After the Crash: New Technology

According to Carney, an important part of the research process has been to gather views from a range of industry practitioners, from business and IT roles, to regulators, business technology service providers and students.

Forrester conducted interviews with some 30 different entities, including U.S. property/casualty insurers, life/health insurers as well as business partners in markets outside the U.S., such as Russia and Japan.

Each was asked a series of questions about how they see the industry changing and why; the drivers of these changes; changing distribution models; the technology landscape; and the preparedness of industry business and technology leadership to adapt.

Data and data mining, social media and the future of the agent were three key topics to emerge from these discussions, according to Carney.

"Big data is big news. As the transformation of the industry accelerates, this tends to be driven by what insurance carriers do with data," she says. "Carriers have recognized they are sitting on incredible data that they can use to benchmark their business operations and use for increasingly granular product segmentation and customer segmentation." Carney suggested that data and how it is mined and used is going to be a critical area for insurers in the coming years. "Insurers' ability to survive in this dynamic market is going to hinge on what they can do with their data and the quality of their data," she says.

Currently, insurance carriers may be deluged with data and grappling with data strategies, but as they begin to put their own data to better use, ultimately this will lead to better assessment of risk.

As a result, insurers will be better able to distinguish which customers and products are likely to be more profitable, she explains. Leveraging their data will also allow insurers to get to market faster, she adds.

Carney cited the example of one industry practitioner – an enterprise architect with an insurance carrier – who speculated that if insurers can get their data and predictive analytics right, they would no longer have to use so many third party data providers.

"If that's the impact they think predictive analytics can have on the industry that is really interesting," she says.

Social media and its growing use by insurance carriers was another key topic to emerge from Forrester's research, despite the concerns about regulation and privacy expressed by certain industry participants.

In an environment of accelerating technological change and as customers become increasingly interconnected, insurance carriers are exploring social media as a way to use multi-billion dollar advertising spends.

"Facebook pages are being used to raise brand awareness and for PR," Carney says.

Online social networking sites like Facebook and Twitter are also transforming ways in which insurance carriers engage with their policyholders and collaborate with business partners.

"A lot of people are talking about the role of social media as a way to deliver better customer service, for example to give out information on bad weather and road closures and what consumers should do to protect themselves from disaster," she notes.

Insurance carriers are also using social media to collaborate internally. Another topic to emerge from Forrester's discussions with industry practitioners was the changing distribution system and what is going to happen to the insurance agent going forward.

Carney believes the views ranged from those who feel the agent channel is dead and everything is going to go online to those who see the agent evolving into more of an advisory role helping policyholders deal with the increasing complexity of insurance.

Industry views were more weighted towards a changing role for agents that can demonstrate real value for people by helping consumers and commercial customers pick the right insurance product and evolve those products over time, according to Forrester's research findings.

"Regardless of which channel you are distributing the insurance product through, whether it's online, a call center or an agent, it's all about relevance and speed, " Carney says.

Looking ahead, Carney emphasizes there will be big changes in the insurance market in terms of who the industry's competitors might be and how we buy insurance.

Dealing with changing customers, channels and competition will require insurance carriers to be more agile, adaptable and flexible in future. That flexibility will align increasingly with customer use and behavior.

Carney gave the example of private passenger auto insurance as a product line where what worked in the past was not going to work in the future, because of changing demographics and environmental influences.

"With gas prices increasing and people moving towards urban areas, 20-somethings are less inclined to buy cars and more interested in alternative transportation methods," she says.

This was one topic that surprisingly had not come up in Forrester's discussions with industry practitioners.

"I'm surprised people did not pick up on this. If private passenger auto is no longer the cash cow, what are you going to sell instead?" says Carney.

Carney pointed to the development of new products such as ad hoc event insurance, and increasing demand for usage-based insurance and micro-insurance as some of the trends to watch for going forward.

Specialty lines would also likely experience a boom as the insurance industry becomes more customer-focused, she concludes.

(Claire Wilkinson is freelance writer and author of Terms + Conditions, the Insurance Information Institute (I.I.I.)blog.)