For decades, insurance was a well-established market, characterized by mature business models and predictable, recurrent revenue streams. Growth occurred primarily in the form of new customer acquisition.

However, as existing players increasingly consolidate their positions and asset-light digital insurance startups enter the market, insurers need to re-evaluate their value propositions to guarantee their future profitability and sustainability.

How Can Insurers Expand, Enhance, and Diversify? 

Today, many insurance companies are considering ways to expand and diversify their business from within their traditional core – and beyond. Some notable trends we’re seeing sweeping the insurance industry include:

  • Reinventing existing policies and products to introduce more flexibility in terms of coverage, premiums, and payment triggers
  • Initiating efforts to grow the company’s overall share of the insurance pie by introducing new policies that cover emerging exposures; for example, cyber and climate risk, cryptocurrency usage, and remote working scenarios
  • Digitally enhancing and automating processes 
  • Bundling coverages to deliver more convenience to customers and lower insurance costs 
  • Exploring and entering alliances with companies from other markets 
  • Introducing added-value services and niche products

Here are some major moves into these areas we can expect to see insurers making in the years to come:

1. Partnerships and Alliances

Entering into strategic partnerships and alliances gives insurers an avenue to tap into new streams of customer revenue. 

With this model, the partner is successfully operating in a particular industry ecosystem (for example, retail or telecommunications). The insurer then creates a tailored protection offering designed to be meaningful and affordable to the partner’s (already captured) customer base. 

2. More Flexible Products

According to a recent Deloitte study, more business insurance customers are looking for greater levels of flexibility in their insurance products and policies.

Many say that annual reviews and one-time coverage adjustments are no longer feasible models. Nearly two-thirds feel they should be able to alter coverage and premium charges throughout the year as business conditions change. 

Interestingly, the top reasons for seeking such flexibility aren’t cost-focused, as only about one in five say they’re simply looking “to pay less.” Instead, respondents are more interested in optimizing their coverage. 

One example that’s growing in popularity is having the ability to “turn off” insurance coverage during periods of inactivity, such as pay-as-you-go workers’ compensation policies. With this approach, coverage can be adjusted when a company has to lay off workers or when the business is experiencing a seasonal lull. The company can opt to pay a variable monthly fee based on the actual usage of their insured asset(s).

3. Focus on Climate Change

Climate change is making an impact on insurance companies’ revenues (losses from natural catastrophes have increased 250% in the last 30 years), yet only 8% of insurers are preparing adequately for its impact. 

This area of insurance brings challenges but also opportunities to build customer trust and loyalty. Introducing parametric triggers to policies is an innovative approach being explored by forward-looking firms. Here, the insurer automatically pays out when a major event such as a flood or storm occurs in a specific area. One recent example is Zurich North America’s Construction Weather Parametric Insurance for project owners and contractors. Claims are paid based on predetermined weather events without requiring proof of physical loss.

4. Automate Wherever Possible

The process of processing claims manually is protracted and painful for both insurers and customers alike. Today, the use of artificial intelligence (AI) can cut the time it takes to evaluate and process claims exponentially.

Most of us in the world of insurance will recall when in 2016, New York-based Lemonade, an Insuretech innovator, declared that it had paid out the speediest claim in the history of the insurance industry in just three seconds:

“At seven seconds past 5:47pm on December 23, 2016, Brandon Pham, a Lemonade customer, hit ‘Submit’ on a claim for a $979 Canada Goose Langford Parka.  By ten seconds past the minute, A.I. Jim, Lemonade’s claims bot, had reviewed the claim, cross-referenced it with the policy, ran 18 anti-fraud algorithms on it, approved the claim, sent wiring instructions to the bank, and informed Brandon the claim was closed.”

As the use of telematics and sensor devices for homes, vehicles, and wearables proliferates, insurers have more real-time data about customers at their disposal. The best of them are using this functionality to create instant risk profiles and offer customers appropriately priced premiums.

AI-driven robo-advisors are also being used to explain basic coverage terms and conditions to customers, review the adequacy of deductibles and limits, and verify a claim’s status. Increasingly, they’re also being used to help smaller insurers identify any exposures that may require endorsements to strengthen existing policies or suggest additional coverage options.

AI can also assist insurance companies in spotting incidents of fraud that the human eye could easily miss and even pick up on potential threats before they cause unwelcome impact.

The Expansion and Diversification Imperative

The maturity and saturation of the core insurance industry are pushing firms to explore new ways to generate profitable growth and gain a competitive advantage beyond traditional insurance.

To guarantee the success of your diversification strategy, you need to carefully select which opportunities fit best with your ambitions and capabilities. You’ll also want to ensure you assign your best and brightest resources to the tasks at hand.

Many insurance companies are seeing value in engaging with a Business Process Outsourcing insurance partner to help them evolve their business while ensuring that day-to-day operations don’t get neglected.

Covenir’s team of subject matter experts brings their years of experience in the insurance niche to bear so you can turn your eye to innovation while still giving your customers the service they expect and deserve.

Collaborate with Covenir today.