May 22, 2006 14:08 ET

Pay-as-You-Live Insurance and Active Risk Management Will Help Industry Bridge to the Future

Leading Global Insurers Indicate Bold Transformation Ahead According to IBM Global Study

LAS VEGAS, NV -- (MARKET WIRE) -- May 22, 2006 -- The worldwide Insurance Industry will engage in a series of bold transformations over the next 15 years, creating a dramatically different set of products, services and business process, all in the name of value creation and long-term growth, according to a newly-released IBM global study.

Pay-as-You-Live Insurance -- which deals with life 'as it happens,' Active Risk Management -- reducing claims management and costs by placing emphasis on preventive actions, and new business processes that lower costs and broaden product appeal, will replace the decades-old insurance models. Long-held industry standards are about to reach the point of diminishing returns and will fail to deliver lasting value. These new scenarios leverage today's emerging technology as well as technology anticipated in the near-term future.

These concepts and others were unveiled in a year-long global study conducted by the IBM Institute for Business Value (IBV), "Insurance 2020: Innovating Beyond Old Models," that provides a new perspective on the challenges insurers will confront in 2020 and strategies for successful innovation. The findings are the result of discussions with more than three dozen global insurance industry executives, who run the world's premier Insurance organizations as well as other influential stakeholders from around the world.

The research examines disruptive forces that will influence the industry over the coming years, including technology, complex regulation, and competition from an increasing number of sources. In addition, changes in customer demographics, the proliferation of online information sources, and the impact of globalization are creating a host of new industry challenges. Study participants overwhelmingly agreed that the industry must evolve to meet the needs of a changing customer base -- and that current modes of operation would threaten the industry's ability to innovate.

"The pursuit of a new model is actually the opening of a new era, or at the very least, it is the undertaking of a new course for the industry," according to one CIO survey participant. "The task ahead is as much a battle for a change in direction as it is a battle for a change in mind-set among the industry's existing players."

"Optimizing the current business model, although an important strategy for many insurers, can no longer be the proxy for innovation that matters to the insurance industry," said Mike Adler, Global Insurance Industry Leader, IBM Global Business Services. "The industry is evolving toward an era of experimentation and innovation -- tomorrow's insurance value proposition will be based on the ability to provide financial services and risk mitigation in ways that are adaptive and customized to meet individual needs."

Mega Trends

Survey respondents and data analysis revealed four mega-trends that underscore the need for innovation and will pave the way to consistent value creation for stakeholders by the year 2020:

--  Technology virtualizes the value chain and lowers barriers to entry.
    The rising tide of technology will enable an increasing number of niche
    service providers from inside and outside of the traditional value chain.
    Within the 15-year timeframe, a number of partial and even totally virtual
    companies will surface to meet the needs of consumers and businesses.
--  Active, informed consumers across demographic groups reward non-
    traditional operators. The impact of modern information networks and the
    ongoing transfer of financial responsibility to end customers will drive
    attitudes regarding increased services and convenience. Applicants and
    policy holders from a range of demographic groups will shift loyalties to
    carriers that consistently meet their expectations.
--  Mainstream insurance products are dynamic and provide more consistent
    business performance. Dealing with a global population that eagerly
    consumes and thrives on communication and personalization will drive
    carriers to develop products that are flexible and adaptable.  Technology
    will empower insurance companies to bring their products closer to real
    time interaction via sensor networks and enlightened privacy regulations.
--  Regulatory coordination and the use of affirmed industry standards
    broaden to global scales. The globalization of all industries and the need
    for efficiency will drive the coordination of consumer and business
    protection across geographies, increasing automation and underscoring the
    demand for industry standardization.
Survey participants noted that they could achieve success by sticking with today's modes of operation, which have served them well for decades, but that these systems will hamper growth moving forward. Industry innovations that address changing customer demographics, new technology, regulatory changes and other factors that will arise in the years ahead will be the basis for growth.

They predict that over the next decade there will be a significant increase in the flexibility of insurance products, and that increased use of pervasive computing technology will make this a reality. Calculating the cost of a specific risk will make use of inexpensive sensors tied into the next generation internet. Data provided by these sensors will support real-time calculation of risk, and keep a running tally of premium costs based on the actual risk presented -- serving both life and property policies.

Similar technology will also support a broad range of policy duration products such as "just-in-time-insurance," where each step of a journey would represent a different risk, such car-to-train-station, train-to-city, station-to-office, etc. A "pay-as-you-live" scenario would trade some location and time of day privacy data for lower insurance bills overall. And in the spirit of active risk management, the same network of sensors could also provide convenient information, i.e. avoiding an overloaded expressway, relayed on the appropriate device such as the car audio system, a phone, and then in email or as a phone call in the office.

"Technology is creating a new playing field for this industry. Customers have access to virtually unlimited information -- once the domain of the carrier. They're savvy and informed, and know they have choices. These same information sources are enabling niche players to enter the game from a variety of sources and they are creating an interesting competitive landscape," noted a CTO.

Another imperative identified in the research is a switch to customer versus product centricity. In the highly connected world of 2020, policyholders will have much greater access to products and the ability to make decisions on their own. The concept of agency will eventually succumb to the power of advocacy, so individuals will look to financial services advocates to provide advice as they navigate insurance and financial services markets. The traditional agency channel will not be gone by 2020, but it will look different in the face of smart software and the salaried advocate model.

"Today, it's crucial to work as a team with the individual customer's best interests as the goal," said another respondent. "With so many options and choices -- many just a mouse click away -- it is critical to provide the user with a personalized experience including innovative products and services. Bringing the customer into the equation helps eliminate some of the old myths and perceptions about the industry. Technology, demographics and other factors will change, but one constant remains -- focus on the customer will always be key," concluded a survey respondent.

The full research results and whitepaper are available at:

About the IBM Institute for Business Value

The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. The Institute, which is part of IBM Global Business Services, draws on IBM consultants around the world to identify issues of global interest and to develop practical recommendations with local relevance. With consultants and professional staff in more than 160 countries, IBM Global Business Services is the world's largest consulting services organization. This paper is part of an ongoing commitment by IBM to provide forward-looking industry and business points of view, and to help companies and industries transform their futures. For more information, visit

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