The Real Risk for Property and Casualty Insurers

Irrelevance in the new digital world

Cyber risk, telematics, “digitalization,” and related buzzwords dominate discussions about the future of property and casualty insurance. These are important topics, but they are only the visible manifestation of a deeper and more fundamental threat: namely, that in this new world, today’s property and casualty insurers are becoming irrelevant to their customers.

This threat has been created by three profound changes in the insurance market.

The first big change is around how customers behave – specifically, how they choose to interact with the people, objects, and companies in their lives. This is not merely a question of buying online. Increasingly, many of customers’ most valued assets are virtual (their photos, their music); their business and social interactions are mediated digitally – and their physical possessions and surroundings are increasingly connected. This is a world where people’s hopes, fears, and risks (and hence their insurance needs) are changing fundamentally.

The second transformational change concerns information. Vast floods of information about customers and their true behavior are becoming available. For example, a simple smartphone app can reveal more about how a customer really drives than any motor insurer has ever before known. It will be absolutely vital for insurers to work out how to gain access to these gushers of data, and how to convert them into insight.

The third change is in competition. Insurers are now coming face to face with new types of competitors with stronger brands, better customer relationships, more analytical firepower, and lower costs than the traditional insurer. These competitors are not only the well-known “big beasts” of the digital era, namely the likes of Google, Apple, and Facebook, but also retailers, utility providers, home servicers, and auto manufacturers. For example, the “my first Audi” concept in Germany bundles insurance into a single, low, monthly car rental cost.

The Real Risk for Property and Casualty Insurers