The fundamentals of the insurance industry are starting to shift. The new insurance ecosystem could unlock huge value.
Insurance is starting to go full circle. Just like 100 years ago, when insurance as we know it today was in its infancy, new industries are springing up that require new policies, services and approaches to managing and transferring risk.
A core driver of this change is that many of today’s most valuable companies are not dependent on physical assets for their market value. Their balance sheets are heavily skewed towards traditionally uninsurable intangible assets, such as intellectual property, data, brand and reputation.
The insurance industry has started to respond to this shift, notably with cyber insurance, where the number of organizations with coverage has increased from 34% in 2017 to 47% in 2019 (pdf). But insurers are still struggling to find solutions that address their clients’ need to protect the value of their brands, reputations and intellectual property.
This poses a challenge to traditional insurers — who are already finding their business models threatened by the rise of InsurTechs and other innovative new entrants — aiming to help protect these increasingly important intangible assets. But it is also an opportunity to redefine the insurance industry’s value proposition.
For centuries, insurers have felt that their primary purpose is to help customers recover from loss. This has led the industry to worry that if their clients have fewer problems, they'll buy less insurance. This attitude — and value proposition — is not sustainable in the modern industrial and commercial world.
The purpose of insurance must also be to reduce the likelihood of loss for its customers. After all, businesses would much rather avoid losses in the first place than receive compensation for them.
The case for a new insurance value proposition
Delivering a service that prioritizes risk prevention will require a major shift in how the industry has traditionally viewed its value proposition. Insurers would need to rethink the role they play, the value they can bring to clients and how to really leverage their data to help reduce risk and prevent losses.
Despite customers’ expectations that insurers’ products and services will work for them in a personalized, data-centric way, commercial insurance organizations continue to sell annual products based on generalized trend data. Because of this, the core insurance product is designed to cover a generalized representation of the likely risk rather than the specific risk the policyholder is actually facing.