Insuretech: Is Fundamental Change in the Insurance Industry on the Horizon?
Many believe the answer is a resounding “yes.” An industry that is often characterized as slow to adapt and somewhat opaque to the outside world is being challenged to adjust on many fronts. Driven by external competition from tech startups and internal cost pressures, insurers and brokers are under pressure to shift their strategies and modernize.
A QUIET REVOLUTION is taking place in three main areas. The first is external; how the customer’s interaction with the insurer can be improved or changed to create a better user experience. The second is internal; how changes to processes can improve efficiencies, regulatory compliance and cost margins. The last relates to risk; specifically, ways in which technology and data can help customers manage risk, and insurers analyze and price it.
Adapting to the Next Generation of Customers
Buyers, especially younger ones, have different preferences from most insurance company executives, a trend that will continue to accelerate. Insurers need to act to limit further divergence between the demands of the buyer and their products and services as each generation becomes more reliant on, trusting of and familiar with smart technology.
FOR THE CUSTOMER, insurance buying can be a frustrating experience—multiple applications to be completed, call centers on the other side of the globe, opaque pricing and wordy policies littered with fine print can all serve to make insurance seem like a necessary evil. Improvements in any of these areas would help change the image of insurance to a valuable, customer-focused service.
NOT ALL BUYERS ARE ALIKE however. Individuals may be more attracted to a pay-as-you-go model or one where all interaction is via an in-app chat bot. Corporations and buyers that are more traditional probably still prefer to establish annual policies that do not require constant interaction. Consequently, changes must be made wisely and after careful consideration of the needs of all stakeholders.
Achieving Internal Changes
Internal change is easier to achieve. It is less disruptive to the fundamental business and can be achieved largely out of sight of the customer. Furthermore, it is likely to create the biggest short-term benefit to a company’s bottom line. For most insurance entities, internal change and increased use of technology began long ago, is constantly evolving and likely to accelerate.
Data-Driven Risk Management
The final area is data-driven risk management and analysis. The Internet of Things (IOT), wearable technology and other devices will transform the way we are able to monitor and control our own risks. This level of personal risk management will ultimately result in more accurately priced insurance products, based on the customer’s individual metrics rather than a broad swath of the population.
For insurers, data-driven underwriting will become ever more powerful. While some insurers have introduced in-car sensors to profile driving habits, others are using hidden data from online applications to price risk. At least one insurer tracks the speed with which you click though the underwriting questions and the time of day you make the application. These factors, in addition to many more you do not realize exist, influence their quoted premiums.
A POSITIVE CUSTOMER EXPERIENCE is likely to produce internal benefits and better risk outcome for the insurer. Take claims management for example. The customer reports a car theft online or via an app, the process taking only a matter of minutes. This information automatically populates the insurance company’s database and alerts an adjuster. Meanwhile the tracking device in the car has either automatically alerted the police, leading to successful vehicle recovery, or been disabled, thus creating the confirmation necessary to settle the claim quickly. In this scenario, the claim might be paid within hours of the theft with little insurance company interaction. Everyone wins in this type of scenario.
The Right Way to Make Changes
How does the insurance industry go about adapting its practices? There are a few fundamentals to consider here. Companies need to start seeing their IT departments more as a strategic investment and less like a cost center putting an unnecessary burden on the bottom line. This requires strategic thinking and a commitment to a long-term investment in technology.
Companies need to attract the best talent. While opening an office in Silicon Valley, complete with the soft furnishings and beer kegs synonymous with tech startups might be one play, ensuring that their output is valued at C-suite level and ultimately incorporated
into workflows, services and products may require a more inclusive approach.
Individuals will ultimately feel more valued if they are part of the core business. In addition, the corporate identity will need to resonate with the talent the business is looking to attract. Starched white collars and a century-old corporate identity is unlikely to attract tech geniuses, especially if they are expected to work in a less tech-centric environment than Silicon Valley. Companies need to create excitement and a positive culture based on altruistic values consistent with those of their new hires.
For now, the incumbents have a few clear advantages—brand recognition and loyalty, the ability to invest in technology and, most importantly, the customers. At its core, insurance is complex and highly regulated. This helps established companies hold on to their business. However, the startup mantra of “move quickly and break stuff” comes with much greater risk in the insurance industry than in others.
Perhaps the best strategy is to collaborate in a way that startups are empowered to challenge the norms, disrupt the status-quo and “break stuff” while being funded and supported by existing industry players. These partnerships could create a powerful environment in which the traditional players become the disruptors.
Adoption of technology for the insurance industry is inevitable. The need to adapt is being recognized across the sector so all buyers should anticipate changes to come.