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How big a toll will digital insurance services take on traditional premiums?

How big a toll will digital insurance services take on traditional premiums? | Insurance Business

How big a toll will digital insurance services take on traditional premiums?

Demand for digital insurance premiums and their online distribution could displace US$280 billion of current insurance revenues by 2025, according to a new report from Accenture.

The report, “Insurance Revenue Landscape 2025: Innovate for Resilience,” analyses how the insurance industry will be affected by new customer, demographic and technology trends.

According to the report, the global insurance industry will grow from US$6.1 trillion in early 2020 to US$7.5 trillion by the end of 2025 –a compound annual growth rate of 3.5%. That includes US$800 billion in US-centric healthcare payer premiums, which have not traditionally been counted as part of the insurance sector but have become material thanks to global demand for the convergence of digital health products and services, Accenture said.

As customers renew their policies with more data-driven offerings, US$140 billion of current insurance revenues could shift from traditional to tech-enabled insurance products, including behaviour-based insurance for vehicles and smart homes. Another US$140 billion in current revenues for traditional insurance distribution could be displaced by insurers offering digital distribution as customers buy insurance through digital channels and third-party platforms.

“The recent acceleration to digital channels threatens the renewal of some traditional premiums and alters the future revenue landscape for insurers,” said Kenneth Saldanha, leader of Accenture’s insurance industry group globally. “While the industry will remain resilient and grow, the pace of technology and societal change is coming faster than expected. Insurers that reimagine how they run their business and engage their customers with digital experiences will be positioned for success. Insurers who move from traditional to technology-led offerings that are better integrated with customer data are better positioned to lead; others risk losing revenues to digital-first competitors and new entrants.”

The report found that insurers will compete for new revenue growth in customer wellness, particularly as they make new partnerships in a digital ecosystem to improve customer health and finances. Accenture estimated that the convergence of the life insurance, health and wealth industries will generate US$120 billion in new revenue – US$60 billion from smart health products, US$30 billion from products and services for the aging population, and US$30 billion from direct life and wealth management products.

The report predicted that insurers will also compete for new revenue to cover emerging and newly developing risks. Risks related to climate change are expected to account for US$50 billion of new insurance revenues, and coverage and risk mitigation services related to cyber threats are expected to generate another US$25 billion.

“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 preventers, not only compensators,” said Ravi Malhotra, leader of Accenture Strategy’s insurance industry group in North America. “In health, consumers are increasingly comfortable sharing data for products that help them maintain healthy habits, giving insurers an opportunity to provide a more holistic risk-management service that changes their role from financial safety net to an active partner in preventing and mitigating injury and loss. Working with reinsurers can also help to cover climate change risks – especially in emerging markets where there is currently a massive gap in coverage.”