Paradigm Shifts

Richard Perrott
July 20, 2017

Accenture recently released a report on the need for carriers to embrace digital change in the Property & Casualty and Individual Life insurance industries. They calculate $470b of premium is up for grabs by new entrants like Google, Amazon, banks, or other online aggregators in these industries if incumbents don’t wake up. $470 Billion. That’s a big number.

Here is the report.

Though a bit blunt, this quote sums up Accenture’s position well:

“…it’s those in other industries that have led the way in converting digital innovation into customer insight, mass personalization, hyperscale, interconnectedness, operational efficiency and agility — all the things that define an efficient, customer-centric provider. And a number of these outsiders have already thrown their hat into the insurance ring. Carriers face a stark reality: to embrace digital and customer-centricity or move out of distribution to focus on a manufacturing role. Maintaining the status quo is no longer an option.

It’s easy to chalk this report up as a cautionary tale that we’ve all heard before: customer expectations are changing, and your business should too! 

Before you dismiss it, consider the following statistic: “Forty-nine percent of consumers worldwide who bought a P&C policy in the past six months did so online”.

Maybe it’s because I’ve spent the last 10 years on the employee benefits side of the industry, but it surprises me that the odds are ~50/50 for a P&C customer to make their purchase decision over the internet instead of through a traditional producer-based distribution model. I’d like to underscore that this isn’t a speculative forward-looking statistic, it is a reflection of what’s happening right now. If you run a P&C insurer which distribution model do you invest in? I suppose that’s Accenture’s point when they say that maintaining the status quo is no longer an option.

I don’t view this as an imminent threat to traditional employee benefit distribution models. The amount of product customization, underwriting, and compliance involved make it extremely challenging to distribute employee benefits insurance completely online (particularly in the mid to large markets). I also staunchly believe that Carrier Reps and Brokers add significant value. In fact we’re betting on that point here at WatchTower. But I do think this theme is directionally correct. As employers become more open to buying insurance in new ways in other sectors of the industry, their preferences will evolve. And those preferences will inevitably spill over to the benefits market. Competition will follow.

To me, the question for carriers isn’t “to distribute or not to distribute”; posing the question this way implies a one-size-fits-all solution is plausible, and that is rarely the case. Rather, the question is which of the many paradigm shifts we’re seeing in other industries will turn out to be leading indicators for the benefits industry? Time will tell.

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