Almost one-third of Generation Y consumers in Australia would buy insurance from technology companies or start-ups, according to a new report.

This represents perhaps the biggest challenge to traditional insurers, according to the author Capgemini. Young consumers attach no great significance to insurance brands, and do not think it essential to buy cover from an “insurance company”.

The consultancy’s annual World Insurance Report warns evolution of the internet, advances in digital interconnectedness, changing consumer behaviour and the influence of Gen Y consumers drive an “urgent need for insurers to undergo significant transformation, or risk falling behind emerging competitors”.

Emerging competitors include “fintechs” – companies that use technological innovation to disrupt traditional financial services and insurance markets.

Capgemini Australia Insurance Practice Leader Dipak Sahoo told insuranceNEWS.com.au major insurers that recognise the need to meet these challenges are “not so much changing their operating model drastically, but rather ensuring they remain part of the ecosystem”.

Insurers must start preparing for transformation of their business, but the priority in the short term is to build “strong but agile foundations”. In the medium term they must “sharpen their value propositions” through strategic alliances and data-driven insights.

Mr Sahoo says one of the biggest changes ahead could be to the adviser model as a key distribution channel and driver of customer satisfaction.

Although the traditional adviser model is valued by consumers for its personal interaction and focus on client needs, he believes cognitive computing, self-learning systems and artificial intelligence “could eventually completely do away with the adviser model”.

“Traditional advisers face a challenge because insurance companies are able to capture and analyse, in real time, a much wider gamut of information, create risk profiles and compare solutions across millions of customers.

“So the question becomes, would that ensure a far more customised service than an adviser?” he told insuranceNEWS.com.au.

“One of our key findings was Gen Y’s inclination to use technology [when buying or renewing insurance] is far higher than for other age groups, and they use it to more frequently engage with insurance companies.”

Capgemini’s survey of 15,000 insurance consumers worldwide finds Gen Ys have more interactions with their insurers across all communication channels, particularly digital. They interact with insurers up to 2.5 times more on social media than other customers, and twice as often via mobile.

Capgemini Global Insurance Leader John Mullen says insurers that do not provide “adequate engagement for digitally advanced customers” risk losing them to a “growing population of market entrants and non-traditional technology-driven competitors”.

“Gen Y is clearly indicating they do business differently, and those insurers that respond to them on their terms will have a clear competitive advantage,” Mr Mullen said.