“Who’s afraid of the big bad wolf?” asks the popular nursery rhyme. While it's hardly surprising that Google is poised to pilot its auto insurance comparison shopping site in Q1, given the hints and speculation, it's still an ominous portent. Forrester analyst Ellen Carney describes this development as having “big implications for insurers.” However, the question this news asks insurers might be better framed as “Who’s afraid of the big bad wolf pack?” For as big as Google is, it is not a lone wolf.
The overarching threat for insurers is disruption of the prevailing distribution ecosystem by new entrants. Speculation about other entrants includes Amazon and Apple, but a host of interested companies—some already active, such as Overstock and Walmart—when considered together have the power to change insurance distribution. Distribution is currently a crowded space of agents, brokers, aggregators, banks, retailers, exchanges, and other parties. A recent Accenture Global Research study quantified the threat as two-thirds (67 percent) of insurance customers who would consider purchasing insurance products from organizations other than insurers, including 23 percent who would consider buying from online service providers such as Google and Amazon.
The Accenture study estimated that $400 billion in insurance premiums could change hands within the global insurance industry during the next 12 months as a result of customers switching to alternative insurance sources. The prize that insurers and distributors are competing for is not the direct margin or the commission percentage alone; it is also the hearts and minds of consumers. It is a high-stakes game in which the customer experience is a trump card. In a world where noninsurers are selling insurance products and insurers will increasingly sell non-insurance products, an escalating struggle over who owns the customer looms.
The question for insurers is do they need to play with these new entrants to retain and grow customers and revenues, or should they go it solo by putting faith in their existing business acumen and distribution channels? In another recent Accenture global survey, 59 percent of insurers expected online service providers such as Google to gain the biggest increase in share of distribution in the next three years, whereas only 26 percent thought the biggest increase would go to independent agents/brokers. Interestingly, a decision either way leads to the same response—become a digital insurer. Only insurers with digital capabilities, modern core systems, and flexible operating models that can adapt effectively to changing customer demands will be able to attract this large number of fluxing consumers. A lot of the newcomers to the insurance industry have proved that they can interact with customers in a completely unmediated way, without an agent, and do it well using a differentiating customer experience.
What is the major hindrance to insurers becoming digital insurers? Legacy systems. As digitization moves through the entire value chain, all channels and processes are affected and legacy core systems are not amenable to digital transformation. Modern, open, and configurable core systems allow insurers to participate in the new business models that are emerging in our all-connected digital age. Fully enabled digital operations help insurers to innovate and compete in an insurance future of far greater micro-segmentation, more individualized data-driven products, and a majority of consumers who are looking for a seamless experience from sales to service.