You’ve probably heard the old saying about how one goes bankrupt: Slowly, then all at once. That description is equally apt regarding the pace of change in the insurance industry. For decades, changes happened slowly. Now, thanks to globalization, new technology and a host of other factors, new developments are coming at a furious pace.
So how can insurance leaders prepare for the changes ahead? Below we’ve listed three core challenges insurers must successfully address in the near-term future.
Deal with more complex regulatory issues
Insurers have long been forced to contend with vigorous regulations, and that oversight is likely to grow even more strenuous in the near-term future. One example: Insurers must deal with the new U.S. Department of Labor fiduciary standard, which impacts how insurance products are retailed by introducing limits on commission-based fees for insurance brokers and agents. Understanding how to effectively navigate these limits (by securing exemption for certain products, for example) will be a core challenge for those operating in this space.
Changes wrought by the fiduciary standard will present more regulatory issues for insurers to wrestle with. Other considerations include issues linked to the International Capital Standard, Own Risk Solvency Assessments and emerging cyber-security regulations. As always, insurers must carefully negotiate the core regulatory challenge of operating under multiple jurisdictions while staying abreast of evolving rule changes.
Avoid falling behind in the race to leverage data
Virtually no industry has been immune to the profound impact of the data and analytics revolution. Some, however, have been slower to incorporate data-driven insights, and that includes the insurance space. The reasons for this are both technical (entrenched legacy systems, the difficulty of migrating older data) and cultural (much like finance, the insurance industry is cautious and conservative).
Insurers can’t afford to keep one toe in the water any longer, however. Growing competition means that companies extracting the most value from their captured data will earn a decided edge. Forward-thinking firms are harvesting critical information from a variety of sources: wearable tech, social media accounts and telematics, just to name a few. This information helps companies identify risk levels, uncover fraud and target new customers.
As data-driven technologies mature, the value of such an approach will only increase. Thanks to our smartphones, smart home devices and social media accounts, most of us go through our daily lives trailing a dust cloud of data in our wake. Companies that can effectively discern the signal in all that background noise will be in the best position to thrive.
Confront shifting consumer preferences
In today’s always-connected, 24/7 world, most consumers expect products to be retailed in a painless, near-frictionless digital environment. Whether via phone, tablet or website, insurers are expected to deliver a seamless, intuitive experience. Consumers want to purchase products when they want, on a channel of their choosing, with minimal effort.
Companies that deliver this kind of experience will be rewarded with happy and loyal customers. In order to adapt to these new expectations, insurers should:
- Offer transparent and easily accessible information regarding pricing and coverage
- Recognize that many customers now expect near-immediate answers to inquiries
- Use data to better understand customer motivation and desire
By offering an elegant digital experience and understanding modern consumer behavioral preferences, insurers will better serve the needs of existing customers while offering an attractive incentive for prospective clients.
Regulatory issues, the race to leverage data and evolving consumer preferences represent three core challenges for insurers moving ahead. Companies that dedicate the resources to skillfully surmounting these obstacles will be best positioned to compete for business in the coming years.
William has earned an MBA from The University of Chicago Booth School of Business, an MS in statistics from Kansas State University, and an MS in applied mathematics from Southeast University. William and his team provide data and analytic leadership to Catalyst’s clients.