Digitalisation is driving change in the industrial and commercial insurance sector. Whether the step into a digital future is successful or not will decide the long-term business success of your company. In the first part of our series, you can read how digitization influences the actions of the players on the market and what goals and opportunities it offers the insurance industry.
"When the wind of change blows, some build walls and others windmills" - do you know this Chinese proverb? In the insurance industry, this ancient wisdom is more relevant than ever in the course of digitalization. After all, this is a critical decision that every company has to make. The crucial question is: Do you want to stick to proven processes or set sails and actively shape change?
The answer to this question will determine future action in a rapidly changing market. News about new acquisitions, cooperations or innovative developments is circulating almost daily. Digitalisation is creating a stir in the industry and poses a variety of challenges for industrial and commercial insurers - but also an opportunity to renew and grow.
Goals of digitisation: shaping change on two tracks
Digitization is not a one-way street, but takes place strategically and operationally on two levels. Because the innovation process does not only take place inside the company, but is also influenced by external market impulses. This is how these digitisation approaches result:
- Optimize your own product and service offering. New technologies help to reduce complexity and create lean, more efficient workflows.
- Structure internal know-how in underwriting and digitize it in the form of specialized products.
- Consolidate cooperations with existing partners and thus secure and expand its own market position.
- The market will change its balance of power - for example through the introduction of an innovative product or the penetration of a market segment previously occupied by third parties.
While the goals of the first two points outgrow an intrinsic motivation, the last points reflect the external influence. This is because these target projects result primarily from the pressure of competition and innovation on the market.
The specifics of the market environment play just as important a role in the analysis of digitization opportunities as internal ambitions and transformation processes. In the commercial sector, insurance companies operate in a B2B market environment that is characterised by its own dynamics and market forces. There is a tension between what is happening in the market, the insurance product and the distribution channel. In the oligopolistic industrial and commercial insurance sector, every market movement therefore has a significant effect on all players. This starting position influences future decisions and thus also the opportunities for digitisation.
The influence of the Insurtechs
New players such as CyberDirekt and Sobrado, who exemplify a digital business model, are also responsible for the pressure to innovate on the market. They use the latest web technologies and advertise standard products with fast, customer-friendly contract processing. For example, CyberDirekt promises "protection against cyber attacks in just 5 minutes". This makes their offer attractive for internet-savvy target groups. At the same time, the demands of customers with regard to technical standards are also increasing. They simply expect insurers to provide modern, intuitive online platforms. This attitude is a consequence of digitalisation and urges traditional insurers to further develop their business models. This provides the opportunity to upgrade or replace obsolete IT systems.
The pressure to innovate is also driven by the demands of customers with regard to technical standards.
The access from young, agile Insurtechs in this sector, which is more concerned with stability, is an example of the cultural change triggered by digitalisation in the insurance industry. Digital trendsetters not only inject innovative technology, their business model also raises competition for market share to a new level. For this reason, innovative action by established insurers often focuses on positioning themselves better in the market rather than on internal renewal processes. Against this background, it also becomes clear why insurance companies currently frequently buy up competitors, merge with them or even cooperate with companies outside the industry. This gives insurance companies the opportunity to acquire fresh know-how, adapt new IT structures and set themselves apart from the competition.
Opportunities for digitisation on the market: These are the approaches
The form in which insurers push ahead with digitisation is a strategic decision. Different approaches are possible with regard to core processes such as sales, underwriting, claims processing and contract management. The insurance industry's approach depends not least on the customer segments it serves and existing sales partnerships:
- An approach aimed at improving underwriting results could aim to simplify and streamline decision-making processes and decision-making by integrating services from specialist service providers. Here risk selection plays a central role in the digitisation efforts.
- With regard to market access, the following applies: the more complex a specific insurance product is in need of explanation and the more comprehensive the risk recording is, the more likely it is that new technologies will aim to digitise existing sales partnerships and thus focus on the structured exchange of data between the partners. Where it is not possible to sufficiently simplify a complex underwriting model, intermediaries will continue to play a key role in the insurer's business model. Their task is to eliminate the information gap between policyholder and insurer.
- Due to standardisation and easy access via digital channels, price segments become attractive that could not be developed economically within the framework of individually developed cover options. Especially in price-sensitive customer segments, this approach to the digital distribution of standardised products creates new scope for insurers.
- However, suppliers of commercial standard products can also penetrate market segments that have so far been unprofitable. In addition, they add easily selectable additional modules to the product on offer, thus adapting it to more individual coverage requirements.
Outlook: Marketplaces in industrial and commercial insurance
Digitisation has many faces. This can be seen, for example, in the fact that the commercial market suddenly adapts a striking development from the B2C sector: Aggregation on the sales side. This means that new trading centres are also establishing themselves in the commercial segment. An example of this is a platform such as Finanzchef24, which offers policies from several insurance companies centrally.
Aggregators as the sales channel of the future?
They could become an important distribution channel for commercial insurers, even though they are moving away from traditional distribution via commercial agents or brokers. For insurance companies, however, this offers the opportunity to sell more standardised policies in large numbers and thus diversify their own portfolio. In this way they appeal to new target groups.
If this digital business model proves to be viable, online marketplaces à la Check24 could emerge in the medium term in which commercial insurers sell their policies. Customers then benefit from maximum convenience, as all the steps required to take out an insurance policy are carried out at a central location - keyword one-point shopping. Either way, it remains exciting to see how digital change is changing the industrial and commercial insurance sector.
Digitisation helps to further stimulate competition for market segments and market shares. Competition is tearing down consolidated structures and putting the previous roles of market participants to the test. Staying out of this game is not possible. From the insurers' perspective, what is decisive for the success of the chosen strategy? To occupy positions in the digital market that are relevant for the customer segment served and thus market access - or an improved risk selection?