Digital innovation has already disrupted banking and there is little doubt the insurance sector will be the next to feel the heat, according to a new report by the World Economic Forum (WEF).
The WEF report states that, while financial technology innovation has been changing consumer relations within the banking industry for years, the insurance industry is now a prime target for ‘fintech’ start-ups, due to developments in real-time data and analytics.
The report is based on research across the financial sector, with WEF interviewing more than 100 executives at global financial institutions and fintech start-ups.
Lead author of the report L. Jesse McWaters says that technological competition is well and truly inevitable within the financial sector.
“For decades, banks and insurers have employed similar, highly profitable business models. But they realise an Uber moment may finally be coming to their sector,” McWaters says.
“Financial technology companies are deploying online platforms, have small capital bases and make strategic use of data to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.”
While it has long been foreshadowed that the insurance industry is due for tech-led landscaping, IBISWorld founder and Chairman Phil Ruthven says that insurers aren’t the only ones needing to think forward, but that brokers had better start too.
“Digital disruption is something that you would ignore at your own peril,” Ruthven says.
“Some products have always been very complex and confusing and, to some extent, intermediaries have been at an advantage. They know the field, and they know how to explain it to people.”
“But if the product can be explained to the consumer very easily with interactive software, the role of the intermediary disappears,” Ruthven adds.
While big insurers are expected to take advantage of developments by partnering with fintech innovators, brokers are predicted to suffer a significant loss.
Ruthven reiterates that the corporate sector is likely to keep brokers afloat, with outsourcing insurance decision making more viable in the business arena.
“Finance managers aren’t going to spend their time hunting around for deals. They’d rather go from one broker to another, looking for the best deal, rather than go direct to suppliers,” Ruthven explains.
“But there will still be pressure on margins for brokers to maintain their business, and they will have to be very savvy.”
Ruthven is scheduled to speak at the upcoming NIBA15 Convention on the future of insurance, including challenges and opportunities expected to take shape. The event will take place in Melbourne from 6-8 September and early bird rates are available until 20 July.
Futurist Rachel Botsman discussed digital disruption at last year’s NIBA Convention, exploring ways in which brokers can get ahead of digital competition.