- the re-orientation of economic growth and business opportunities towards new markets in South East Asia, Latin America and Africa
- the challenge of meeting new demands in an environment of historically low interest rates and volatile equity markets
- a range of broader impacts, from extended life expectancy to increasing urbanization, from more extreme weather events to greater use of social media and an increasingly interconnected world.
Against a shifting macro-economic and political landscape, these forces create both opportunities and threats. The insurer of the future will have to adapt to these mega-trends in order to remain competitive, to stay relevant for its customers and accountable to its stakeholders and to create value for its investors. Here we look at one specific strand of these developments: how the intelligent use of technology could be a key distinguishing advantage in this new world.
By comparison with their opposite numbers in banking, insurers have been comparatively slow and unadventurous investing in new technology. However, it will be an increasingly important factor in developing innovative new distribution channels and reinvigorating existing brands on better technological platforms. Three developments seem particularly fundamental:
- cloud computing
- social media
- mobile technology.
Cloud computing affords opportunities to enhance efficiency, flexibility and scalability. It offers potential gains in areas such as speed to solution and widespread accessibility. Transferring applications and processes to the cloud provides an alternative way of delivering technology services which can move insurers' costs from capital to operating expenditures. Although initial investment will be needed in order to achieve this, the long-term benefits can be significant.
One of the most desirable approaches to use is an outsourced model that makes full use of a third-party's experience and allows insurance companies to focus on their core business. Although the level of trust in the 'public cloud' offering remains low, adoption of private and community clouds, where the adopter maintains a higher degree of control, is much more palatable to stakeholders, since the synergies with classical outsourcing are much tighter.
The potential benefits in terms of speedier delivery of technology solutions to market, the increased ability to rapidly establish a presence in new jurisdictions and the promised reduction in technology costs as economies of scale are recognized are clear. At a time of increasing cost pressure and margin constraints, these characteristics are indeed valuable. A KPMG analysis suggests that adoption of cloud services across 75 percent of relevant information, communication and technology spending can yield operating and capital expenditure savings of 25 percent and 50 percent, respectively.1
The centralized management of cloud data repositories can also bring collateral benefits, such as:
- use of a single repository for customer- related activities can increase awareness of all customer touch points and reduce redundant or inappropriate customer communications, saving money and increasing customer satisfaction
- cumbersome and expensive legacy systems can be retired more easily, avoiding considerable capital and maintenance expenditures.
Consumer use of social media – especially, but not exclusively, by the tech-savvy younger generations who are prime targets for new business development – is growing exponentially. The challenge is to harness this trend to build relationships and to deliver products which meet real consumer needs.
Social media is commonly viewed as an additional marketing channel for most organizations, utilizing word of mouth- based interactions to advise potential markets of new products and recent campaigns. However, social media also offers the ability to create dynamic two- way communications between insurance organizations and their customers. This can greatly improve an organization's delivery of customer service.
Social media also provides the platform for customers to self-serve and help each other. By establishing a 'self-help group' that is monitored and managed by the insurance organization, the cost of customer support can be reduced while its quality is improved.
Social media also provides the potential to gain access to an ever-increasing amount of market data, as social media networks provide trend and market information on the growing online and connected generation. Insurance organizations must keep in mind that their own staff will increasingly be users of social media and that they must be the biggest advocates of the organization's offerings and products, which are accessible on these platforms.
Corporate use of social media is increasing rapidly, although it varies significantly by country. In financial services, its use may be limited by regulatory constraints on how financial services firms use new media channels to communicate financial promotions to customers. Such constraints exist in the UK, among other countries. Nevertheless, 74 percent of finance, insurance, business services and communications firms around the world are active on social media.2 And while the pay off may seem unclear, companies that have invested in greater use of social media say it is worthwhile.
Consumer use of smart phones, tablets and GPS technology continues to grow rapidly as convenience, speed of service and ability to compare products are valued increasingly highly. In 2011, 17 percent of respondents to a KPMG survey said they preferred to conduct banking and personal finance transactions (mortgage, stocks, etc.) through phones, tablets and other devices, rather than through a personal computer.3
Mobile payments are gaining an increasing share of the market across Asia, Africa and Europe, with corporate customers adding their voices to calls for more advanced mobile payments solutions. Security of personal data remains a concern. Nevertheless, mobile payments are expected to grow globally by 97 percent per annum over the next three years to 2015, driven by customers' desires to shop in environments that are "always on, always fast and always accessible."4
Insurance companies need to understand that their existing and new market offerings need to be 'mobile aware', from presentation of form factor to speed of provisioning of products on the platform (e.g. just-in-time insurance models), through to enabling payments for policies (e.g. integration with mobile payment technologies).
Insurers that commit to mobile technology have the potential to win two battles: to win the customer and to cut costs – a significant advantage at a time of low investment returns.
For consumers, speed and security of payment will be the mark of success; mobile applications can increase access to entry-level financial services. The winning insurers will be those companies that can provide the richest consumer experience with the greatest convenience. It is also important to note that it is not just the latest smart phones and tablets which make up the channel: legacy SMS and 2G phone services offer some of the only ways in order to interact and access developing markets in Asia and Africa.
For micro-insurance services, this has been a mechanism of choice for many years. With improved technology in this area, the possibility of offering services which were once considered out of the risk profile may now be possible.
For example, in Kenya, Kilimo Salama ('Safe Agriculture') is a type of insurance designed for smallholder farmers so they may insure their crops against drought and excess rain. The scheme relies on mobile phone technology and 12,000 farmers had enrolled as of late 2011.5
Innovative models and products
Innovative models are needed to insure new technologies and emerging risks, such as non-damage business interruption insurance against losses caused by intangible events, such as supplier failure, product recall, cyber attack, loss of patents, etc. We believe that continued innovation by insurers can be pursued much more effectively by companies that have a solid commitment to the kind of new technologies outlined above.
The technology theme is just one of four underlying mega-trends, the others being environment, demographics and social values and ethics, which we believe will determine the nature of tomorrow's insurance industry. As yet, there is no clear consensus as to how these will play out; however, taken together, these trends will have a profound impact. The intelligent insurer should be preparing for that impact now.
- Egidio Zarrella, Clients and innovation Partner, KPMG in China
- Mary Trussel, Partner, KPMG in the UK
- James Mckeogh, Director, Management Consulting, KPMG in China
- Gavin Lubbe, Data and Systems Director, KPMG in the UK
1Modelling the economic impact of cloud computing, KPMG in Australia, 2012
2Going social, KPMG, 2011
3Smartphone and tablet popularity brings maturity of mobile payment marketplace, KPMG in the UK, April 2012
4Kilimo Salama: Farmers in Kenya cash in on new micro-insurance program,October 2011
5Intelligent insurer: Creating value fromopportunities in a changing world, KPMG, June 2012