Insurers and reinsurers can expect to see their margins eroded as inefficiencies are “brutally exposed” by disruptive technology, according to a report by a major management consultancy.
Oliver Wyman, an arm of Marsh & McLennan Cos, sees the financial services industry becoming “modular” — meaning that consumers will be able to more easily cherry pick providers for any particular service or transaction.
This will put pressure on existing banks and insurers, but will open the door to a flood of new market participants, concludes the report, entitled <i>Modular Financial Services: The New Shape of the Industry<i>.
Oliver Wyman describes the change to “modular” as “moving from large one-stop shops to a variety of firms competing at different points in the value chain”.
“This is a change to the whole structure of a $5.7 trillion industry,” the report states. “There will be sizeable shifts across the value chain and we have identified $1 trillion of revenues and costs that might be up for grabs.”
Technological innovation, changing customer expectations and tighter regulation giving consumers ownership of their own data and opening customer access to multiple service providers will drive the modular trend forward, the report suggests.
“The value that a firm provides will become transparent. Any weaknesses in the product offering, services provided or cost inefficiency is brutally exposed,” the report states.
Alternative capital sources will step in to back up new competitors for established institutions. Oliver Wyman cites catastrophe reinsurance as one example of this already happening.
The rise of insurance-linked securities (ILS), a sector in which Bermuda has emerged as the world leader, has disrupted the reinsurance industry, seizing market share from traditional reinsurers by providing a more efficient capital model.
Oliver Wyman says: “Over the coming five-to-ten years a next generation of digital services will solve customer hassles, removing friction from daily lives, business and investment. These services will go far beyond the basic aggregators and apps available today. “They will place powerful financial management tools of the kind now used by major corporates and institutions in the hands of consumers and small businesses.
“A race is under way to build platforms which provide a cluster of services under one umbrella, with data-sharing and a frictionless overall experience.”
Bermuda has the potential to be a financial technology (fintech) hub, according to some including Stuart Lacey, the founder of Trunomi, a Bermuda start-up that has won global acclaim for its innovations in the area of personal data management.