The industry on the verge of transformation, who will lead the way?

Insurance Innovators in Nordics gathered a good number of professionals from insurance sector to share ideas and experiences in Copenhagen in early March. Over 160 delegates from 70 organisations were present for 2 days. Despite this was an event with incumbents, insurtechs, vendors and consultancies, the overall atmosphere was relaxed and friendly. The very senior group of professionals painted a controversial picture of the insurance industry landscape.

Massive changes lie ahead: business model that has sufficed for roughly 350 years has come to an end

There was a mutual understanding that new thinking is required in the very core of insurance business. It was even predicted that, within 5-10 years, unprecedented change will be seen in the industry - and there will be significant winners and losers. These thoughts were mainly rooted in following five key factors:

  1. Ever-increasing customer demands and needs - “what you believe is the target state at year 2025 is actually something that the customers already want today"
  2. Technological advancement - “the technologies are not the future, they are here today”
  3. Shift from products to services, e.g. proactive prevention - "customers do not care about insurers or policies but do care about their health"
  4. Sharing economy phenomena - "taking a step back to the insurance business origins, the social elements are interesting again"
  5. New entrants to the market - "there are now captives, international players, tech giants and insurtech players in the same playing field"

On the other hand, on a much more positive note, traditional insurance companies are pursuing new ideas and developing themselves on multiple fronts. Core system updates are being conducted at virtually every major insurer to break the decades old silos in the organisation and, of course, to shift towards more rapid development and efficiency. Related to the changes in the legacy systems, plenty of organisations are shifting gears in the development efforts by swearing in the name of bi-modal (or 2-speed) IT. We even saw some insurers take this to the next level, towards organisational agility where there is no separate IT function but the development is driven only in cross-functional teams/organizations. This may well be a way to go as the bi-modal IT, or any such development, is often just a bridge phase in the transformation as there are plenty of trade-offs required to enable the speed that may not be sustainable in the long-term. So far we have learned that such drastic change in the mode of operation, outside IT as well, requires enabling the so-called big wheel of change, and not only building isolated speed boats, to try out and embrace modern ways-of-working.

Outside core system improvements, pricing and underwriting are still seen as vital elements in insurance business yet the level and the speed of the analysis is likely to change – and maybe separate winners from losers in the future. The new opportunities are brought by for example advanced analytics, including artificial intelligence capabilities, and Internet of Things. This has implications for the processes, products and especially customer interfaces.

Insurers want to take a leap to get closer to the customers

This was the message all incumbents were sending. However, there are some issues there, stemming from the very fundamentals of insurance concept. The coverage is almost always not something that people wish to deal with or not sexy in any way. New thinking around the customers’ motivation and desires was indeed noted, and some alternatives pointed out as well. Perhaps nothing completely new if considering other industries but putting a stronger emphasis on customers’ emotions and fundamental needs was offered as an alternative approach to pure numbers and statistics game. For example, it was realized that people do not evaluate risk in a logical way - the decision must feel good above all. Moreover, an interesting idea was to turn the customer relationship basically upside-down and aim to become a “loyal company” instead of trying to get people to become loyal customers. We strongly believe in putting customer first in the transformation efforts, yet the traditional business issues should by no means be forgotten. The new customer centric services should always be bolted in the long-term vision of the companies and commercially viable.

The most controversial topic was the collaboration between insurtechs and incumbents. Others thought that they are the key to success in the long-term, to bring about innovation and cost savings among others, where others believed insurers should not mix with them. Obviously both views could be argued for and against. As incumbents are confronting ambidexterity issues, where simultaneously trying to build something completely new while maintaining existing business, insurtechs can offer interesting possibilities. A traditional challenge with insurtechs from incumbent’s perspective, however, is to find the right customers as so far they’ve been able to attract too many of not-that-profitable ones. Insurtechs themselves see plenty of opportunities in collaboration yet the entry barriers are huge from their perspective, talking about for example required size, legislation, balance sheet, trust issues, among others. As seen previously in other issues, a good guess would be that the insurance industry will follow the example set by banking sector, where Open Banking and collaboration in financial services ecosystems is the major trend.

The question is whether insurtech and other possible market entrants are considered as an opportunity or threat

In the end, it seems that the atmosphere in the insurance business space is somewhat waiting. Maybe it’s due to time needed in the technical advancements maturity or taking a breather and fixing internal issues (larger business transformation) after putting quickly together the digital customer interfaces in sales, marketing and customer care. Or then, being risk-averse by tradition, everyone is waiting to follow the first mover. That being the case, insurers should be scanning a wider landscape as the game-changer might as well come from outside the usual suspects (e.g. tech giants), and in that case this could indeed be calm before the storm.

At BearingPoint, we are in the sweet spot to support insurers in industry transformation. By combining our strong industry knowledge from insurance and banking sectors with our forerunning approaches to digital culture transformation, partnership strategies and new business development we believe we can help insurers take the necessary leap towards digital and customer needs-driven world.


Aki Alanne, Manager, Digital & Strategy