Risk and Opportunities in Insurance: A Changing Landscape

The business of insurance is to define, evaluate and mitigate risk. But risk is becoming less predictable, and customer expectations for the purchase and delivery of insurance are changing.

Consequently, insurers now face added pressure to assess and cover risk appropriately, while also taking advantage of the growing opportunities that result from changing global markets - particularly the rise in wealth in developing nations.

Furthermore, new risks are emerging. Cyber insurance is a primary example, as the cost of cybercrime takes a toll on businesses by causing significant disruption of operations.

The wider costs from cyber risk include both direct costs - like incident response, data recovery and fines or penalties from falling afoul of compliance requirements - and intangible costs - such as loss of reputation, loss of intellectual property and damaged customer relationships.

Advanced technologies such as autonomous vehicles and vaping are further shifting the nature of risk for insurers, raising new questions about liability and how insurance risk should be assessed. Natural disasters, and market uncertainty over how often, when and where these will occur, have also taken a heavy toll on the industry.

All these issues introduce questions that have not previously existed. These changing market dynamics require new strategies, and point to the critical importance of insurers accelerating their digital transformation.

Better Risk Management: Next Steps

To better mitigate risk in a complex, evolving and increasingly customer-centric environment, insurers need to begin with better customer engagement. By using data analytics to develop accurate predictors of risk, insurers can dramatically reduce the number of questions posed to consumers, thereby simplifying the transaction process.

Insurers must also build a more comprehensive offering for policyholders by, for example, providing value greater than pure indemnification. At a minimum, this should encompass risk advice and mitigation, as well as contract management after a claim. More progressive digital strategies might include extending core offerings to related markets, such as the global travel market.

Other important steps for the insurance industry include embracing simplicity and transparency across the business - for example, through artificial intelligence (AI)-enabled customer servicing. The changing nature of risk ultimately requires breaking away from the old business model, which was typified by limited customer interaction, short-term buying cycles for life policies and the deployment of outdated, poorly-integrated technology.

Future Gazing

Many insurers recognize the challenges they face and are making concerted efforts to adopt a more compelling and sustainable operating model. Many are investing heavily in redesigning the customer experience by, for example, offering pay-as-you-go insurance or insurance pooling. Some are tapping into sensor technology to provide real-time data designed to change behaviors, reduce risk and build stronger relationships with customers.

Crucially, insurers must build new and deep partnerships to stay relevant and grow market share. Partners have to be truly integrated, able to consume services seamlessly or offer their services seamlessly back to insurers.

What's more, platform-based services are expected to become commonplace in the industry, making it easier for insurers to offer multiple combinations of services to improve the customer experience.

As risk becomes more fluid, insurers must make certain they are positioned to respond to customer demands through progressive products and services and a well-defined digital transformation strategy.

Phil Ratcliff is vice president and general manager, global insurance, at DXC Technology. He is responsible for defining and implementing insurance go-to-market strategies and plans, managing the global industry P&L and leading the development and commercialization of DXC's portfolio of insurance offerings.