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Ten years of change in direct insurance

Rui Neves

Advises insurance companies on digital and analytics strategy, bancassurance and direct distribution.

Profile picture Simon Kaesler

Advises insurance companies on digital strategy, distribution and everything around insurtech.

In June, we celebrated our tenth annual Direct Forum in Barcelona. The Forum is an opportunity for direct players across Europe and beyond to discuss the market, trends, and new innovations. This year, it was also a great opportunity to look back at the past ten years of change in the direct market and discuss where the road will lead next.

Strong growth, but stronger expectations

According to McKinsey analysis, the direct channel has made great strides in the past ten years, growing from a €13 billion industry to one worth around €24 billion today. It has consistently outperformed traditional channels, with 45 percent of direct players outperforming non-direct players in terms of growth by 6.3 percent. Aggregators have boomed, increasing their market share from 20 percent to around 40 percent. The insurtech landscape has also experienced significant growth, attracting more than €10 billion in funding over the past decade.

But despite these growth trends, many industry expectations from ten years ago have not been met. For one, direct is not yet mainstream across Europe; it still represents only 23 percent of sales in the motor segment (up from 15 percent ten years ago) and holds a market share in the single digits in nonmotor segments. Furthermore, the expected product innovation beyond motor didn’t happen; motor is still the core offering, and innovation remains on the agenda for the future. And while it’s true that many new players are entering the direct landscape¬≠¬≠—including both insurtechs and the world's leading technology companies, or “big tech”—we do not see real disruption happening in the market.

A technology revolution in direct

Still, direct players are increasingly digital. Whereas most organizations’ digital capabilities were nascent ten years ago, today they are quite robust. Massive digitization and the adoption of artificial intelligence in core functions are propelling market leaders forward. Digital ecosystems and platforms don’t seem so new anymore, with more players entering this space. Even so, much of the potential from digital ecosystems remains untapped.

Which innovations will shape direct in the future?

It’s impossible to say what exactly the direct market will look like in another ten years, but we can make some predictions by looking at the trends and latest innovations. A survey taken at the Direct Forum this year suggests the biggest opportunities in the direct market include automation, data, partnerships, personalization, and, in Europe, the revised Payment Services Directive (PSD2). Some of the latest innovations in the market align with these opportunities. We’ve defined five key trends:

1. Getting used to new competitors

While big tech may not have led to the expected disruption yet, the pace is picking up. Similarly, our analyses show that insurtechs are on the right track to profitability and are here to stay. Ignoring these new competitors (and the potential benefits in collaborating with them) would be a missed opportunity.

2. Reshaping to meet consumer demands

Modern consumers want straightforward and transparent products, processes, and services that are tailored to their needs. Some insurtechs, such as Igloo, Toffee, and Undo, are addressing this need by offering coverage of “bite-sized” risks to insure the products consumers love, such as smartphones.

3. Expanding into niches and ecosystems

Ecosystems and platforms are breaking up traditional industry borders and forming comprehensive service offerings around consumer needs. The Chinese insurer PingAn offers a broad ecosystem of services that range from Good Doctor for healthcare and Lufax for finance. For their part, niche insurers such as the insurtech Insurninja, which covers virtual game characters, are also experiencing success, and we expect them to grow further.

4. Experimenting with new technologies

As stated above, some technologies that surfaced ten years ago no longer seem new. However, their implementation in the insurance industry is still maturing. While bots are almost standard in some functionalities and telematics is gaining traction, we’re also seeing insurers experiment with augmented reality and blockchain. Defining use cases and testing them is key to determining which opportunities will be promising in the long run.

5. Finding new angles on old products

Another trend is to rethink traditional products in a way such that they become (almost) new again. DeadHappy, a UK insurtech, has introduced digital pay-as-you-go life insurance for younger generations with life products such as “fund my wake party,” or “get a bronze statue made.” Another insurtech, Apparent, has entered the market as a new type of auto insurance that is “designed for parents, by parents.”

The direct market has shown marked growth in the past ten years—but it has not fully lived up to expectations. With new technologies gaining scale and new competitors entering the market, it’s likely that the pace of innovation and growth will increase over the next ten years. Direct players will have to identify and pursue key opportunities to reap the opportunities that lie ahead.

We would like to thank everyone who could join us in celebrating our tenth annual Direct Forum in Barcelona. See you all next year!

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