The insurance sector is set for a “collective shift in the industry’s central purpose” from loss reimbursement to risk solutions over the next decade, a new report from Bain & Company says, as policyholders increasingly look to providers for help after "intense turbulence and uncertainty” in recent years.

Broader services and solutions can lead to more engagement with customers in an industry that traditionally has few customer interactions, Bain says, and also expand the market to new demographics or geographic segments.

It points to past efforts such as advocating for seat belts in cars and safety standards in house construction.

"The business case for a broader role can be tough to embrace, with a multiyear payback period and new skills required,” the report said.

“The role entails figuring out how to promote personal advice and service rather than product, managing an ecosystem of partners, using data to target the right set of interventions, and adopting new economic models.”

Consumers value purpose, not just coverage for losses, and the traditional premise of insurance – providing capital to cover risk and reimburse claims –doesn’t “fully satisfy” anymore, Bain says. Extreme weather events, covid, ageing populations, and technological disruptions are combining to radically change the risk landscape for home, car, health, and financial wellbeing.

“The changes thrust insurance companies into an identity crisis that calls on them to redefine their role.

“They have the chance, perhaps even the duty, to take a firmer hand in moving beyond reimbursement for damage to encouraging behaviours and providing solutions in ways that will reduce risks,” says the report, which is based on a survey of 28,765 consumers in 14 countries.

New technologies and "massive” data sets on driving behaviour and other relevant trends, enable insurers to directly partner with customers to identify, prevent, and mitigate each risk event.

"Consumers see a greater role for insurers than merely delivering on the basics of coverage. That expanded role starts with the broad dimension of risk reduction.”

Nearly 90% of Australian consumers are highly interested in risk prevention services from their insurer, such as inspection services prior to buying a car or home, and rewards for healthy living, Bain says.

“We are seeing a continuing shift in the industry’s central purpose from loss reimbursement to risk solutions this decade,” Bain Associate Partner Adam Swirski said.

Last year, general insurance in Australia grew 10% while life insurance contracted 1%, the Customer Behaviour and Loyalty in Insurance: Global Edition 2023 publication says.

Australians increasingly preferred interacting with their insurers via digital platforms over the past year, with more than half of customer interactions for general insurers conducted via digital-only channels, up from 35% a year earlier.

“More frequent natural disasters in Australia over the past few years means that customers are interacting more with their insurers and increasingly using digital channels to do this,” Bain Partner and Insurance practice lead Richard Hatherall said.

Australia and the UK lead digital-only interactions, while in the US uptake is only 40%, Germany 30%, and Singapore 35%.

Consumers still prefer a human-digital combination for more “complex episodes” such as making a claim, Bain says, with the use of hybrid channels increasing to 60% of those interactions.

“Getting the right channel mix has a strong influence on customer experience,” Mr Hatherall said.

"Australian consumers want insurers to help reduce risk and simplify interactions,” the report said. “Consumers also value more purpose-driven product features.”

Some insurers are already working with customers and governments to prevent risks via behavioural change, advanced risk identification, tracking, and management.

Consumers also want insurers to excel beyond functional basics in the areas of ethics, providing access, and reducing anxiety. Bain says few insurers currently excel at using these elements in their proposition.

Australians are placing more emphasis on emotional and social elements of value in insurance, Bain says, such as whether their insurer engages in transparent and responsible business practices, and whether the product is a good investment for future generations.

"Customer loyalty increases when insurers excel in these higher order value elements,” the report said.

It recommends insurers digitise select elements, shift from loss coverage to risk prevention, and also move from functional product excellence to serving customers on more emotional and social needs.

“To achieve this, insurers must commit to listening closely to consumers in the vanguard,” Bain said.