There are many challenges and opportunities facing the industry but from my perspective there is one strategic challenge that rises above all others. That is the threat posed by social media, the relationships it establishes and the redistribution of consumer information. Over time it will change the landscape and influence every aspect of the industry.
A perfect storm is coalescing around four themes,
- A shift in technology with third party organizations capturing vast amounts of consumer data.
- Changing consumers looking to use post PC devices to manage a significant portion of their lives.
- Senior industry executives and brokerage owners that are not connected to these emerging trends.
- Under investment in core technology.
This is a mature industry that has recently had difficulty adopting new paradigms. I’ve taken the industry and have broken it into three ages, the Manual Age, the Technical Age, and the Social Age.
In the Manual Age, insurance was processed by hand; it was labor and time intensive and lasted almost 300 years.
This was followed by the Technical Age, 1900-2000, in which automated processing was introduced and the insurance industry became a driving force that shaped overall computer technology.
After Y2K both company and broker technology stagnated and investment in core systems declined. The technology sector in general focused on the internet, sharing information, and mobile computing and communication.
The Social Age had begun and so had our perfect storm.
According to Ad Age, 54.2 % of social media users are between the ages of 14 and 29. They have grown up with social media and live in an uninterrupted state of connectivity. It is estimated that social media sales will reach $14B by 2014.
At the other end of the spectrum, only 5.5% of Baby Boomers use social media. Compounding this, a significant portion of the Boomer generation will retire between now and 2017.
This raises some serious questions.
Does the industry understand the purchasing and decision making behaviours of the largest group using social media?
Is the industry developing and implementing the technology needed to compete?
Are those outside of the traditional insurance industry accumulating enough information to effectively underwrite a risk without ever having to ask a question?
Standing in the way of this onslaught are regulatory barriers to entry which have succeeded in keeping Canadian banks from directly competing. However, I’m suggesting that the real threat to the Canadian insurance over the long term may not be Canadian banks, but international companies rooted in the data arms race and a changing consumer.
In the face of this where are the opportunities?
Opportunity can be found in looking forward, social media is more than a new marketing tool; it is a new paradigm for the industry. Social media must be leveraged to connect with the consumer in a way that creates an exchange relationship. Both parties will provide benefit; the industry provides better products and services in exchange for better information from the consumer.
I think you could argue that insurance has always been the perfect social product, the insurance industry has over 3 hundred years of expertise in analyzing large quantities of consumer and risk information, I don’t think there is any reason that the industry can’t regain its leading position in technology and play a significant role in shaping the Social Age.
Editor’s Note: Greg Purdy is Managing Partner of Pathway Partners Ltd., a Canadian based consultancy providing advice to brokers on a wide range of operational and strategic topics with an emphasis on mergers and acquisitions. Greg was recently part of a Strategy Panel at the 2012 Insurance-Canada.ca Technology Conference. This post is drawn from Greg’s remarks on that Panel.