A New Era In Insurance: How insurtech meets the expectations of today’s customers?
A New Era In Insurance: How insurtech meets the expectations of today’s customers?
The insurance sector is one of the essential building blocks of financial services and the economy. However, although the financial sector is disrupted by fintech many incumbent insurers still keep running on legacy application and practices. Perhaps the reason behind is that incumbents do not hold the capabilities needed for digital transformation due to the existing business model, legal and regulatory requirements. Consequently, the growing gap between offerings of insurance companies and customer expectations has created opportunities for insurtech players to dive into and pick off customers.
With Covid-19, social distancing, heavy workload and constantly changing working conditions have accelerated the speed of technology and triggered severe disruption. The impacts of the pandemic in the insurance industry are most felt through remote working setups, how people engage with one another, higher premiums, and higher claims rejections. As many of customers turn into digital channels, incumbent insurers have been forced to acknowledge the technology’s capability of connecting them to customers and to rethink their product offerings, distribution, and ways of doing business that capitalize on technology and customer – centricity to remain relevant.
In the first nine months of 2021, global investment in insurtech start-ups reached all-time high of US $10.5 billion.[2] With range of investors supporting, insurtech players have taken the advantage of large capital inflows to expand their digital capabilities in artificial intelligence, data analytics, predictive modeling capabilities and APIs for offering greater convenience and personalization. According to Capgemini and EFMA’s report, the five largest tech companies and a well-known auto manufacturer that provides insurance services contributed about 2.5 times the entire market value of the 30 largest insurers globally between 2018 and 2020.[3]
These developments constitute a direct burden on incumbents and today the risk of keeping the traditional business models exceeded the risk of digital transformation. Incumbents are smart enough to see that rather than developing an in-house start-up, partnering with or even acquiring insurtech companies is an easier way to leverage data, extract valuable insights and develop an API framework to grasp consumer expectations and strengthen their value propositions. In particular; AXA, Allianz and Swiss Re formed their own venture capital funds for investing in high-growth tech-enabled firms. In the same manner, insurtech companies have started to take advantage of partnering with key players in insurance sector to overcome the difficulties in regulatory issues and underwriting as the sector is subject to intense regulations and needs significant amount of capital to cover the costs of claim. In this article series, I aimed to cover 4 key themes around how the ongoing effect of the pandemic evolves customer expectations and digital transformation focusing on insurance industry to provide insights for leaders in the field.
1. Offering Digitally Native Propositions
Post pandemic consumers have become more comfortable using online services and platforms. In fact, those who were once considered digital holdouts are expected to continue the online behaviors they adopted during the pandemic.
Customers are increasingly looking for added value. To retain customers and grow market share, insurers have been depended on strong brand name, product quality and a competitive price but it is no longer enough for today’s customers. The multi-trillion-dollar global protection gap should remind the insurance industry that there are opportunities to add more value to their offerings. Incumbent insurers need to realize the risk of pretending to be digitized by just delivering analog offerings digitally and providing unappealing services. To succeed in the long run, they need to rethink the full journey of insurance customers from quote and issuance to supportive after sales services and claims. Putting customers at the heart of the business and adopting an ecosystem-mindset will be the key for insurance industry to capture the previously unimagined value through interconnected journeys and being digital. By adopting an ecosystem mindset, while incumbents will be the source of complex underwriting, claims handling and product innovation regarding laws and regulations, insurtech companies will focus on their own specialization.
For example, identifying ways to streamline policy issuance and claims handling with right ecosystem partners is a start for being digital for most of the incumbents. Every claim is a moment of truth for insurers to engage with its customers, fulfill its promise of coverage and build loyalty. However, for decades claim process is considered to be laborious, slow and overwhelming for both customers and insurers which is communicated through phone, mail or face-to-face. If the insurer falls flat in claims management, it can lead customers to change their provider. Covid has added further momentum to the growth of call volume, average call time, numbers of claims and issuance of policies. Consequently, incumbents have placed their focus on decreasing the burden on operations and staying up with customers’ growing preference for digital channels.
Lemonade, a New-York based insurtech company, sets a respected example in streamlined issuance of policies and claims handling. The insurtech company has expanded to Germany, Netherlands and France and has over one million users. It is reinsured by some of the largest reinsurers like Swiss Re and Munich Re. The company benefits from artificial intelligence, blockchain and chatbots to lower operating costs, enables better underwriting decisions and settles claims rapidly. Given the self-service opportunities, policyholders and potential customers tend to feel more in control due to a greater level of transparency and a lower reliance on the insurer’s internal procedures.
On the other hand, Mapfre is one of the leading insurance players who partners with industry players to streamline policy issuance and claims settlement, so that the company can free experienced employees to take on more complex cases in a high impact way, boosting the added value for the customer. At the beginning of this year, Mapfre has announced its collaboration with Tractable which is a market leader startup in deploying AI-based solutions in the financial services and insurance sector. They have developed a new AI model that uses damaged vehicle photos taken on mobile phone of the customer to automatically handle low-value claims. From the photos taken, algorithms automatically detect the presence or absence of damages, the degree of damage and evaluate the level of vehicle repair. The system also includes real-time pricing and can send work orders straight to repair shops and request for components from suppliers, which helps to increase operational efficiency by reducing claim settlement times.
Integrating telehealth into existing services can be given as an example of how big tech players are adopting customers’ needs and becoming a part of their journey. While the use of telehealth services had been minimal prior to covid, interest and implementation of it has exploded in response to address accessibility concerns the patients have during the pandemic crisis. These concerns have increased the demand for virtual 24/7 consultation and treatment for primary care needs that were previously done in person. Correspondingly non-traditional players have entered to direct-to-consumer healthcare market such as Amazon and CVS, and challenged the status quo by leveraging telehealth solutions.
It resulted in more entry points to the healthcare system, reduced costs and long-lasting relationships with customers. The skyrocket adoption of telehealth has pushed the development in coverages to include telehealth visits and present opportunities for incumbent insurers to collaborate with industry players to remain competitive.
2. Rethinking Distribution of Insurance
Consumers are purchasing more services day by day as they enjoy the convenience and ease of online buying. Based on latest McKinsey B2B research report, 35% of the buyers are willing to spend $500,00 or more in one online transaction and 77% are willing to spend $50,00 or more. [4] Thus, the place a product or service occupies in the customer’s journey is now more significant than the product itself. Traditionally, the insurance business is viewed as a product-driven business model and something that had to be sold. However, nowadays considering the customer needs, it is evolving into an experience-based model. In this context embedded insurance emerges, which is an enhanced way of distributing insurance services by offering relevant coverage rapidly at the right times when consumers are seeking a product, service, or information. Customers no longer have to search for a policy as they may not even realize that they need the coverage until they are given the option, but simply purchase it at the point of sale. I’m sure many of us have come across travel insurance offers when buying plane tickets even years ago. What makes the difference today is that today’s technology allows us to embed services and products in new marketplaces that were not possible before with API and microservices based infrastructure.
Take IKEA and Swiss Re partnership as an example. They have joined their forces to provide home insurance covering basic policy with easy-to-understand everyday language at a wallet-friendly price in Switzerland and Singapore. IKEA customers can purchase the insurance with few clicks, customized the level of coverage and cancel at any time through IKEA website or app. The insurance proposition is embedded to IKEA’s offering and iptiQ, Swiss Re’s digital platform providing protection products by adopting B2B2C model, is in charge of managing all related customer interactions.
Done right, embedded insurance creates a win-win for all parties included. On top of providing added value to distribution partner, it is also a huge opportunity for insurers to create new revenue streams, access to a wider base of customers and to lower distribution costs while giving customers a convenient and simple buying process and after-sales services. Particularly Ping An, the world’s largest insurance company, has built an ecosystem empire and empowered industries like finance, real estate, health care, automotive and smart city. The company is effectively using its ecosystem strategy to expand its insurance offerings beyond traditional agent, broker channels and investing heavily in technologies like artificial intelligence, blockchain and cloud to improve operational efficiency and customer experience by ensuring reliability, security, and convenience.
On the other hand, sharing economy has made embedded insurance and usage-based insurance (UBI) model more prominent. Not long ago it made a splash and made it possible to access goods and services for those who would not otherwise access them. As it becomes more widespread, business models shifted to ownership-based to usage-based in response to changing consumer expectations. The market has started to demand products and services that are immediately accessible, affordable, flexible, personalized and that protect those who use sharing economy services from the risks during their usage. Meanwhile, new technologies like 5G, IoT, AI and predictive analytics have created opportunities for insurers to reposition their offerings as an essential complement to an experience and to innovate niche products to cover unexpected risks. Moreover, the pandemic has transformed the way people move;
- As the population sought alternatives to public transportation shared mobility solutions such as Bird, Uber, Lyft, HumanForest has gained considerable attention.
- Remote working conditions and lockdowns made vehicle owners to question why they are paying expensive auto insurance premiums when they do not use their vehicles.
- Due to restrictions and avoidance of crowded places the usage of delivery apps such as Getir, DeliveryHero or Uber Eats has jumped.
With the impact of all these developments, automotive manufacturers like Tesla, BMW, Toyota, Daimler, Volvo, Ford have begun to experiment with embedded insurance and UBI model. Through telematics technology, the real-time data about the distance traveled, the speed of the vehicle, how hard the brake is pressed or how fast it is accelerated can be obtained easily and policies can be priced more accurately and flexibly.
Access to drivers’ data allows auto manufacturers to generate more insights and understand their customers in a new, more holistic way to provide hyper-personalized services and products. However, we cannot say that it causes competition with insurers, as it depends on who underwrites the policies. In the coming years, as a result of increased partnerships, product innovations and technologies like 5G and IoT, understanding the interconnectivity between systems deeply will be the key advantage for a diverse mix of insurance distribution channels. According to some industry analysts embedded insurance could be worth $700 billion in gross written premiums by 2030, in P&C alone. [5]
In the 2nd part of my article, you can learn more about preventative service provision in the insurance sector as well as the ways to combat cyber threats. To be continued…
Reading Time: 8 minutes
Don’t miss out the latestCommencis Thoughts and News.
