The UK insurance market is often said to be one of the most competitive and innovative markets in the world, in the past the most successful innovation I have seen is distribution with the rise of price comparison websites (PCWS) and then product, with telematics.
PCWs have been so successful that it’s difficult to see a time in the future without price comparison websites. But with expense ratios creeping up perhaps the era of cheap PCW distribution is over? There are certainly some green shoots that could challenge the PCW's model. They have dominated the market for the last 20 years, and a change is long overdue in my opinion.
Here are three trends that I’ve seen lately:
1. Embedded insurance.
Embedded insurance is not new in its true form (insurance cost is included in the retail price), and has been around for as long as I can remember. Common examples are hire-car & manufacture warranties. We could loosen the definition to include Partnerships/Affinities where the insurance product is sold as an ‘add-on’ at the point of sale (e.g. extended warranty, or the ‘driveaway cover’).
Today, embedded insurance is a hot topic, and I see it increasingly becoming the go-to ‘start-up’ proposition amongst MGAs. Even, incumbent insurers have started to take a serious look at propositions. However, they appear to be a step or two behind the global re-insurers (e.g. Swisse Re, Munich Re) & fronting carriers (e.g. Wakam, Accredited). As successful as their business model has been so far by supporting MGAs to succeed usually in a niche segment and then expand. That looks to me like a standard Partnership/Affinity. Perhaps the golden challenge of insurance included in the retail price remains a step too far.
I think to meet that golden challenge it would involve a radical redesign of how pricing and underwriting work. Which is possible with today’s technology.
2. App/point of sale integration
Digitalisation (#SEO), to me, is much more than simply being able to sell and service the insurance product ‘online’ with a web portal. That is just an expectation. For me, digitalisation is how the business works & interacts with the customer. In its simplest form, it’s having your app with chat and call features. The next step is to provide the customer with useful feedback or rewards i.e. it’s a reason to have the app beyond the purely transactional touch points. It is the reason why a customer should engage with you. This is digitalisation, the aim is to move the customer perception of the company to be digital. But the point where digitalisation becomes truly groundbreaking is when the services can be embedded anywhere – that way they can work at point of sale, wherever the opportunity is.
I think today that is certainly possible. The traditional core insurance system can be broken up into modular parts and configured to meet the requirements of disparate distribution channels. From billing, document creation, databases, and the pricing and underwriting engine - each one can be a modular, isolated system enabling the insurer to sell and service customers anywhere.
3. Product differentiation
Sadly, product innovation in insurance has been lacking. Distributors have embraced change, while insurers have focused largely internal processes to manage expenses and not focusing on customers' needs.
But, to my delight, I am seeing a desire for product differentiation. There are some early shoots of a different type of motor insurance product, with telematics starting to be seen as a Customer engagement tool and not a pricing and underwriting proposition (finally!), and Home insurance is starting to look different with parametric insurance, and what looks like a successful (re) launch of Smart-Tech home insurance.
Quite simply, product differentiation is probably the simplest way an insurer can win, even on a PCW.
Today’s technology costs, capabilities, and access to data make it a lot easier to build and distribute an insurance product. With a bit of imagination, insurance may start to compete on something other than price, and then pricing teams can work wonders with margin management and distributions starts to drift away from PCWs.