The Canadian insurance industry is currently living through one of the most transformative times in its history, according to KPMG’s sixth annual Canadian insurance industry opportunities and risks report, and with great change comes new risks and opportunities for insurers operating in this marketplace.
The buzzword is disruption, as 68% of Canadian insurers surveyed by KPMG expect major technological disruption in the sector in the upcoming three years, and agree that it will weaken and/or eliminate some of the traditional insurance companies. On the flip side, 63% see technological disruption as more of an opportunity than a threat, reported KPMG.
Changing consumer needs are in part driving disruption as customers expect that the experiences they have in other sectors will be replicated within insurance.
“Your experience that you have – whether it’s dealing with a technology company or a service company – you expect that from your insurer, so that’s certainly a challenge and an opportunity as insurers look forward,” said Chris Cornell, Canada’s new national insurance sector leader and partner at KPMG. “If you look around the globe, an example like Beagle Street whereby it has captured a significant portion of the UK market and does not have any brick and mortar locations at all, that’s a good example of what Canadian insurers potentially may be exposed to in the coming years as those customer preferences come to Canada as well.”
Another area for opportunities is in the use of data and analytics, and how insurers are going to be able to leverage that to enhance product design, marketing, and pricing, Cornell pointed out. Insurers’ strategies are evolving and becoming well-positioned to capitalize on this opportunity, though there are sometimes costly barriers in the way of implementing the next shiny new thing.
“One of the items that’s really encumbering insurers’ ability to leverage these opportunities is legacy systems, so you’ll see that’s an area where over half of our respondents to the survey said that enhanced operational use of technology is an opportunity that we need to take advantage of. However, the cost associated with that is expensive,” explained Cornell. “The legacy systems that companies have in place [make it] difficult to get all the data that they need or want on a timely basis in order to leverage that over a short period of time.”
Even if companies have all the data they want at their fingertips, they sometimes lack people with the right expertise to utilize that data and capitalize on it, added Cornell.
As for the broker model, on which there has been historically heavy reliance in the Canadian insurance sector, Cornell predicts that it will continue to evolve in the coming years as it too becomes subject to disruption.
“That doesn’t necessarily mean that brokers are going to be extinct, but it does mean that they’re going to have to change the way that they provide value to their clients,” he said. “From an overall industry perspective, the availability of data and the ability of our Canadian companies to utilize that data will differentiate themselves within the marketplace in the next year or two.”
Meanwhile, insurtechs will keep picking up speed around the world as some insurance incumbents make moves to form strategic partnerships and alliances with non-traditional insurers. It’s imperative for insurers to keep an open mind and think outside the box about future partners to stay ahead of the pack. After all, hotels and taxis didn’t expect to be disrupted as quickly as they were.
“If you look at the insurtech space at this point in time, likely due to the regulatory barriers and things of that nature, they haven’t tried to compete with the large insurers on a product basis, but it’s more so to be complementary to insurers, or provide platforms or facilities in order to provide certain services and disrupt the value chain for insurers,” said Cornell. “That is going to be an area where insurers are going to have to look as they move forward. It’s not just going to be your typical companies that you recognize that you’re comparing yourself to now. There are potential outsiders that are going to come into the industry and disrupt it.”