Digital services demand could displace $280B of traditional insurance premiums by 2025

Insurers adapting to emerging risks, data-driven products and digital distribution are poised to capture new revenue opportunity

Rising demand for digital insurance premiums and their online distribution is expected to displace US$280 billion of current insurance revenues by 2025, challenging current customer retention levels, according to a new report from Accenture (NYSE: ACN).

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In the report, “Insurance Revenue Landscape 2025: Innovate for Resilience,” Accenture analyzes how the insurance industry’s revenues will be affected by new customer, demographic and technology trends.

The research shows that, despite the global recession of 2020, the global insurance industry will grow from US$6.1 trillion in early 2020 to US$7.5 trillion by the end of 2025—a compound annual growth rate of 3.5%. This includes $800 billion in U.S.-centric healthcare payer premiums, which have not traditionally been counted as part of the insurance sector, but have become material due to global demand for convergence of digital health products and services, such as wellness offerings.

As customers renew their policies with data-driven offerings, US$140 billion of current insurance revenues may likely shift from traditional to technology-enabled insurance products, including switching to behavior-based insurance for connected vehicles and smart homes. Concurrently, another US$140 billion of current revenues in traditional insurance distribution could be displaced by insurers offering digital distribution experiences, as customers purchase insurance on digital channels and third-party platforms.

“The recent acceleration to digital channels threatens the renewal of some traditional premiums and alters the future revenue landscape for insurers,” said Kenneth Saldanha, who leads Accenture’s Insurance industry group globally. “While the industry will remain resilient and grow, the pace of technology and societal change is coming faster than expected. Insurers that reimagine how they run their business and engage their customers with digital experiences will be positioned for success. Insurers who move from traditional to technology-led offerings that are better integrated with customer data are better positioned to lead; others risk losing revenues to digital-first competitors and new entrants.”

The report finds that insurers will compete for new revenue growth in customer wellness, particularly as they make new partnerships in a digital ecosystem to improve customer health and personal finances. The report estimates that the convergence of the life insurance, health and wealth industries will generate US$120 billion in new revenues — comprising US$60 billion from smart health products; US$30 billion from products and services for the aging population; and US$30 billion from direct life and wealth management products.

Insurers will also compete for new revenues to cover emerging and newly developing risks. As insurers cover exposure to environmental catastrophes, risks related to climate change are expected to make up US$50 billion of new insurance revenues. As cyber threats rapidly rise, coverage and risk-mitigation services related to cyber threats are expected to generate another US$25 billion. Insurers that improve pre- and post-incident handling with digital technologies, like artificial intelligence and analytics, will enable more sophisticated risk modelling and incident response.

Ravi Malhotra, who leads Accenture Strategy’s Insurance industry group in North America, said, “A fast-changing world, filled with environmental risks, cyber threats and more people feeling physically and financially vulnerable, is causing insurers to reimagine their role in the economy and position themselves as risk preventors, not only compensators. In health, consumers are increasingly comfortable sharing data for products that help them maintain healthy habits, giving insurers an opportunity to provide a more holistic risk-management service that changes their role from financial safety net to an active partner in preventing and mitigating injury and loss. Working with reinsurers can also help to cover climate change risks – especially in emerging markets where there is currently a massive gap in coverage.”

Read the full report here.

Methodology

The research examined insurance industry activity against broader shifts in global markets, analyzing both customer demands and how insurers are responding from the supply side. The analysis analyzed the impact of more than 70 trends, including demographic, economic and environmental change, and the dynamics of global revenue pools. Accenture developed a model to analyze customer demands across the following areas – smart products, sharing economy and other emerging risks, including ageing population, climate, cyber, crisis management and autonomous vehicles.