Evolving trends have finally combined to make 2018 the year of digital transformation in the P&C insurance industry.
Currently, only 21% of P&C insurers are positioned to support end-to-end digital sales.[i] With up to 50% of consumers already purchasing online,[ii] and over 40% selecting their insurer on the strength of the digital experience they offer,[iii] time is running out for the digitally-deficient insurers to catch up.
The diminishing runway for digital transformations, combined with emerging trends, may provide the push insurers need to make 2018 the year of digital.
Why Time Is Running Out
In our survey, 73% of insurers have realized consumer demand for digital distribution. These findings are reflective of an overall consumer move toward online purchasing. Retailers responding to reported that 73% of sales now come through their website, with 37% of shoppers purchasing through mobile devices.[iv]
In insurance, a lack of digitally-enabled direct-to-consumer distribution has kept consumers from migrating in the same numbers to online buying, despite the preferences for doing so. While less than a quarter of insurers are currently selling coverage online, Accenture’s study of over 32,000 consumers revealed that 50% of P&C insurance buyers are purchasing through web-based channels.[v]
Convenience is a big part of the equation when it comes to consumer purchasing preferences. By automating much of the quote-to-issue lifecycle, digital makes purchasing fast and easy. As a result, insurers realize increased satisfaction and customer retention that drives up profits, according to McKinsey.
McKinsey also sees benefits in increased efficiency through digitization and maintains that the biggest gains from digital transformations will go to early movers. Their research suggests that a large incumbent auto insurer, for example, could more than double profits over five years by adopting efficiency-increasing digital capabilities now.
Insurers who fail to adapt will face increasing market erosion, as driving risks are mitigated by new safety technology and early digital adopters hold onto market share.[vi]
McKinsey isn’t alone in its predictions. Dr. Robin Kiera, insurance industry influencer, voices similar sentiments.
“To avoid downfall, traditional insurers need to radically put tech in the core of the company – and provide customers with the (mostly digital) products and services they desire and boost productivity and automatization internally in order to stay competitive,” said Kiera.
Tax Cuts and Jobs Act Stimulates Change
With the benefits for first adopters in the digital race clearly established, there may never be a better year for digital transformations than 2018, thanks to the Tax Cuts and Jobs Act (TCJA). Passed in December of 2017, the TCJA promises to reduce the corporate tax rate to 21% and eliminate the corporate alternative minimum tax, while allowing continued deductibility of advertising expenses.[vii]
“Given that property/casualty insurance industry’s average effective tax rate has been in the low 30s, a 21 percent corporate rate is a huge win for us,” said Jimi Grande, president of the National Association of Mutual Insurance Companies (NAMIC).
Bob Rusbuldt, Big “I” president and CEO, agrees and added that “the new 21 percent corporate tax rate will provide significant relief to our member agencies classified as C Corps and allow them to grow their business and hire new employees.”
However, businesses can expect changes in 2027 due to how capitalization is handled under the TCJA. According to Penn Wharton, instead of depreciating capital investments over ten years as former tax laws did, the TCJA accelerates depreciation, at a cost of eliminating allowances later on.
By moving swiftly and decisively into digital transformations this year, insurers will not only gain the benefits of being first movers, but will take advantage of early depreciation. Better financial positioning now, could prepare them to capitalize on future opportunities as technology continues to evolve, and additional operational changes are necessary to adapt.
InsurTechs Ready to Partner
The InsurTech movement, seen initially as a disruptive force threatening incumbent seats in the market, has quietly lessened its perceived threat, largely due to research and a better understanding of InsurTech players.
Mark Breading, partner at Strategy Meets Action (SMA), revealed that 65% of InsurTech startups are solution providers, particularly in the area of distribution.[ix] As a result, Breading says the number of InsurTech-insurer partnerships now number in the hundreds.
According to Accenture, 76% of insurers agree that they will not obtain a competitive advantage alone in the current environment, but rather on the strength of the relationships they forge.[xi] InsurTechs hold the same view when it comes to determining their future.
“Almost all, if not 100%, need to partner with an insurance carrier at some point or become an insurance company to scale,” said Minh Q. Tran, industry influencer and general partner at AXA Strategic Ventures [xii]
InsurTechs are naturally digitally-savvy, an area where insurers struggle to catch up to other industries. Partnerships will help insurers more rapidly achieve digital transformations and move ahead in the market.
The Innovation Revolution Has Begun
According to Erik Abrahamson, CEO of Digital Fineprint, “If 2016 was when “some” insurers started innovating, 2017 will be remembered as the year when “all” insurers jumped on the bandwagon.”[xiii]
Sam Evans, general partner of Eos Venture Partner, believes that the industry is pointed toward an abrupt period of change, predicting a $1 trillion shift in value between innovative insurers and those who fail to adapt.[xiv]
“We are already well past the point of wondering whether tech giants like Google, Amazon, Facebook, Apple (GAFA) and Baidu, Alibaba, Tencent (BAT) are going to enter insurance,” said Evans. “They are already here.”
And they’re bringing with them strong digital capabilities, pushing even the slowest insurance adopters to evolve. With 52% of insurers offering or making rapid progress toward a wholly digital sales process,[xv] lines are being redrawn across the industry, separating the innovative into future industry leaders and leaving the less-digitally inclined to fight over a rapidly shrinking piece of the market.
Do you agree that 2018 will be the year of digital within the insurance industry? What are your views and how are you adapting to consumer demands for digital distribution?
Tom Hammond | President U.S. Operations, BOLT
[i] “Re-Imagining Insurance Distribution.” Accenture. Accenture Consulting, 2018. https://www.accenture.com/us-en/insight-highlights-insurance-reimagining-distribution.
[ii] “The Voice of the Customer: Identifying Disruptive Opportunities in Insurance Distribution.” Accenture. Accenture Financial Services, 2017. Web.
[iii] “Digital Transformation in Insurance.” EY. EYGM Limited, 2017. Web.
[iv] “10 Retailer Investments for an Uncertain Future.” Total Retail 2017. PwC, 2017. Web.
[v] “Voice of the Customer: Identifying Disruptive Opportunities in Insurance Distribution.” PwC, 2017. Web.
[vi] “Digital Disruption in Insurance: Cutting through the Noise.” McKinsey & Company. Digital McKinsey, 2017. Web.
[vii] “What They Are Saying About Effects of Trump Tax Cuts on Insurance Industry.” Wells Media Group. Insurance Journal, Dec. 22, 2017.
[viii] “The Tax Cuts and Jobs Act, as Reported by Conference Committee (12/15/17): Tax Effects by Industry.” Penn Wharton University of Pennsylvania. Penn Wharton Budget Model, Dec. 18, 2017. Web.
[ix] Mark Breading. “InsurTech and Personal Lines: Threat or Opportunity?” Strategy Meets Action, Oct. 10, 2017. Web.
[x] Mark Breading. “InsurTech and Personal Lines: Threat or Opportunity?” Strategy Meets Action, Oct. 10, 2017. Web.
[xv] “Reimagining Insurance Distribution.” Accenture. Accenture Distribution and Agency Management Survey, 2017. Web.