurers are just and fair. In the fast changing regulatory environment, those insurers who are agile and who can display the flexibility to quickly and efficiently embrace the regulatory changes that are mandated from time to time will be the leaders in the field and therefore the ones who stand to gain the most.
10. Investment returns – low interest rates
In Australia, interest rates have fallen by more than 80% since 2011 In 2019, the official cash rate fell from a high of 4.75% to a low of 0.75%. Similar reductions are seen across the yield curve. As investment income for the insurance industry includes income on all asset classes and capital gains income, there has not been an immediate downward trend in the cash rate. This is because it takes time for the assets to mature and then be reinvested. And this leads to a lower interest income only after the new money is reinvested. However, the trend is all too clear – lower interest rates are here to stay.
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