4 minute read 13 Sep 2019
businessman on smartphone at desk

Why insurance business models are going to change

By Peter Manchester

EY Global Insurance Consulting Leader and EY EMEIA Insurance Leader

Leader in insurance transformation and strategy. Active interest in new entrants. Uses leading-edge technology to transform the customer experience and insurance landscape.

4 minute read 13 Sep 2019

We explore the key scenarios already influencing the industry’s decisions that are set to become the new normal in the NextWave.

The most serious threats – societal megatrends, disruptive technology advancements, and intensifying competition from new and traditional players – also hold the greatest potential for growth and transformation. Insurers that can demonstrate new and differentiated value to individuals, businesses, and communities around the world will seize that potential and prepare themselves for success on the industry’s next frontier. 

Insurance leaders must maintain their resilience in navigating a complex and turbulent future. As the strategic evolution of the industry accelerates, the most effective response for insurers is to harness the power of change and thoughtfully design their futures. They must develop their vision for the future and adjust their strategic and tactical plans to realize that vision. 

Our new report, NextWave Insurance: personal and small commercial, explores how insurers must change to meet the challenges and seize the opportunities of this rapidly-evolving world. In it, we argue that today’s insurance marketplace is hyper-competitive with extremely tight margins, slow (if any) growth and high operating costs. The industry’s current economics are unsustainable – which means insurers need to rethink their business models to compete.

There are five key areas insurers need to consider in developing effective business models to enable them to adapt for the next wave of insurance:

  1. Direct, digital and embedded sales will become dominant channels for growth
  2. The subscription revolution will see insurance deeply woven into consumers’ everyday lives
  3. Ecosystems will expand as the cloud and new connections enable radical innovation
  4. Real-time risk visibility and responsiveness will become reality
  5. AI adoption will accelerate change

Rethinking traditional insurance business models

The long, slow decline of the traditional insurance agency model will continue and even accelerate in mature markets. For laggards, channel conflict and cannibalization will prove exceedingly difficult to manage. Investing in multiple channels will be too great a cost. Some may remain committed to the potentially profitable, but slowly fading, revenues of their old-line distribution networks. 

China, already among the most digitally advanced markets, will see rapid innovation and sophisticated hybrid strategies. In other Asian markets, the agency model will remain viable, with agencies consolidating to control market share.

In Europe and Middle Eastern markets, the continuing growth of the aggregator model will influence the fate of the agency base. Direct and digital leaders will be those companies that use data and analytics to target profitable customers, while minimizing acquisition and service unit costs.

The most effective insurers will target and cross-sell more effectively and build out robust self-service capabilities. They will enable digital agents with AI and machine learning to engage with customers using text, video, and voice recognition technologies. 

Getting more value from the value chain

Our dialogue with industry stakeholders and analysis of the financial performance of various insurers leads us to conclude that one or two small commercial carriers could capture a large, even dominant, market share – up to 30%, compared to 5%–6% today.

They will do so by bringing economies of scale, pricing sophistication, and marketing analytics to personal lines and combining these with a seamless and intuitive customer experience that is enabled by their ecosystem relationships. Ecosystems see multiple companies partnering to offer specialized but complementary services in mutually beneficial ways – and are one way for insurers to expand the value of their offerings.

Leaders will capture market share by defining their role in the ecosystem relative to other types of entities (e.g. sharing platforms, social media, InsurTechs, data providers, customer associations, business services). Every link in the value chain is constantly evaluated, with executives asking whether it’s better to buy or build, and what services can be sold into the marketplace.

A shift to subscription

Compared to other financial services firms, which generate fees largely based on transactions, insurers already operate somewhat like a subscription, with regular payments and auto-renewals; insurers just need to engage consumers more frequently and creatively.

As such, subscription models are largely about customer-centricity – that is, offering products and services that reflect the way people really live and businesses actually operate. Laggards in the industry will remain product-centric in their thinking and approach. They will be most vulnerable to losing customers to the financial offerings of tech giants or InsurTechs, which are poised to lead the charge in the subscription revolution.

Customer demand


increase in consumer demand from insurance subscription models.

Recent EY research confirms that insurance subscriptions are attractive to many consumers and businesses because of their easy and convenient bundling of holistic services, many of which will be provided by ecosystem partners. 

The secret sauce for subscriptions in insurance is linking services and engaging customers around key life events (e.g., starting a new household or downsizing for retirement) or emerging lifestyles (e.g., urban gig workers, recreational farmers, world travelers) and complex financial decisions   (e.g., launching or expanding a business).

The rise of hyperconnectivity and real-time risk

Consumers have already become accustomed to tailored notifications and prompts through activity trackers, wearable tech and mobile apps. People – and businesses – who like personalized guidance for traffic, weather and fitness will likely accept similar services for risk exposures (particularly if it helps them save money). This means the next major innovation opportunity with data and analytics for insurers involves rapidly identifying and precisely measuring risk, and then using that insight to proactively meet customer needs.

Insurers will capture streams of data from apps, mobile devices, wearable tech, connected vehicles, smart homes and workplaces, as well as alliance partners and the billions of devices connected to the Internet of Things (IoT). By applying AI, machine learning and other advanced analytics techniques, they can measure risk and price premiums in real-time, leading to discounts, tailored prevention services and usage-based products.

Real-time risk visibility is clearly a win-win. For small businesses, better risk management promotes bigger profits. For individuals, it’s about safer and better lifestyles. At the same time, insurers benefit from closer long-term relationships based on more frequent interactions and opportunities to add value.

AI: an enabler of and catalyst for change

As long as there are insurance companies, there will be claims to process. But in the future, the number of claims will fall to a fraction of what it is today as real-time risk advice and new technologies have a positive impact.

Keeping customers


of consumers who say claims experience impacts their decision to stay with an insurer.

Early adopters are just scratching the surface now:

  • Vehicle owners submit photos or video of accident damage immediately through mobile apps
  • Aerial drones inspect damage to homes and commercial buildings after storms
  • Loss estimates are calculated via machine-learning models
  • Chat-bots manage customer interactions and alerts
  • Lawyers are replaced by AI arbitration services
  • Predictive models identify fraud
  • Payments are electronic and instantaneous

Automation of the analysis of all these new sources of data via AI tools lays the groundwork for true claims transformation. Claims experiences were once a huge driver of customer satisfaction, with negative experiences undercutting loyalty. With higher degrees of automation come fewer customer defections due to poor claims experiences. 

In short, the leading NextWave insurers will be skilled analysts and investigators, whose judgment is enhanced – rather than replaced – by advanced tools. The end result will be a seamless claims experience that reimburses losses faster than ever, increases loyalty and strengthens trust.  


A range of external and internal changes are emerging that will, in the next 5-10 years, force the insurance industry to adapt or be overtaken by alternative business models. From fresh approaches to customer-centric services to the rise of AI and real-time data analytics, these are the forces that are changing insurance – and that means insurance needs to change.

About this article

By Peter Manchester

EY Global Insurance Consulting Leader and EY EMEIA Insurance Leader

Leader in insurance transformation and strategy. Active interest in new entrants. Uses leading-edge technology to transform the customer experience and insurance landscape.