What’s driving digital transformation in the insurance industry?
August 2, 2018
Digital technology has transformed customer expectations. Web-based services, mobile apps and social media interaction have made the customer experience more immediate and personal in sectors such as retail, travel, entertainment, and even banking. The modern consumer now expects this same level of service in every industry, including insurance.
This shift in expectations presents a great opportunity for insurance companies to improve customer relationships. However, with opportunities comes risk. Traditional insurance providers are at risk of losing customers to faster-adapting competitors or disruptive startups. For insurance market incumbents, it is becoming critical to find the right path through this new customer landscape, and digital transformation is the answer.
Markers of competitive strength
Three key markers of future competitive strength in the insurance industry are becoming clear. New technologies are enabling insurers to meet customer needs and secure an advantage in these areas.
1. Customer Engagement
The first is around customer engagement. Customers want to be able to engage with insurers through multiple channels, and the digital revolution is making this a possibility. Insurers are also starting to use digital technology to simplify processes for the customer. For instance, offering self-service options, reducing repetitive-form filling, and providing gaming-style interactions to ease people through the process of gathering complex data.
2. Risk Personalisation
Everyone wants to be treated like an individual, and consumers are becoming used to a personalised service from providers. New technologies will make it possible for insurance companies to tailor contracts, mix and match features, or adapt coverage throughout the life of their contract.
3. Balancing Price and Value
The third indicator of competitive strength is around the balance between rapid repricing and added value. Consumers are familiar with shopping around for the best deals, and insurers need to be able to respond to shifts in price to defend their market share. However, consumers aren’t so fickle that choosing a provider is only about price. Insurers need to strike the right balance between competitive pricing and offering customers added value. The trouble is, insurers working with legacy systems say it takes weeks to make a simple change to pricing and months to launch a new product. On the other hand, insurance startups built on flexible digital core platforms can re-price a product in hours and launch a new one in only a few days. Digital technology allows insurers to quickly gather information about consumers and then launch innovative products at a faster rate and at a lower cost than competitors.
For companies still working with legacy systems developed in the 1980s and 1990s, it’s just not possible to deliver against these customer expectations. Being able to achieve this flexibility means renewing and integrating core systems; using new and efficient technologies to consolidate data and workflows across business and product lines.
Nine in ten insurance executives believe that at least part of their business is at risk to InsurTech, according to PwC research. The biggest fears are of course losing market share and pressure on margins. As an industry driven by data and insights, insurers need to think ahead if they want to maintain a competitive edge in the face of disruption.
Insurance startups are changing the way people buy insurance and offering new solutions, like self-directed services. Success stories include Lemonade, a peer-to-peer personal lines insurance company born out of New York, and Friendsurance in Germany, offering peer-to-peer motor and home insurance.
Trends outside of the insurance sector also have the potential to shake things up. With connected health now a reality and automated vehicles and blockchain firmly on the horizon, insurers need to be ready to respond to the game-changing trends that, as technology continues to advance, will only become more and more common.
In close step with advancements in technology, the consumer landscape has changed drastically in recent years and will continue to do so at a rapid pace. Insurers, whether they like it or not, need to be ready.
68% of insurance industry players have taken steps to embrace the opportunities that new technology presents, according to PwC. However, this leaves a hefty pocket of the market yet to define appropriate strategies for participating in the InsurTech ecosystem. The sooner these companies take a forward-thinking approach and redefine their focus to technology, the greater chance they have of realising the opportunities they can bring.
Written by Viktor Ivanov
Viktor Ivanov is Head of AI Development Department at Fadata, where he leads a research and development team working at the intersection of artificial intelligence and insurance. He has more than 10 years of industry and academic experience in information technology, banking and insurance. Viktor obtained his MSc from Delft University of Technology.