Traditional insurance players are being warned that emerging connected internet technologies pose a serious threat to the industry.
The Capgemini and Efma led World Insurance Report 2016, which covered more than 15,500 insurance customers worldwide, indicates that the insurance industry is heading toward massive disruption.
The continued evolution of the Internet of Things (IoT), combined with changing behaviors and preferences from Gen Y customers, is driving the urgent need for insurers to undergo significant transformation or risk falling behind emerging FinTechs, warns the report.
“The insurance industry needs to brace itself for the massive, inevitable disruption brought on by Gen Y and the Internet of Things,” says Efma Secretary General Vincent Bastid.
“Those insurers who make it a top priority to improve their ability to manage and leverage data and risk will be the most prepared.”
A fundamental threat, or enabler, to the future of insurers is the coming wave of smart home ecosystems, wearable devices and machine-enabled drones, robots, and cars.
These IoT technologies are expected to transform traditional insurance business models.
Yet despite the threat, insurers are significantly underestimating the degree to which connected technologies will be broadly adopted.
Only 16% of insurers think customers will embrace driverless cars, for example, while 23% of customers express interest.
More significant than age, affluence is the most compelling factor in determining customer uptake of IoT technologies.
And those affluent customers are more likely to purchase insurance from non-traditional technology-led firms.
Nearly 31% of affluent customers say they are likely to purchase insurance from technology firms, which increases to 47% for affluent Gen Y customers.
In addition to its impact on customer connections, IoT is expected to have an even bigger impact on the core tenets of the insurance business.
In a connected world, data provided by connected devices, smart ecosystems and wearables will increase risk transparency, a dynamic that will likely affect pricing and risk control.
Risk ownership will also shift as responsibility for actions, for example in the case of driverless cars, moves from car owner to car manufacturer.
The insurance implications and opportunities represented by the IoT will be featured in-depth in the first issue of NIBA’s forthcoming Insurance Adviser magazine, out in early April.