Abstract

The demand for insurance is set to grow, fueled by new risks, increasing digital penetration, and changing customer expectations.

However, incumbent insurers face intense competition from insurtechs, and big tech players, such as Amazon, Google, and Tesla, are threatened with loss of market share. To win in such a hyper-competitive environment, insurers must capitalize on their unique differentiators while assessing and countering emerging competition. Reinventing products and services around customer purpose and preserving customer trust can open the door to transformational growth and help insurers carve a leading position in the future. We examine the prevailing insurance landscape, envision a future state, and recommend actions for insurers in the journey toward that future.
 

Industry overview

During the pandemic, insurers delivered on the trust placed in them by customers.

They have successfully absorbed and recovered from multi-dimensional impacts of the crisis—financial, operational, work culture-related, and technological—and are now in a position to prepare for new growth avenues. Capitalizing on new opportunities, however, will need insurers to examine and address challenges and deficiencies in resilience and adaptability exposed by the crisis.

However, given the prevailing global macro environment, insurers’ focus has shifted to managing the impact of geopolitical risks, inflation, and volatile energy prices. The insurance industry is at a crossroads where the impact of pandemic-induced changes in underwriting, servicing, and claims is juxtaposed with stagnant revenue growth, rising customer demand for digital journeys, lack of adequate digital enablement of advisors, and nascent risks.

The future of the insurance industry looks significantly different. In our view, insurance will integrate into primary ecosystems through new business models, differentiated customer engagement, intelligent technologies, and innovative products and services. The core business of risk management and preserving customer trust will continue. However, the way customers experience them will change, enhanced by pervasive digital layers:

• Risks: The contours and structure of known risks as well as how they are covered by insurers, are changing. For example, aided by technology and customer data, home, health, and renter’s insurance are amenable to better assessment, continuous monitoring, and recalibration of premiums.
  
• Claims servicing: Self-service features on digital and mobile channels empower customers to initiate claims at the click of a button. For example, when there is a burglary, homeowners can share pictures and videos of the break-in with their insurers and initiate a claim. In our view, this feature will extend to other areas of insurance such as health, small commercial, accident, and agriculture in the future.
  
• Customer relationships: The lack of customer engagement during the policy lifecycle, unless there is a claim, is a persistent pain point. Given that insurance is a business of trust, it is essential for insurers to nurture relationships through deeper customer engagement initiatives. This could include educating customers on how to prevent the occurrence of the insured event. For example, telematics-based real-time alerts warn customers of unsafe driving practices. 
  
  

Crystal-gazing

Traditionally, insurers have limited their role to risk protection and compensating losses.

However, they are currently evolving into omnipresent entities in customers’ lives by moving beyond protection into prevention.

Prevention is better than cure, goes the old adage, and who better than insurers to vouch for the truth of this dictum? Insights from new types of data can enable insurers to alert customers of impending loss events before they occur. While this does not come under the purview of conventional insurance, it is undeniable that insurers would want to reduce losses by preventing the occurrence of the insured event.

In our view, it is now time for insurers to transition from their traditional protection mindset and move to the next level of serving the higher customer purpose of value preservation. In an increasingly volatile, uncertain, complex, and ambiguous (VUCA) economic landscape, insurers must help customers preserve the inherent value of what they are seeking to protect. For example, insurers can proactively advise customers to buy an additional policy or enhance the coverage of an existing policy when their family responsibilities expand. From an auto insurance perspective, insurers can help customers preserve or maintain the residual value of their vehicle by offering advice on proactive maintenance to ensure a higher resale price for the vehicle. In a manufacturing plant, in addition to ensuring preventive maintenance for business-as-usual activities, insurers can offer advice on preserving the long-term value of the machinery. In the event of an upgrade, this will ensure a higher resale value for old machinery.

To successfully make this transition, insurers must act across each of the three dimensions of protect, prevent, and preserve (see Figure 1).

_{Figure 1: Protect, prevent, preserve: The way forward for insurers}

Protect: Empathetic, connected, and personalized

Insurers must proactively identify new risks as well as changes in existing risk profiles and cover such risks, for example, reputation loss and bioterrorism. Ecosystem partnerships can enable insurers to introduce innovative and hyper-personalized offerings like usage-based insurance and parametrized claims processing. Insurers must anticipate and cover risks that customers do not expect but may materialize in the future. Examples include offering protection for an unexpected winter freeze or a sudden global epidemic. This will help insurers transform into empathetic service providers and become omnipresent in customers’ lives.
 

Capitalize on the trust built over decades by enhancing and widening the reach of protection services to effectively compete with insurtechs and big tech companies.

To expand the protection spectrum, insurers must participate in external ecosystems, explore partnerships with ecosystem participants, and design new products and services to cover new types of risks and emerging slivers of existing risks (see Figure 2). 

_{Figure 2: The expanded protection spectrum}

Prevent: The promise of security and wellbeing

In our view, the insurer-insured relationship must shift from protection to prevention. This will help insurers graduate from after-the-event succor-providers to active partners in advocating safety and aiding in the prevention of events leading to a claim. To a limited extent, this is happening in the industry—some life and health insurers have pioneered innovative, preventive programs to improve the longevity and well-being of customers. A few auto insurers have harnessed data from telematics systems and advanced driver assist systems (ADAS) to inculcate safe driving practices. Further, some home insurers are embedding IoT devices like security cameras and pressure and temperature sensors into their products to alert customers of impending adverse events. Clearly, this shift to the prevent paradigm opens abundant opportunities for engaging meaningfully with customers and delivering on insurers’ core purpose.
 

Deepen customer engagement by expanding services beyond protection into prevention, leveraging purpose-led ecosystems and prediction models.

To expand into the prevention dimension (see Figure 3), insurers must orchestrate or participate in ecosystems to empower customers to achieve their goals. For example, meeting unexpected medical expenses can be difficult, and it motivates customers to buy health insurance. The primary purpose here is not to buy insurance but to ensure a long, healthy life. 

_{Figure 3: Power of prediction leads to the promise of wellbeing}

Preserve: Value throughout the customer lifecycle  

Insurance is the safety net that protects people from the uncertainties of life, business, and economy, working to preserve the value of protected assets (see Figure 4). Insurers must evaluate and understand the varied dimensions of the value of the object insured. This will entail identifying factors that contribute to retaining their intrinsic value and advising customers on actions that can help preserve value, in turn, strengthening customer relationships. Nudging customers to make lifestyle changes to improve wellness, thereby preserving the value of human capital, is an example of such actions. 
 

Build enduring relationships, preserve and deliver value optimally in ecosystems of customer presence and preference.

A step change to the preserve dimension will necessitate insurers to take purpose-driven actions by leveraging cross-industry ecosystems and unlocking value from the compound effect. The path to value preservation lies in continuously adjusting the strategy in response to shifting customer contexts and tailoring offerings appropriately.
 

_{Figure 4: Preserve value, fulfil customer purpose, and enhance trust}
 

Stepping into the future

We foresee a blurring of lines between insurance and all other sectors.

We expect insurance products and services to integrate into customers’ purchase journeys in third party ecosystems across retail, travel, wellness, hospitality, manufacturing, agriculture and so on, with consumption in the context of primary offerings of those ecosystems. Realizing this future vision will demand mastery over data through an overarching infrastructure with the capabilities to access data, extract insights, and act upon them. Analytical insights can facilitate hyper-personalized customer experiences and enable new distribution models like embedded insurance to expand the scope of protection (insure the uninsured or inclusive insurance). Leveraging technologies such as quantum computing, 5G, large language models (LLMs) based generative AI (Gen AI), and virtual reality will fast-track the journey toward the envisioned future. Insurers will need to initiate action across the following crucial areas:

Customer engagement

A series of positive experiences boosted by continuous engagement will result in strong relationships. This can enhance trust and allow insurers to be present in their customers’ lives across all situations where they can add value.

• Digital-first engagement: Move into emerging engagement channels.
• Seamless digital-physical crossover: Facilitate seamless switchover between channels, eliminating breakpoints in customer journeys.
• Customer purpose: Help customers prevent the insured event by integrating into multiple ecosystems.
• Digital enablement for intermediaries: Build digital capabilities to align with end-customer expectations on service delivery.
• Enterprise enablers: Move IT infrastructure to the cloud while simultaneously re-engineering enterprise applications for cloud residence and nativity to overcome customer journey failures at points of integration.

Business model innovation

Implementing an ecosystem business model is complex. The following critical aspects will need attention:

• New capabilities: Embrace a shift-left mindset to deeply integrate offerings into the products of ecosystem partners early in the design and development cycle in addition to integrating at the peripheral or customer journey level.
• Distribution: Evolve a synergistic distribution model to facilitate the delivery of insurance offerings to customers in their preferred channels.
• Business agility: Expand core capabilities rapidly to capitalize on new opportunities.
• New products and services: Design customized products to cover new types of risk, including both insurance and value-added non-insurance services, at optimal prices to unlock new sources of revenue.
• New markets: Relook at the core product development function to build capabilities needed to foray into new markets opened by synergistic distribution and ecosystems.
• Human capital: Leverage technologies like Gen AI to reduce human effort on routine activities, including decision-making, and redirect human capital in an effective manner toward new growth opportunities. 

Operational effectiveness and efficiency

Aligning future investments and change programs with earlier or in-progress efficiency improvement initiatives is a potent fuel for evolving into an agile, futuristic insurer. Insurers must prioritize investments in:

• Underwriting: Accelerate third-party data usage and touchless claims processing.
• Customer engagement: Curate insights from data and intelligence to recommend next-best actions.
• Interoperability: Enable seamless connectivity between systems of record, engagement, and insight.
• Adaptability and resilience: Extend agile ways of working across the enterprise, moving beyond IT.
• Speed-to-market: Build low code, no code (LCNC) platforms to compete effectively with insurtechs. 
   

Act now or be left behind

The digital juggernaut will continue on its inevitable path.

To hold their own in an increasingly digital-only world, insurers must reset their strategy and embark on a journey toward a future that holds immense growth potential. To make headway in the preserve dimension, insurers must excel in their core capability of rendering protection, expand into loss prevention, and embrace ecosystem business models. The time for action is now—insurers must take concrete, discrete, and sequentially integrated steps that align investments with this future vision.