More insurers facing up to change

“The way consumers are behaving and the way consumers are interacting with insurers is changing,” says Allan Buitendag, leader of the insurance consulting practice at PwC in Toronto. “Those changing behaviours are forcing [insurers] to compete in different ways, and are driving the need for a variety of different changes.”

Of the insurance CEOs surveyed, 58% expressed concerns about shifts in consumer spending and behaviour. That’s a considerably higher proportion of CEOs compared with those in banking (50%) and asset management (44%).

The shift in consumer behaviour is related to the rise of social media and increased availability of information, according to Buitendag. Whereas insurance traditionally has been a closed “black box” in the eyes of consumers, bogged down by complex and confusing features and options, the widespread availability of information online has made it easier for consumers to explore insurance products.

“What we’re seeing now,” says Buitendag, “is an increasingly aware consumer.”

Modernizing

Consumers also have become accustomed to comparing prices and features online, purchasing products and services with the click of a button, and interacting with companies via online channels such as social media. The insurance business has been relatively slow to evolve in these respects.

“Consumers are increasingly interacting with other non-insurance companies that are pretty good at this kind of stuff,” Buitendag says. “Insurance companies traditionally have been a little bit slower to move, and are now needing to make adjustments to their operations in order to meet those needs and remain competitive.”

PwC’s survey indicates that CEOs recognize that some of their practices are failing to meet the needs of 21st-century consumers and are prepared to make the changes necessary to modernize their businesses. A resounding 90% of CEOs surveyed said they plan to change their strategies for managing customer growth, loyalty and retention, with almost 40% of CEOs anticipating major changes in this area.

This is leading to changes in insurance distribution, according to Buitendag. He says many insurers now feel compelled to offer consumers various options in purchasing products, allowing clients to customize their own experience. For instance, some insurers offer clients the option of purchasing policies either directly from the insurer – online, over the phone or via a mobile device – or through an advisor.

The trend of purchasing policies directly from the insurer is occurring primarily on the property and casualty side of the business, Buitendag says. However, some of the more basic life insurance products, such as term policies, also are available online. More complex life and health insurance products, meanwhile, typically are sold through advisors.

“For the simple stuff,” Buitendag says, “the ability for consumers to go direct is going to continue, and probably will increase. For the more complex stuff, though, the role of the advisor is still going to be prevalent.”

Changing consumer demands also are forcing insurers to beef up their technological capabilities. The slow pace at which insurers have embraced technological advances has become increasingly apparent over time, especially as other financial services industry players – such as banks – offer increasingly sophisticated technological capabilities. This trend has raised the bar in consumer expectations, and has motivated insurers to begin making the necessary upgrades.

In fact, 86% of insurance CEOs surveyed said they plan to increase investment in technology over the next 12 months – a higher proportion than for any other commercial sector included in PwC’s survey.

Social media

“There’s a lot of investment going on in technology now,” says Buitendag, “in order to enable more efficient and effective operations, and more advanced customer service, and so forth.”

Insurers also are taking steps to catch up on the social media front, with almost 90% of insurance CEOs saying they plan to strengthen their social media engagement.

Although the insurance industry’s commitment to change is encouraging, the survey raises questions about whether the industry is moving quickly enough to keep pace with the marketplace. Only 15% of those surveyed said they’re planning a major boost in investment in innovation, indicating an apparent preference for incremental change over radical innovation.

Says the PwC survey report: “There is a danger that insurers could be caught flat-footed if they don’t quicken the pace of innovation and development.”

However, Buitendag points out, the stable and long-term nature of the insurance industry, along with regulatory factors, make it difficult for insurance companies to change and innovate: “It is a challenge for insurers to respond quickly.”

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