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The $22 billion dollar question

With around £15.9bn/$22bn thought to be up for grabs annually by 2025, how can UK carriers innovate for resilience in the new insurance revenue landscape?

Risk reward ratio / risk management concept : Risk and reward bags on a basic balance scale in equal position, depicts investors use a risk reward ratio to compare the expected return of an investment

It’s been a year like no other for insurers. As events were cancelled, international travel ground to a halt and business interruption claims flooded in, and the industry grappled with recessionary conditions and an upending of risk models.

Despite this, resilience has been a key strength for UK insurers. And as they seek answers on how to compete in this changed market, there are signs of brighter days ahead.

Accenture’s recent Insurance Revenue Landscape 2025 report unveils a growing revenue opportunity for UK insurers – worth £15.9bn (around $22bn) annually by 2025.

This will come both from exploring fundamentally new product classes and from expanding market share in existing ones – so UK insurers must compete, not just for new growth, but to retain old business as well.

But where do the opportunities lie, and how can insurers get a march on their existing and future rivals?

Our analysis identified four key revenue pools: emerging exposures, life, health, and wellness convergence, traditional product modernisation, and new distribution channels. Let’s take a look at these in a bit more detail.

Tapping emerging exposures

If the last year reminds us of anything, it’s that new risks can take the world by surprise, with the pandemic laying bare a host of new exposures for consumers and businesses alike. But with new risks, come new opportunities – at least for risk carriers.

Going forward, UK insurers can build products to serve a host of emerging and newly developing lines – collectively worth an estimated £3.6bn. These include climate-related risks and cyber insurance.

As sustainability moves to the top of the agenda, risks related to climate change are expected to contribute £1.5bn to UK insurer revenues annually. For instance, as more enterprises in the energy sector focus on renewables, insurers are taking a lead in covering green infrastructure like wind farms.

Cyber criminals threaten businesses and consumers alike, and the pandemic exposed a significant protection gap for small-to-medium-businesses in particular – many being unprepared for the remote systems access entailed by home working.

By 2025, cyber threats are expected to account for a further £800mn in UK insurer revenues. A significant portion of this is expected to be for risk-mitigation services, especially as insurers are starting to partner with cybersecurity software providers. These partnerships will be essential for growing the market, making the risks more insurable and cover more affordable.

Life, health and wellness convergence

Covid-19 has driven many people to pay closer attention to their health and financial wellbeing, giving insurers a major new market opportunity in the convergence of the life, health and wealth industries. Accenture estimates this to be worth £4.5bn for UK insurers, comprising: £1.9n from direct life and wealth management products, £1.9bn from products and services for the aging population and £700mn from smart health products.

A lot of people (particularly younger people) are likely to turn to their insurer for a personalised service that caters to their lifestyle needs, such as IoT-enabled-wearables that track consumers’ behaviour and tailor their health insurance accordingly.

Indeed, 55% of consumers say they would share significant data in exchange for personalised services to prevent injury and loss - up from 40% in 2019. What will be crucial is how insurers handle that data, ensuring their customers can trust them.

Going forward, we’re likely to see a greater emphasis on mental health, and perhaps greater uptake of group digital health packages by employers.

Modernising traditional products

While revenues from emerging risks are significant, the core business propositions across general insurance, life and wealth must not be ignored. Substantial revenues are set to change hands in established lines as insurers compete for market share on the strength of their digital products and digital distribution – so no-one can afford to sit back.

We estimate there is £3.8bn on on the table for UK insurers from enhancing existing products through technology – providing customers with better-value and more personalised coverages.

A huge part of this lies in the traditional motor and household lines, where growing numbers of policyholders will renew with smart auto and smart home products.

For example, following the coronavirus outbreak, a greater number of UK citizens find themselves in the low-mileage category than ever before – and they are increasingly aware that their premium isn’t reflective of this.

Demand is ripe for flexible insurance products like pay-as-you-drive – and the technology to provide this at scale is readily available. Moreover, similar technology also underpins insurance for ride sharing and car rentals, two categories likely to grow given the increasing number of consumers whose mileage may not even warrant owning a car anymore.

Further connected products can even measure how well consumers are driving and adjust their premium accordingly, promoting road safety and reducing risks. Here lies an opportunity for insurers to fulfil a broader societal mission, one where they play the role of a trusted advisor, moving from risk compensation to risk prevention, all whilst pricing more fairly.

New distribution channels

The pandemic has heralded a new era of customer engagement, quickening the pace of digital transition for many insurers. A huge part of this is integrating technology into traditional products to maintain their appeal.

But it is also worth keeping an eye on customers shifting to alternative distribution channels, including manufacturers, technology providers and big tech players – who have the chance to capture £4bn in annual premiums by 2025.

The UK has typically been a frontrunner in distribution innovation, with price comparison sites and digital channels establishing themselves early on as a go-to for personal lined shoppers.

We are now seeing this use of digital channels in small commercial insurance as well, which has traditionally been intermediated – and this is an opportunity for savvy incumbents and insurtechs alike to capture business customers before they even speak to their broker.

Meanwhile, a new generation of customer-centric providers – typically managing general agents – are seeking to get ever closer to insurance buyers, often targeting specific pain points or embedding insurance into other services customers consume.

However, by prioritising partnership innovation – not just product innovation – incumbents can ensure they are not cut out of the picture.

Understanding what to do when faced with these shifting revenue pools is a strategic challenge. In a world where the pace of societal change is quicker than ever before, how do you structure your innovation effort to seize these opportunities and challenge yourself for new growth?

To succeed whilst fending off threats from new and existing players, insurers must differentiate themselves and their products, and futureproof their business by investing in technology capabilities. Seamless integration and digital engagement are a must-have, whatever line you are in. Furthermore, they will need to build deep strategic resilience by planning for multiple future scenarios to help themselves and their customers adapt to the ever-changing risk landscape.

Those with the right strategy, and a culture of innovation paired with the right tools and talent, will be poised for success in the new revenue landscape.