Home / Insurtech / Seven billion reasons for insurers to innovate: Accenture
3 May 2021
Insurers are operating in a “new revenue landscape” which will challenge customer retention levels, with a rise in online distribution and digital insurance premiums set to displace $7.56 billion of current insurance sales over five years in Australia, Accenture says.
Historically, customer retention rates have hovered around 85% for most insurers. With the shift to digital channels and third-party platforms, insurers who decline to innovate could see revenue declines of nearly 5%, Accenture warns.
Globally, insurers will be competing for an estimated $US1.4 trillion ($1.81 trillion) in new insurance sales by 2025 and incumbents must innovate as digital channels threaten traditional premium renewals.
“To capture a share of this growth and to defend their place in the insurance value chain, carriers must innovate,” Accenture’s new Insurance Revenue Landscape 2025: Innovate for Resilience report says.
“A fast-changing world, filled with environmental risks, cyber threats and more people feeling physically and financially vulnerable, is causing insurers to reimagine their role in the economy and position themselves as risk preventors, not only compensators.”
Significant global premiums are likely to be renewed with innovative new products and insurers cannot rely on maintaining historic retention rates within traditional revenue pools.
“Innovation in both product and distribution is a must if an insurer is to defend existing revenue,” says Accenture, which analysed around 70 trends from more than 200 sources.
Insurance revenues will be affected by new customer, demographic and technology trends. Insurers that adapt to these emerging risks with data-driven products and digital distribution are best poised.
“The recent acceleration to digital channels threatens the renewal of some traditional premiums and alters the future revenue landscape for insurers,” Gareth Shaw, MD within the insurance practice at Accenture ANZ, said.
Mr Shaw says insurers that move from traditional to technology-led offerings integrated with customer data are better positioned.
“Insurers that reimagine how they run their business and engage their customers with digital experiences will be positioned for success,” Mr Shaw says. “Others risk losing revenues to digital-first competitors and new entrants.”
The Australian insurance industry will grow to $110.72 billion by the end of 2025, from $96.87 billion last year, a compound annual growth rate of 0.6%, Accenture says.
Growth will be unevenly distributed though, with compound growth of 5.3% over the next five years in Property & Casualty to $47.67 billion, from $34.98 billion last year, while Life/Health is forecast to decline to $53.05 billion by 2025, from $61.89 billion at the start of 2020.
Mr Shaw tells insuranceNEWS.com.au Australia is “behind the curve” though executives are aware and “thinking about this” at every insurer and there is a broad push to influence behaviour in a preventative way.
“We will start to see a shift. We will catch up, but there’s a need to catch up,” he says. “We are going to move from the annual renewal cycle of say a motor policy – the only interaction really the insurer is getting at the moment – to move away from that to more engagement.
“Insurers are starting to change behaviours and they want to start rewarding customers for driving more safely. So they need capabilities to be able to that. It is this model to move toward prevention rather than just pay out as and when it happens.”
Mr Shaw says insurers must evaluate what skills and capabilities they need to offer that service.
“You’ve got to have a strategy in place around how you interact with the customer and what are the capabilities you need to do that. Really think about that and then execute on that.”
As insurers compete for new revenue growth in customer wellness, a convergence of the life insurance, health and wealth industries will generate $1.41 billion in new revenues, comprising $900 million from smart health products, $380 million in products and services for the aging population and $260 million from direct life and wealth management products.
As insurers cover exposure to environmental catastrophes, risks related to climate change are expected to make up $1.54 billion of new insurance revenues, while coverage and risk-mitigation services related to cyber threats are expected to generate $770 million.