Insider Views

Rethinking Insurance: COVID-19 as a Catalyst for the Digital Transformation in the Insurance Sector

Acceleration of the digital transformation

The ongoing Coronavirus crisis has accelerated the digital transformation process in the insurance sector. Throughout the last ten weeks, the majority of firms operated in “situation room mode”, dealing with an immediate response to the pandemic. It is becoming clear that the industry has done an excellent job in this regard. Most employees have successfully worked from home and kept the core of the business running. However, now it is high time to ask what the “new normal” will look like and how insurers can prepare for it.

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The “new normal”

In a recent study, we have examined these questions from a scientific and practical perspective. In order to compare the expectations of the customers with those of the insurers, we surveyed executives as well as randomly selected individuals. The results allow for a first assessment of the current sentiment in the industry.

More than 90 percent of the participating insurance executives stated that the corona crisis will be a catalyst for transformation and induce a more digital culture in their company. Around 50 percent of the responding firms have opted for an early implementation of planned digitization projects. 25 percent even launched completely new digital initiatives. Why were insurers holding back on the implementation of so many innovation projects before the crisis?

Why holding back?

One reason could be the industry’s long and cumbersome decision processes. Those are unaffordable in the situation room, where the top priority is to get the crisis under control quickly. Discussions are entirely goal-oriented and decisions are made more pragmatically than usual because they cannot be postponed to a later date. This agility and focus on implementation are key lessons that should be transferred into the new normal.

In addition to adaptability and decision-making speed, the digitization of sales activities played a central role in insurers’ immediate crisis responses. Most companies were concerned with digital distribution tools, such as electronic signatures or video advisory. The focus on innovation in sales is not surprising. After all, this is where the shutdown exerted by far the greatest impact on the industry’s daily operations. It would be fatal to assume that distribution will return to old patterns after the crisis. Instead, the key learning is that sales departments need to be positioned differently in the future.

The need versus the offering

In this regard, customers’ expectations differ notably from those of the insurers. 62 percent of the surveyed individuals claim that going forward, they want to purchase their insurance policies online. From ordering at their favorite restaurant to dealing with credit matters – during the lockdown households have quickly learned to appreciate the fact that they can handle their affairs digitally without the need for physical contact. Although customers still want personal advice, they are less and less prepared to visit brick and mortar agencies and broker offices. Hence, the corona crisis is speeding up the shift from purely offline to a hybrid online customer.

Yet, 54 percent of insurers claim that they will continue to mostly rely on classical intermediaries. That being said, the rising average age of the insurance sales force and the lack of digital competencies of traditional intermediaries will likely become serious obstacles to a successful insurance distribution in the new normal.

At the same time, platforms are capturing ever more insurance business. More than two-thirds of customers stated that going forward, they want to use comparison sites to select their insurance policies. Since Easter, aggregators have recorded significantly more insurance customers than usual. Furthermore, during the crisis, the time spent on comparison platforms increased by 20 percent and the number of policies purchased increased by 10 percent. A significant majority of insurers seem to have accepted that these figures will not decrease in the new normal: 70 percent of the surveyed executives replied that they see their company as a supplier for aggregators.

Business ecosystems quickly gains importance

In addition to the already established comparison platforms, business ecosystems are quickly gaining in importance and will likely play a central role in the new normal. Over 80 percent of insurers believe that the corona crisis favors digital ecosystems since customers are looking for holistic solutions instead of stand-alone product and service offerings. On the customer side, 40 percent of respondents indicated that they want to be left alone by insurance companies, as they have other aspects to worry about during the lockdown. Consistent with this view, more than 60 percent of insurers said that they are already constructing ecosystems, mostly in the areas of mobility, housing, and health.

The unequivocal statements revealed through our study once more underline the variety of challenges faced by the insurance industry in the digital age. COVID-19 is a catalyst for change, which will shorten the remaining time available for a successful transformation. In order to prevail in the next normal, insurers need to recall the lessons they learned in the situation room. Some did make substantial progress in becoming multi-handed organizations, capable of tackling several transformational projects at once. Others still have a long way to go. Those that already pursued an ambidextrous or multi-handed approach before the Coronavirus Crisis were confirmed in their positioning.


This post is based on the article “Digitalisierungsbeschleuniger Corona: Warum Vergleichsplattformen und Ökosysteme gewinnen”, which the author Alexander Braun published together with Martin Fleischer (Bavaria Direkt) and Dr. Aneta Ufert (Versicherungskammer Bayern) in Versicherungswirtschaft Heute.

About the author

Alexander Braun

Alexander Braun is Vice Director at the Institute of Insurance Economics (I.VW-HSG) and Senior Fellow at the Wharton Risk Center (Penn). He is also a risk management professor at the University of St. Gallen (HSG) in Switzerland. The focus areas of Mr. Braun comprise Natural Catastrophe Risk, Insurance-Linked Securities (ILS), Digital Insurance and Sustainable Insurance. Mr. Braun has published in leading scientific journals such as the Journal of Risk and Insurance, the Journal of Banking and Finance, the Geneva Papers on Risk and Insurance, and Insurance: Mathematics and Economics. He regularly presents at worldwide academic conferences in his field and has been an invited moderator, panelist, and keynote speaker at various industry events. His research and teaching activities have been awarded, among others, by the American Risk and Insurance Association (ARIA), the Asia-Pacific Risk and Insurance Association (APRIA), the Geneva Association, the International Insurance Society (IIS), and the Casualty Actuarial Society (CAS).