With digital-savvy millennials now the world's largest population segment and Gen Z following in their footsteps, Canadian insurance companies must rethink their business and harness big data to drive growth and profitability, finds a new KPMG in Canada report called Insurance frontiers: Here to horizon.
"The insurance industry will look radically different in 10 years from how it does today," says KPMG's Chris Cornell, Partner and National Insurance Sector Leader. "Forging a new path won't be easy; insurers must digitize their operations, products, and processes, and use data-driven insights to address this seismic shift in customer dynamics. The one-size-fits-all approach won't work anymore."
As many as 86 per cent of chief executives at insurance companies around the world surveyed by KPMG are concerned over how millennials will change their business. Millennials aren't following historical norms in terms of predicted life paths or milestones. Also, 84 per cent of Canadian millennials don't trust traditional advertising and 95 per cent say the most credible source of product information is their friends.
Data allows insurance companies to know their customers in ways not previously possible, the report says. Big data can be used to inform assumption setting, better understand risk drivers, anticipated behaviours or events, make quicker underwriting decisions, and support strategies and decisions.
By using data analytics, social media listening, and artificial intelligence, insurance companies can make every customer 'a segment of one' with personalized care and customized insurance products, the report says.
"From the moment we're born to the moment we die, we generate an enormous amount of data," says Mr. Cornell. "Big data can open up new horizons for insurers. But, they must put into place much stronger data collection and analysis tools. This requires a total rethink of how to collect, store, analyze, and use data, not to mention how to ensure that it's kept safe and secure."
For example, by using data for predictive analytics, insurers can create more tailored, micro-insurance products to help companies better understand, manage, and respond to their unique risks, such as reducing fleet insurance premiums.
Released at KPMG's 28th annual insurance conference in Toronto, the report delves into five key trends that present risks and opportunities:
• Seismic shift in customer dynamics
• Business model disruption, innovation, and technological change
• Focus on strategic alliances and partnerships
• Game-changing regulations
• Building a future-forward workforce
The report notes that while insurtechs have ratcheted up the pace of change, many are focused on enhancing or improving a segment of the insurance value chain rather than trying to disrupt the entire industry.
"Strategic alliances present a massive opportunity for Canadian insurers," says Mr. Cornell.
Insurance companies would benefit from stepping back and thinking about what the insurer of the future looks like without considering their current organizational structures, he says. "By envisioning what is possible, insurers can look at how third parties and strategic alliances could help them achieve that vision," he adds.
When it comes to digital change, an astounding 87 per cent of insurance CEOs said they are directly involved in devising and leading technological change within their firm, finds the KPMG's 2019 Global CEO Outlook. However, three-quarters (76 per cent) of insurance CEOs also admit they ignored insights from data analysis and computer-driven models because the findings were contrary to their own intuition and experience.
KPMG surveyed 1,300 CEOs in 11 countries and key industries, including 132 CEOs from insurance companies in the U.S., Europe, and Asia with revenues from US$500 million to over US$10 billion.
The report also urges insurance companies to act soon in order to ensure they're ready in time for IFRS 17. Already deferred by one year, companies must comply by Jan. 1, 2022.
"Insurers need to build in enough time to test, analyze and compare results and make any necessary changes," says KPMG's Stephen Smith, Audit Partner in Financial Services. "One of the biggest issues is that it's not scalable, making the transition complicated for larger companies with large, complex books of business. Small insurers, meanwhile, are finding the regulatory burden quite challenging to address given their more limited internal resources and operational flexibility."