To explore the future of the Nordic insurance market, we hosted a roundtable discussion with senior executives from some of the regions’ leading insurance firms. The consistent theme through all the topics discussed was the need to focus on evolving customer demands. Below are the key thoughts and insights from the event.
After a year of disruption, dislocation and digital acceleration like no other, insurers are looking to the future. There are already signs that insurance is on the cusp of a seismic shift as digital technology and changing customer behaviours like adoption of micro-insurances, acceptance of white-label insurance and even a few examples of service-based insurance, wreak the kind of disruption that has already shaken other industries like payments and media. Customers have grown to expect instant, personalised and seamlessly delivered experiences across all their different life events.
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The good news is Nordic providers start from a position of strength. They have strong brand affinity and profitable businesses. Yet this solidity can disguise weakness, with muted growth of less than three per cent and a reluctance to disrupt the profitable status quo stifling innovation. This could leave the industry adrift of changing customer behaviours and vulnerable to new market entrants with user-friendly solutions.
One such solution is embedded insurance, which puts insurance right where the customer needs it when they need it. “Customers don’t wake up thinking about insurance. They want it to be offered in a convenient and intelligent way that suits their needs and is seamlessly integrated into their daily life,” pointed out one roundtable participant.
These seamless and convenient solutions can prove hard to resist. “Ten years ago, 100 per cent of payments were via a bank or other large financial institution,” said one executive. “Today that’s below 90 per cent, with 10 per cent of payments now made through embedded models rather than banks or traditional financial institutions.”
Insurers would be naïve to think a similar chipping away at market share couldn’t take place in their industry. Indeed, our participants pointed out that customers already find insurance products complicated and difficult to understand, with different names for the same product and pages of documentation putting up barriers between the insurer and the insured. This creates a ready pool of disaffected customers that simple, transparent and convenient solutions could delight.
Already, some car makers, mobility solutions companies and challenger banks are embedding or bundling insurance into their offers. They recognise it’s an add-on service that builds additional revenue streams and deepens customer engagement.
Insurance leaders expect such offerings to gain real traction over the coming decade. “At the moment, just two to three per cent of global premiums come through these fully embedded insurance models but they are forecast to surpass 20 per cent within ten years,” said one industry player.
Yet tapping this growth won’t come easily to traditional insurance carriers. Many of the companies piloting embedded solutions are digital natives that use API technology to embed offerings within minutes. Most insurers aren’t there yet. “Insurance carriers need to become better at extracting their insurance via easy-to-use technology so third-party providers can seamlessly integrate their products into their offer,” said one player, highlighting the technology issues that lie ahead.
Yet it also became clear during the discussion that it’s not just technology that looms as a barrier to innovation. Many agreed that corporate culture is a huge issue in an industry with corporate pedigrees that go back hundreds of years and is risk-averse by nature.
To overcome the cultural issues, there was a call to look outside the industry to see things through new eyes. “We’re going to need new perspectives that aren’t polluted by the traditional ‘we’ve done it this way for hundreds of years’ mindset,” said one industry executive. “The industry is holding itself back. The mental challenges are as large as the technology ones.”
Commercially, there’s a general reluctance among many Nordic insurers to white label their offer because they already have such strong brands. “Nordic carriers have a strong direct relationship with customers, rather than mediating through agents and intermediaries as elsewhere in Europe, and this creates trust, which is hugely valuable,” pointed out one player.
These direct relationships are something carriers are obviously reluctant to dilute without good reason – and, to date, there’s no clear commercial incentive. “If you make insurance more of a commodity then it’s hard to make significant margins and harder to differentiate. And while the embedded models can provide a lower cost of sales compared to broker or tied agent led models, it’s certainly not cheaper than the direct model,” said one participant.
“It’s a real balancing act for the Nordic insurers, many of which have strong brands that they’re reluctant to sacrifice,” said another. “It means they’re going to be very cautious and not go all in on these new platforms and new ways of working.”
Indeed, it seems the benefits may be easier to quantify for the third party, be they a retailer or auto-manufacturer, than for the insurer. “The retailer or e-commerce site gets the brand value of the insurer, gets to offer additional service to their customer and gets to enjoy longer customer retention when there’s an insurance mechanism plugged into their offer,” noted one industry player.
There are also many technology, operational and strategic issues to consider. “Does the insurer own the platform, or use the partner’s platform, or do they jointly co-develop? Do you become part of someone else’s ecosystem? Should you create a sub-brand? Who owns the customer relationship? What happens when something goes wrong?” were just some of the questions raised by the participants.
“It needs to be very clear to the customer,” stressed one executive. “When there’s a claim, you want the trust and security of a large insurer.”
Several roundtable participants see health as a robust growth area, particularly in the wake of COVID-19. “Health is going to be a battleground for the Nordic market over the next few years,” said one executive. “And increasingly that won’t just mean hospitals – it will be a 360-degree view of what it is to be healthy.”
There are, however, still more questions than answers.
“You need to consider how adapted you are to go into this new marketplace. How far from the core can you go without breaking the back? If you go too far from the core, then it can be very difficult because you don’t have the competence or capacity to be a good player.”
Another participant said that once carriers start to look at the all-round health and wellbeing of the customer, it gives rise to questions about insuring the customer as an individual, taking on all their risks.
“Why can you not have insurance for your specific universe? Rather than taking out separate policies for my car, my health, my home, why not insure me in an all-encompassing proposition? Provide me with what I need, when I need it, how I need it, rather than relying on me to navigate my way around all these different products,” said one executive, musing about the future. “Could this be the direction of travel for our industry?”
Currently, it seems, the jury is still out. “It’s part of the maturity journey,” said one delegate. “We have to become more open to collaboration, to the blurring of industry lines and to be aware of the pitfalls. The map has not been drawn yet and we do not really know how this will look in the future.”
Another agreed: “There’s an identity crisis for insurers at the moment, trying to navigate pressures of what customers expect while also staying profitable.”
It was a lively and thought-provoking discussion, rich with insights. What’s clear is there’s real opportunity for insurers to show they value their customers by providing meaningful, human-centred experiences. With the right ambition, expertise and experience insurers can strengthen their competitive positioning, drive growth, and increase profitability.