The following is an opinion piece from Clare Seekins of Market Gravity, in which she shares her insights on how the insurance sector is transforming.
The insurance industry is one of the oldest there is, dating back to Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC respectively, with merchants paying lenders a premium to guarantee to cancel a load in the event of a lost or stolen shipment.
The principle of distributing risk among many players is unchanged but the surrounding wrapper of services is changing rapidly. The internet first brought new ways to search and research insurance policies, and now technology is transforming how consumers are able to manage and pool risk, as well as their expectations of processes and the overall experience.
Here are my thoughts on where the insurance market is going and how technology is disrupting it to ensure it fits into consumers’ lifestyles, so businesses harness and understand the benefits digital disruption can bring.
There are five major themes that are at the leading edge of industry transformation:
1. Think customer, not product
Digital functionality has proven to be a major catalyst for total customer-centricity across all industries. A corporate’s digital face is now the essence of customer relationships, and excellent experiences are required for customer retention. This means that understanding customers and their needs is necessary for all businesses.
Customers increasingly want comprehensive coverage, not ad hoc product selection. Pushing products on to customers doesn’t work anymore. Designing products and services around customers is the way to win. A great example of this is Policy Genius - rethinking insurance and insurance shopping from the consumer perspective. Its free, online Insurance Checkup Tool will identify gaps in coverage and present product options as well as a ‘to do’ list to address these gaps.
2. Get smart with data
More analytics are critical to digital success. The growth of Internet connected devices and sensors is projected to reach 50 billion by 2020. This will have a significant impact on the availability of real-time information – a trend often referred to as ‘big data’. Insurers who can exploit this information for better pricing, underwriting and loss control will have a distinct competitive advantage over their peers.
More data means improved risk modelling and more accurately priced policies. In the UK,
Aviva Drive offers cheaper insurance premiums for safer driving via an easy-to-use app which tracks acceleration, braking and cornering to give users a safe driving score which makes them eligible for discounts. Another example is Vitality Health which offers health insurance that rewards customers for being healthier - including partner discounts for getting active and cash-back as an incentive for not smoking. This service integrates with Apple Watch which customers can part pay for through earning Vitality Points by completing activity challenges.
3. If you’re not mobile you’re nothing
An essential component of a consumer-centric experience is full integration with the devices and platforms customers use the most. However, mobile has to be just one part of a seamless, omni-channel experience. It doesn’t replace other channels, it enhances them – consumers may start the search on the bus or in the waiting room, but then complete the transaction from the laptop on the kitchen table.
If insurers are dedicated to investing in integrated mobile functionality and delivery channels, they will likely see costs go down as a result. For example, quicker registration and automated interactions will drive down administration costs (as well as offering a less bureaucratic customer experience). Well executed mobile and social media experiences can also reduce the cost to acquire and retain customers.
Snapsheet is building a white label, claims experience – allowing drivers to use their usual behaviour on their phones to submit and receive claim information. A central capability is allowing drivers to take pictures of their damaged cars at the scene of the accident, and immediately upload them for appraisal and claims processing.
4: Take part in the sharing economy
Peer to peer business models are popping up around the world. The central thesis relies on the power of community and belonging and the trust this breeds. That is, when you share risk with people you know (even if just virtually), the incidents of fraud decrease, as do the number of claims. Fewer claims means lower premiums for the insured and lower administration costs for the insurer, and social network dependencies means lower acquisition and retention costs. Additionally, peer to peer models often incur lower acquisition costs.
Companies pursuing this model are building slick, customer-focused, data-driven insurance systems – like
Lemonade, which recently launched in New York City.
Lemonade is challenging some basic assumptions of the industry – namely the antagonistic relationships that can develop when denying your customers’ claims is a source of revenue. Instead, they take a flat fee for their services, and return the portion of unpaid claims to the members of the pool. Another example is Gather which promises ‘fast, fair and affordable’ insurance for small businesses by placing premiums in a ‘community pool’. Any money left over after paying claims and any interest on premiums remains in the pool, rather than being lost to an insurer.
5: Welcome to the age of customisation
Across industries digital capabilities allow companies to collect massive amounts of data and reorganise in terms of micro-experiences. The more data collected, the more insurers can tailor policies (and therefore prices) to individual risk profiles.
This includes an expansion of typical insurance products, with a focus on experiences – often called “insurable moments”.
Slice provides customers with on-demand micro insurance for any event or activity, while Trov catalogues and tracks an inventory of your belongings, with the ability to insure, sell, donate or share things through your phone. Insure any item in your inventory for any amount of time with a simple toggle on and off.
These types of micro-insurance remain relatively unexplored, posing a direct challenge to the traditional sales and distribution models of insurance. They will continue to evolve, as the impact of larger trends – such as work preferences (freelance, customised) and the shared economy – continues to unfold.
What next?
The insurance industry is certainly ripe for innovation. Many of the institutional stalwarts are over 100 years old, and have demonstrated minimal capacity for innovation over their lifetime – and are currently unprepared to adapt to these impending realities. And these leading trends are only the beginning of the potentially rapid transformation of the insurance industry as it figures out how to offer a more empathetic and integrated service.
The preceding article was an opinion piece from Clare Seekins of Market Gravity. It does not necessarily reflect the views of Insurance Business.
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