The bedrock of the insurance industry is quaking. For decades, large North American insurers got bigger by dominating distribution and methodically mastering information technology. But the confluence of changing customer demands, hundreds of insuretech startups and non-traditional competitors sniffing around the business of insurance is messing up the long-standing insurance equilibrium. Insurance carriers--and their agents and brokers--must go digital or go bust.
During the second half of 2016, my fellow Forrester analyst, Oliwia Berdak and I interviewed digital business strategy executives with traditional insurers and hot startups around the globe to get their take on the role that digital will play in the business of insurance over the coming decade. What were the big takeaways from our conversations? Consider that:
- Digital technologies have enabled new insurance models, threatening incumbents. Digital disruption threatens to reduce many insurance companies to low-margin utilities, with limited engagement with or relevance to customers.
- Legacy insurers are struggling to respond. Even though nearly one in three insurers told us in a separate survey that they were in the midst of massive disruption, insurers are being thwarted by their business silos, legacy tech, disconnected business partners, their scramble for skills, legal and compliance, AND the fact that except for auto, other business lines are profitable.
- Vertical integration will break apart. The vertical integration that served insurers so well in the past has become an obstacle to the rapid change unleashed by digitally empowered customers. The insurance value chain will fragment as companies build new partnerships, pursue new revenue streams, and seek new ways to create value for customers.