Revolution! That's not a term most people would normally associate with the insurance industry, given its conservative approach based on stability and long-term operations. And yet its top managers can be heard using this term ever more frequently. Revolution? As in many other industries, such notions are being kindled by the new possibilities opened by digital technology. However, this is merely the prelude to a radical transformation of traditional business models. Once completed, the winners will be the cost leaders on the one hand and the insurance companies on the other that offer more than just insurance policies and combine an extensive portfolio of services with other companies.
The potential inherent in the service revolution is revealed in this Bain study which evaluated the answers of 172,000 insurance customers worldwide, including 15,000 from Germany. The decisive result is that the majority of customers are interested in service networks – also known as ecosystems – for all aspects of cars, owner-occupied homes, pension provision and healthcare. 30 to 40 percent of customers in Germany would even consider changing their insurer for this. And only minority are scared off by the prospect of higher premiums.
Thus, the key to finally resolving the tough problems facing the insurance industry lies in providing more services. Until now this has been a 'low touch business'. Throughout the world, customers usually acquire insurance for a new car, a building, household goods, for medical or life cover, in intervals of only three to six years. And less than half interact at least once a year with their suppliers. As a result, competition is largely focused on the price, particularly in the case of non-life insurance policies, and is now additionally compounded by the penetration of comparison platforms. This is creating a downward spiral. The more products can be compared, the greater the price pressure and the lower the profits.
Insurance companies can escape this downward spiral by building up ecosystems that cover whole areas of their customers' requirements. By offering a wider range of services, they initiate greater possibilities for interaction which enables them to stand out from the competition. Price becomes less dominant as a success factor, and new earnings sources are spawned in return. However, for insurers to exploit these opportunities they must first do their homework and strengthen the loyalty of their customer base.