Disruption is a reality

ITIJ 195, April 2017
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Christopher Ling, vice-president of insurance for Capgemini’s Financial Services Strategic Business Unit, discusses how the industry has to adapt to win over a new generation of customers
 
New technologies such as the Internet of Things (IoT) have long been predicted to cause noteworthy change for the insurance industry. However, according to Capgemini’s World Insurance Report, traditional insurers are underestimating the demand from Generation Y customers for connected technologies. This opens the door for non-traditional competitors to walk in and lure away customers with attractive connected technologies and personalised service. Generation Y is creating an unprecedented issue for traditional insurers. As this demographic becomes a customer base for the industry, they are demanding a different customer experience – one that requires a significant shift towards connected communication services that is far removed from the traditional manner insurers have gone about selling products to this generation’s parents and grandparents. 
The latest example of this emerging challenge is UK telecommunications giant O2’s recently launched car insurance offering, O2 Drive. O2’s launch of personalised car insurance has been able to capture a strong position in the insurance value-chain between the customer and the insurer. The company is now able to influence risk pricing and control premiums through helping drivers modify their driving behaviours and usage. This puts it in a very powerful position. 
 
Why has O2 entered the insurance market?
The industry has been talking about the potential of connected car data and more dynamic pricing models for years, but real progress has been slow. O2 launching an insurance offering shows they feel there is a gap in the market for a new insurance model for customers that traditional insurers simply aren’t prepared, or able, to give. As a result, O2 is leveraging its customer connectivity through digital platforms by dis-intermediating the insurance value chain to capture a profitable slice of the insurance market and a new customer segment.  
O2 believes that mobility has become an essential part of everyday life, comparing its utility to that of your wallet or keys. The O2 Drive rollout benefits from the foundation and principles of the O2 brand, appealing to the modern consumer by offering additional features such as discounted car servicing and maintenance, tips on how to become a safer driver, an O2 Drive mobile app, and an optional ‘black box’ service which monitors your driving and personalises your rates based on how safely you drive.
O2 isn’t the first company to try and disrupt the industry and it won’t be the last, but a competitor of its size and with a very different view of services entering the market can only be good for consumers and, ultimately, push the industry forward. 
 
What impact will this have for insurers?
Like tech giants disrupting markets before it, O2 has entered an industry many considered beyond its expertise. But this has given it an edge. In essence, O2 has been able to start from scratch and ask itself a question centred on driving new and improved experiences for customers and agents. This objective is at the heart of all insurance carriers’ strategy; however, they are having to contend with legacy systems and processes that slow adoption of new technologies and models. These are challenges O2 simply can avoid.   
As it builds trust with its customers as an effective personal risk manager, it will be able to offer and cross-sell new innovative digital products and services. It will also be able to provide a far greater level of detail to its customer’s risk profile, making it highly attractive to reinsurers looking to move up the value chain. Ultimately, it could negate the need for primary insurers if a manufacturing and fulfillment partner for claims and third party liability can be found.
O2’s radical rethink has now enabled their insurance proposition to deliver a step-change in convenience 
Traditional insurers looking to Gen Y and beyond must look to O2 and the way technology companies approach digital customer experience and extension of services for inspiration. They must put in place organisational and cultural changes that allow them to react in a more agile manner to consumer demands and innovative technologies.
It is often said that insurance is sold rather than bought and therefore has become a commoditised service, often bundled as part of other propositions. The value drivers for specific insurance services are usually price, brand, convenience and high-level coverage. O2’s radical rethink has now enabled their insurance proposition to deliver a step-change in convenience, whilst significantly improving pricing and risk alignment. Its brand brings further strength to the overall bundle.  
While only time will tell if its entry into the insurance market is a success, its fresh thinking will only benefit the industry and consumers.

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