This year at Celent we ran a few scenario analysis sessions with different audiences, covering all lines of business. Some interesting findings came out from those scenarios related to changes in product . These scenarios covered different situations where basically products become more transparent, more flexible and more service oriented. Celent's latest report on the subject: "Redefining Insurance: A Scenario-Based Analysis" is already available.
In the scenario analysis sessions, participants were asked to evaluate each scenario against multiple considerations: market size, customer relationship, required skills, and the competitive landscape. They were also asked to give their opinion as to the urgency of the scenario.
What's extremely interesting of this analysis is that results have a great difference depending on the lenses you are using. For example the main reflection, of audiences with interests in the Latin American insurance market, is that a new approach in product will mean a larger primary insurance market. This is mostly attributed to the low insurance penetration in the region. New products, for example moving away from indemnity to preventive propositions and PAYD/PHYD type of products, will make the size of the pie bigger and not just shrink the market (premiums) as we see it's the forecast in mature markets when we run these same scenarios.
We heard things like:
- "Today customers put value on insurance when they have a claim. If this [change in product] helps them reduce risk, then they are going to put more value on the product and buy more"
- "I think this is about to change from a risk taking business model to a service business model. This is very different. We need to figure out how we are going to make money from a service business model"
Latin America has an extremely low insurance penetration. This is not new; it has been like this since I can remember. And the gap continues to grow between Latin American countries and countries such as UK and the US. This gap means people and companies without insurance, which being more widespread would allow greater financial inclusion and collaborate in the growth of economies.
Decades of trying has not given us any tangible improvements in this area, so maybe it's time to try a different approach. Working on designing smart distribution models, innovative and flexible products that consider changing lifestyles and behaviors of risks, and that also provide a benefit beyond indemnity; this may be the way to achieve higher insurance penetration ratios. Technology and consumer habits are changing in this direction, so I say it’s worth trying. What is there to lose? A couple of decades more with low insurance adoption ratios?
Under the lenses of insurance penetration there's optimism about higher insurance adoption through innovative products. Insurance professionals agree that a change to the product is underway and that action is required to expand the product offering; be this a defensive strategy or a strategy to increase insurance adoption the call to action is now.