The NextWave of insurance: Trillion-dollar risks and opportunities

According to EY NextWave Consumer Financial Services research, insurers must shift their strategies to differentiate on trust, financial health, and more holistic and personalized value propositions. In fact, our findings lead us to conclude that shifting trust dynamics will prompt the movement of $11.3 trillion in assets during the next five years.

For insurers, this represents both a serious threat and a significant opportunity. They are well-positioned to help consumers achieve a higher degree of financial wellness. But they must also shift their traditional product-driven thinking as more banks and wealth managers offer similar products and nontraditional competitors consider entering the industry.

Using a sophisticated research methodology (including conjoint analysis of results from surveys of 1,500 mass-market, mass-affluent and high-net-worth consumers across age groups) and a powerful simulation platform, we analyzed the impact of shifting consumer preferences on specific asset pools, including insurance premiums.

Our objective was to understand consumers’ preferences and switching behaviors with an unprecedented degree of precision. Specifically, we set out to identify the most valuable features and attributes of insurance and financial products and predict how consumer preferences will reshape the industry during the next five years. You can see the full report findings and a more detailed explanation of our innovative methodology here.

Why trust matters

Trust forms the basis of personal financial operating systems and subscription-based offerings that, in our view, represent the future for the industry. AI-driven platforms would be designed to boost consumers’ individual financial health through relevant daily interactions and personalized recommendations, while subscriptions would be keyed to critical life events, such as buying a home or retirement planning. The research findings show that nearly 80% of consumers in the 18-50 range and 60% in the over-50 range are interested in such subscription models.

Further, consumers also expect more value from sharing personal information. While the ease and convenience of digital experiences have improved, insurance lags other sectors in delivering the personalized benefits and price transparency that consumers expect.

We asked consumers to identify the top features and capabilities driving their willingness to engage with financial services providers. Consumers care most about customer service and data privacy. The implication is that providers will use customer data for the customer’s benefit, not their own.

While all segments value privacy, there are interesting variations among different types of consumers. For instance, the mass-affluent segment values the ability to see information about related products, while high-net-worth individuals care more about insurers’ brands.

The survey asked about assurances consumers would need if their financial provider wanted to collect and use more of their information to offer personalized services. Across age groups and wealth tiers, the ability to decide who uses the information ranked first — an option that consumers do not currently have. The even distribution of other answers suggests consumers are looking for a more holistic approach to data sharing and personalization. Indeed, this single feature accounts for almost 50% of the increase in total share of preference across customer segments, which also aligns with recent regulation, such as GDPR.

Additionally, nearly two-thirds of all consumers want personalized advice and/or priority service for sharing more personalized information. This intersection of trust and personalization presents the opportunity for financial wellness platforms, which both life and P&C insurers can use for customer acquisition purposes. Our analysis confirms that insurers have a unique upside in this area. Further, insurers have considerable strength, relative to banks and wealth managers, against technology platforms’ entry into the financial wellness space.

Our simulations also confirmed that first-movers will reap the rewards both in terms of strengthening existing relationships and acquiring new customers. The bottom line: because consumers across all age groups and wealth tiers care about trust features, bold action is likely to be rewarded.

The question for insurers is what action to take first. The first step should be to understand how shifting preferences influence consumer demand, which new target customers should be served and where to prioritize investments in new and enhanced capabilities.

While many senior insurance executives are change-averse, it’s time for a deep examination of existing business models. To understand threats and opportunities in a dynamic context, companies should war-game existing strategies. They should lay out the strategic choices they have made around customer segments, product mix, distribution strategies, value propositions, pricing, and competitive differentiation and then baseline how the current strategy will perform against competitive responses.

Companies must analyze whether they are best served by building, buying or partnering to establish the digital capabilities they need. They must also explore which parts of the value chain and customer relationships they want to own. What makes our NextWave research so unique is its ability to model different scenarios to see how they play out.

There is ample upside for those insurers that can get it right. Our research shows that increased financial well-being and higher levels of trust can benefit financial services companies in the form of higher and more sustainable profits.

Nikhil Lele is a principal in Ernst and Young LLP’s Financial Services Office (FSO), where he leads the digital enterprise transformation agenda for banking and capital markets. He has worked with large banks, wealth and asset managers, and insurers to develop strategic vision and direction around digitizing business models and harnessing the power of emerging technologies to drive growth, competitive advantage, and operational efficiency. Ed Majkowski is a partner in Ernst and Young LLP’s Financial Services Office (FSO), with more than 26 years of experience focused on diversified financial services organizations, with particular emphasis on global and national insurance enterprises. He is also EY’s insurance sector leader for the Americas and is responsible for EY’s advisory businesses, markets and clients in this region. 

The views reflected in this article are those of the authors and do not necessarily reflect the views of the global EY organization or its member firms.

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