The future in insurance (Part 3/3)
This cycle, dedicated to ‘the path to the future in insurance’, is thus complete, after describing the generic trends in the first article and the internal changes of insurers, addressed in the second text.
The increased presence of FAANG
The big technological giants, especially Amazon, Apple, and Google, have been carrying out projects and establishing partnerships in the insurance industry with the aim of improving their business models. Note the following examples:
Google’s strong, widely publicized investments in the development of technologies to support the insurance industry. It is, for example, the case of the Nightingale project, through which the data of millions of North American citizens are obtained and processed.
The importance that Apple products already have in several branches of insurance, namely in health insurance.
Amazon’s partnerships with several players for the development of price comparison platforms, or the “insurance digital storefronts” project, developed in partnership with Travelers, already in production in several North American states.
But, more revealing of the interest of these organizations in the insurance market than their individual initiatives is the “Connected Home” project. It is the establishment of a protocol between the ‘personal assistants’ Siri, Alexa, and Google, which ensures their mutual compatibility. In this way, the services developed by each of these companies are available to customers on the other platforms.
Competitive advantages, especially in the simplest “bare-bones” insurance, aimed at young ‘digital natives’, are thus becoming increasingly exclusive to these technological giants.
Regarding other customer segments, with more complex and sophisticated needs, FAANG does not (yet) have arguments that make them a direct, short-term threat to traditional players.
Social and environmental activism
The theme of ‘sustainable development’ is essential in the management of insurance companies, in any line of business, regardless of their size. As leading institutional investors, insurers are obliged to publicly demonstrate their orientation towards promoting social and environmental sustainability factors.
In Europe, the Action Plan “Financing for Sustainable Growth”, established by the European Commission, clearly determines the path that must be followed, in terms of redirecting capital flows towards sustainable investments.
But also the themes of diversity and inclusion are increasingly present in the reality of insurance companies. Various reports (e.g. the IIC’s “Achieving an inclusive working environment”, among others) reveal the path that insurers need to take in areas such as the integration of people with disabilities or gender equality.
The co-leadership of the United Nations initiative for sustainable development, assumed by Allianz CEO Oliver Bäte, is just another (good) example of the degree of involvement that is now required of insurers and their stakeholders.
Universalization of the industry
The worldwide insurance market, especially in the non-life lines, is expected to continue to grow in real terms in the coming years. A relevant part of this growth has its origin in developing economies. The Asian and Latin American markets, in particular, are expected to register growth rates 300% higher than those of developed economies in the next decade.
One of the reasons for the growth of the insurance business in these regions is microinsurance. This approach has allowed many millions of people and small business owners, who had never taken out any insurance, to be currently taking out their first policies.
Microinsurance is based on extremely simple products, geared towards meeting very specific needs, and is therefore very cheap. Their very low price makes them accessible to broader segments of the population. By significantly increasing the number of underwriters, they dilute the risk, thus becoming even cheaper and, consequently, more comprehensive. It is this virtuous cycle that has made it possible to transform insurance into an increasingly universal product on a global scale.
Another example of the growing and unstoppable globalization of the insurance industry is the creation of PEPP, a truly pan-European individual retirement product, currently being regulated by EIOPA. PEPP is a complement to national pension schemes, expanding the range of savers’ choice with regard to their voluntary savings for retirement.
For insurers, PEPP is both a great opportunity and a real threat. It is an opportunity as insurers now have an innovative savings solution that allows them to retain current customers and attract new customers. But it is also a threat to insurers that do not prepare for this new reality, given the ease that many new competitors, from across the European Union, will be able to enter new geographies and win over customers of the slowest insurers to adapt.
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