''Pay-as-You-Live'' to drive global insurance industry

NEW DELHI: The next 15 years will see dramatic changes in the insurance industry, according to a new study by the IBM Institute for Business Value.

The report, Insurance 2020: Innovating Beyond Old Models was based on discussions with more than three dozen global insurance industry executives at top firms.

It found that current standards will survive, but will not provide the kind of growth the industry seeks.

Responding to changes in demographics, technology, information and other areas, insurers will create dramatically different products, services and business processes.

The IBM report predicts that technology will give birth to entirely new policies such as "just-in-time-insurance," where each step of a journey would represent a different risk, such car-to-train-station, train-to-city, station-to-office, etc. A "pay-as-you-live" scenario would trade some location and time of day privacy data for lower insurance bills.

The insurance industry, fuelled by changes in customer demographics, technology, regulatory structure, and globalization, is growing at an annual rate of approximately 20 per cent. The challenge is to meet the compounding demands of evolving market, fiercer competition and new distribution channels; hence a revamp in the existing insurance structure. Pay-as-You-Live Insurance, which deals with life 'as it happens' and Active Risk Management, which emphasizes on preventive actions, will replace the long held Insurance industry models, as the existing models are fast approaching the point of diminishing returns, suggests the study.

"Like the dinosaur, the business models of many insurers in the Asia-Pacific region must evolve rapidly keeping pace with dramatic market changes to avoid extinction. The imperative for a new model is driven by the opening of a new era, or at the very least, it is an evolving reality as the market dynamics set a new course for the industry. The task ahead is as much a battle for a change in direction, as it is a battle for a change in mind-set among the industry's existing players", said Sandip Patel, partner, IBM Global Business Services, Financial Services Sector Leader - Asia Pacific.

He further added, "Optimizing the current business model, although an important strategy for many insurers can no longer be the proxy for innovation across the entire value chain. The industry is evolving toward an era of consumerism and innovation - tomorrow's insurance value proposition will be based on the ability to provide financial services and risk mitigation in ways that are adaptive and customized to meet individual needs and the speed of response will define the winners. The currency in this business will transition from "trusted protection" to "trusted convenience."

Slow to adopt innovations

Over the past twenty years, industry analysts and the press have reproached the insurance business for being so slow to adopt what are clearly important innovations. In the 1990s, it was the Internet and its potential to revolutionize sales, service, and consumer education.

More recently, it's been wireless data communications devices for field professionals. Why is the insurance industry slower to adopt new technology? For a partial explanation, one can point to the low volume and low frequency of insurance transactions: old practices appear adequate, but not for much longer. There are a number of drivers causing change - important developments in IT, global competition, new demands from consumers transparency threatening to commoditize insurance products, and industry consolidation and convergence.

This is a time of change for insurance companies - a time that offers both promise and peril.

Another imperative identified in the research is a switch to customer versus product centricity. In the highly connected world of 2020, policyholders will have much greater access to products and the ability to make decisions on their own. The concept of agency will eventually succumb to the power of advocacy, so individuals will look to financial services advocates to provide advice as they navigate insurance and financial services markets. The traditional agency channel will not be gone by 2020, but it will look different in the face of smart software and the salaried advocate model.

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