What threats will the Dutch insurance market face in coming years? We spoke with Rutger Hagendoorn and Jurgen Wildvank from Accenture about the domestic insurance market, threats from abroad, and the need for multi-skilled talent.
The Dutch insurance is fairly well-advanced in digital transformation compared with other countries, and the market is relatively stable. While this is good for businesses, it also means they risk becoming complacent. According to Rutger Hagendoorn and Jurgen Wildvank, Dutch insurers need to keep their eye on three main threats: a crowded market, overseas competition, and insufficient talent.
A crowded market
At the Fintech Vortex conference last September, panel moderator Conny Dorrestijn described the Dutch as being “totally over-insured.” In fact, the Dutch Consumers’ Association (Comsumentenbond) and the Dutch Association of Insurers (Verbond van Verzekeraars) made public statements on this issue in 2012. They explained that many Dutch people are double- or triple-insured, and that many families are over-spending on insurance to the tune of 800 euros per year.
Convincing consumers that they need insurance is clearly not a problem. But this saturation means there is little room for Dutch insurers to grow in the domestic market. Worse, they are facing price pressures as a result. As Rutger Hagendoorn explained:
“There is a lot of price pressure, that’s more on the non-life part. But you also see some kind of stabilization currently because prices can’t drop further. Companies are making a loss so you actually see prices increasing.”
One phenomenon Hagendoorn refers to is the “attack of the ants” in which new (insurtech) companies are “chipping away margins” within the insurance value chain. Thus far, this is manageable, but it will not stay this way for long. Hagendoorn stresses that companies need to begin preparing now so that their business model is still viable in 4-5 years.
Another major threat on the horizon is the “wolf at the door”: the likelihood that companies such as Google and Amazon will enter the insurance market and squeeze out other players. According to Hagendoorn, this is not a matter of if, but when.
Hagendoorn and Wildvank suspect that Dutch companies will not adapt their strategies in time to cope with this threat. “When the wolf opens the door,” he says, “although they know, it will still be a surprise for everybody.” While Dutch companies are aware of this threat, they struggle to find the resources to invest in the future, especially since they are currently dealing with regulatory changes, such as IFRS17.
According to a recent Accenture report, the potential to lose market share is immense. They estimate that approximately 40% of the current revenue base will be at risk by 2025. Wildvank says:
“You really should think about this now. Where do you compensate that 40% from, or do you just accept it and scale down? You need to think what the compensation will be. If you don’t have a strategy in place at this moment in time, then you will surely have a very small piece of the pie in four or five years.”
Companies must find ways to balance dealing with current issues and thinking about the future.
Companies are beginning to think about how they can increase their profit margins, but one major obstacle they face is uncertainty. This is particularly true in the pensions industry, said Hagendoorn:
“Due to the new pension system, people are waiting for a decision, looking forward to the future, thinking about what might be the scenario so you don’t see many changes there. You see companies working towards blockchain solutions, thinking about in the future how will pensions look like. If people can swap pension providers easily, the new system might be able to facilitate this. So companies are working on this, but it’s difficult to invest in new technologies and ways of working if you don’t know what’s going to happen.”
How, then, can insurers serve Dutch customers better? As Hagendoorn explains, banks and insurers have completely different relationships with their customers:
“Banking have far more frequent contact with their consumers, so there’s more push to really make the customer journey as smart as possible and have a great user experience. Insurers, well, if you’re unlucky you have contact with your insurer twice per year. It’s more difficult also to make that push very hard.”
Wildvank believes that it will be some time yet until we see the Internet of Things (IoT) taking hold in the Dutch market: customers are not quite ready for our homes to be connected or our fitbits to send our health data to our insurers. However, he says, for the shorter term it is more likely that insurers will try to get more involved in the everyday life events of their customers, like buying a home or turning 18.
One possible approach to gaining and retaining customers is the “cradle to the grave” model of financial services. The idea is that offering families financial products to suit different life stages will help to build product relevance and brand loyalty, thus discouraging customers from switching providers. The financial service providers that are best placed to make this strategy a success are the larger institutions who offer a wide range of consumer finance products. But, as Rutger stated:
“The cradle to the grave approach is an interesting strategy, but it is very difficult to achieve as an organization. As a customer you have all these big decisions to make throughout your life. It’s not just insurance, you also have to think about mortgage, and look at the full financial picture of your investments. You have to think about children, having a savings fund if your children go to college. All of these decisions are part of this journey, so you’re changing your business model if you want to go there.”
Referring to Accenture’s “Everyday Insurer” report, Wildvank commented that companies’ role can even go beyond offering financial services to helping with other aspects of family life:
“Different life events are taking a bit of a broader role than just insurance. We are already seeing it in the UK, where for example if people are moving homes, then the insurer company helps them in selecting the right home. Another example is Liberty Mutual in the US, if you are moving to a new neighborhood Liberty Mutual gives you some insight into what that neighborhood looks like, not only the demographic but also how safe it is, credit scoring and so on, based on the insurance data that they have.”
In some areas of insurance, prevention methods are beginning to be implemented. For example, an insurer could collect weather data and alert customers to incoming storms. The consumer could then be sure to prepare for the storm, such as by putting their car in the garage of securing their windows. This prevents damage from occurring in the first place, and therefore reduces the claims that customers need to make. However, according to Hagendoorn:
“Prevention is an interesting point because it’s difficult to make a business case for it. A lot of insurers are struggling, they have a certain belief that it works, but it’s difficult to make it tangible and quantifiable. There is a risk that you are my client and I give you a lot of prevention, but when the going gets tough you change to something else and then I lose you as a client because it’s cheaper somewhere else anyway. That’s especially in health insurance one of the biggest issues. Once you invest in prevention and, for example, the first line health care, for your customers, other customers are using the same facilities that you’re investing in, so how do you compensate?”
The Netherlands does have one critical advantage: compared to its neighbours, says Hagendoorn, it is quite far along in the digitization process. Dutch customers no longer buy insurance from storefront agents; they buy it online. Also most large-scale implementations of new backoffice systems have already been carried out 3-6 years ago. So that creates a good starting point for change.
The next step, he explains, is working with data to understand customers, develop the right products, and serve them in effective ways.
Getting enough quality data on consumers is no longer an obstacle. The real problem is finding the right talent to make something of all this information. But, these days, it is not enough to have a good quantitative analyst: you need people who are skilled in both technology and business, who are able to work in multi-disciplinary teams, and who are “willing to make mistakes.” Hagendoorn describes this as the problem of “the sheep with five legs.” Finding employees who are skilled across all these areas is challenging. As he explains:
“The challenge is not the knowledge any more. The technology is there. The data is there. It’s really about the people, it’s about the workforce of the future, to have the right people with the right skills to use this technology, to create the right hypotheses, to do the right analyses, to go to this next step. That’s really what we see, that’s fundamental…. there’s a mismatch with the people who are currently working in insurance companies and the people they actually need in the coming years. And I would say that’s a boardroom discussion that’s not yet on the table.”
This is where start-ups have an advantage:
“That’s also a cultural change that you need in a corporate environment like an insurer. If you look at what they can learn for example, from the fintechs and insurtechs, it’s how to fail fast. Everybody’s trying to get those cultures in because they know they have to be like that, and the only way to change is to really hire people who understand how it works and who really carry this culture of failing fast and taking the next step.”
Start-ups, according to Hagendoorn, are “challenging the current institution to change their business,” and Accenture are helping them with this. Wildvank’s advice to Dutch insurtechs is to look for partners to work with:
“If you really want to grow in the local market then you should really be looking out for partners that can help you in the distribution side. This doesn’t have to be one of the insurance companies in the Netherlands, but could also be a retailer, so long as you have access to a large footprint.
Hagendoorn agrees, stating:
“Most of these startups want to have their own brand, but in this market it’s too condensed, there’s too much competition, you have to partner. If you don’t do that, then I don’t think you’re really going to make it, I’m afraid.”
The takeaway? Insurers must focus at two fronts: both at the ants at the door, nibbling away their margins, and even more start paying attention to the wolf at the door. To achieve this, they will need to equip themselves with sheep that have five legs.
Rutger Hagendoorn is managing director within Accenture Netherlands’ Financial Services, responsible for the Dutch insurance practice. He is passionate about helping both financial institutions and communities prepare for and cope with the major transformations taking place in the financial services industry. Rutger studied Economics at the University of Amsterdam. Before Accenture he worked at Boer & Croon Corporate Strategy.
Jurgen Wildvank is a Senior Principal for Accenture Insurance. He has worked with many insurers on how to cope with changes in customer demands, increasing competition, digitalization and new technologies. Jurgen holds a Master degree in Technical Business Science, University of Groningen.
Accenture is a professional services provider specialized in innovation, with four main branches: strategy, consulting, digital, technology and operations. The global firm assists insurers in a broad spectrum of business issues, including implementing systems, innovation, business models, digital transformation, and marketing.