New Zealand insurers must adapt and innovate or become fringe players in the digital age, KPMG says in an industry review.

“The industry must continue to consider how technology will reshape the economy and social and cultural environments and affect day-to-day lives,” Partner and Head of Insurance Kay Baldock and Partner Financial Services Jamie Munro said.

“To prosper and fuel New Zealand’s economy, insurers must continue to adapt their business strategies to respond to changing customer needs, technology advances and regulatory demands.”

Peer-to-peer insurer Lemonade, the US-based start-up that began selling policies in September, underscores the way so-called “digital disruption” is transforming the industry.

Lemonade relies on an artificial intelligence bot called Maya to craft policies for clients online.

“It’s not only autonomously driven vehicles and the introduction of new business models that need to be considered when looking at the future of general insurance,” Head of Digital Futures Steve Graham said.

“Digitally focused organisations with robust balance sheets and significant networks of friendly customers, such as Apple, could potentially sell insurance.

“Start-ups like Lemonade, with high levels of automation and no unwieldy legacy IT systems, may be able to pivot rapidly according to customer desire, subsequently attracting some of the most profitable customers of traditional insurance firms.”

The way technology has forced the digitalisation of the news, photography and music industries should not be lost on insurers, the report warns.

“Digital disruption conversation can be very demoralising or incredibly exciting,” Mr Graham said. “New mental models are critical to the future of industry: in other words, thinking in a new way… Outdated mental models are intellectually bankrupting our future economic prosperity, so the time to reimagine the future is now.”