Why the insurance industry needs to rethink its value proposition

The fundamentals of the insurance industry are beginning to change. The new insurance ecosystem could unlock enormous value.

The insurance industry is beginning to take a complete turn. Just like 100 years ago, when this industry as we know it today was in its infancy, new industries are emerging that require new policies, services, and approaches to managing and transferring risk.

An essential driver of this change is that many of today’s most valuable companies do not depend on physical assets for their market value. Their balance sheets are heavily skewed towards traditionally uninsurable intangible assets such as intellectual property, data, branding, and reputation.

The insurance industry has started to respond to this change, particularly with cyber insurance, where the number of covered organizations has increased from 34% in 2017 to 47% in 2019 (pdf). But insurers continue to struggle to find solutions that respond to their clients’ need to protect the value of their brands, their reputations, and their intellectual property.

This poses a challenge to traditional insurers – already finding their business models threatened by the rise of InsurTechs and other innovative new operators – in order to help protect these increasingly important intangible assets. But it is also an opportunity to redefine the value proposition of the insurance industry.

For centuries, insurers have viewed their primary goal as helping clients recover from losses. This has led the industry to worry that if its customers have fewer problems, they will buy less insurance. This attitude – and the value proposition – is not sustainable in the modern industrial and commercial world.

The purpose of the insurance should also be to reduce the likelihood of loss for your clients. After all, companies would rather avoid losses in the first place than be compensated for them.

The case for a new insurance value proposition

Delivering a service that prioritizes risk prevention will require a major change in the way the industry has traditionally viewed its value proposition. Insurers would have to rethink their role, the value they can bring to customers, and how to really leverage their data to help reduce risk and prevent losses.

Despite customer expectations that insurers’ products and services work for them in a personalized and data-centric way, commercial insurance organizations continue to sell annual products based on widespread trend data. Therefore, the basic insurance product is designed to cover a general representation of probable risk and not of the specific risk that the insured actually faces.

Don’t think of an insurance product as a product that you buy simply for its price; It should be a service solution that is purchased on a perceived value basis to reduce risk and manage loss.

To improve their product offering, the next series of insurers will need more robust analytics and data management systems that allow information to be shared efficiently and quickly.

This real-time data already exists; insurers only have to take the necessary steps to access, analyze and use them. By applying data analytics and AI across multiple functions, from underwriting and claims to marketing and distribution, insurers can make better and faster decisions on things like dynamic pricing for clients.

For example, we recently worked with one of the world’s leading shipping companies to provide insurers with usable real-time data on the position and heading of a vessel, allowing it to accurately price premiums in real time. and automate endorsements.

This dynamic pricing structure allowed the shipping company to accurately pass costs on to carriers and ship owners, whose risks it manages.