Insurance Trends 2017: A Mid-year Update
Mahendra Nambiar | June 15, 2017
The insurance industry today, long-characterized as lagging behind in technology adoption, is undergoing a rapid and volatile evolution driven by two key forces: the Internet of Things (IoT) and analytics. The results for the first quarter of 2017 show us how IoT continues to move beyond the hype phase with a plethora of highly-impactful use cases being explored throughout the insurance industry.
IoT is now driving and shaping connected spaces including connected homes and commercial insurance. For example, one major insurer currently has a program that enables customers to create an ecosystem of connected devices that ensure the safety of elderly customers who live independently. In addition, IoT will continue to transform the nature of insurer-customer interactions this year by considerably increasing the number of touchpoints that insurers can leverage for customer engagement.
For example, several major insurers are incentivizing customers to use home sensors so they can proactively mitigate risks for customers. Moreover, this collection of near real-time data equips insurers with a rich data pool that will increasingly become the key competitive lever for insurers to differentiate themselves. Product innovation driven by IoT and the availability of new data are creating new risks and new opportunities for insurers.
The first quarter of the year showed us how insurance operating models are also experiencing seismic technological changes with IoT and data analytics driving a shift toward a more proactive risk management and risk mitigation approach, even in personal lines. Mobile apps especially are being leveraged by insurers across business lines to help customers better manage their health, lifestyle or property.
Such digital tools create a win-win situation in which insurance companies are enhancing customer experience while also lowering claims costs. As we move into the rest of 2017, we’ll continue to see insurers gain greater loss control thanks to exponentially greater availability of data and advancements in analytical capabilities.
Insurers can monitor routes on a real-time basis and warn drivers about poor road conditions or dangerous weather or traffic patterns. In this instance, analytics can help insurers plan more advanced risk mitigation strategies than is done presently. Additionally, analytics can also be used to conduct a more granular analysis of underwriting loss and claims fraud, which can then be used to devise strategies that will help reduce losses in those segments.
While IoT and analytics are enabling more dynamic and personalized insurance pricing, external forces such as the sharing economy are also on track to substantially change the insurance industry this year. Services from companies based on the sharing economy are bringing forth many complex situations that are typically excluded or not accounted for in traditional insurance products.
The sharing economy created a need to design insurance coverage on an on-demand basis and for more specific and shorter durations with possible shifts toward commercial insurance. In response to this, insurers are increasingly starting to provide innovative coverage options to cater to these situations. In auto insurance, there are two major insurers that are already partnering with ride-sharing companies to offer ride-sharing coverage. When it comes to home insurance, home-sharing services have also cultivated greater interest in innovating insurance options thanks to a range of startups which have disrupted the space.
As the sharing economy provides opportunities to extend insurance coverage to include new situations, it also provides an additional revenue stream for insurers. However, in the absence of significant historical data, insurers are already realizing they need to carefully plan their risk assessment and underwriting models and that machine learning may play a deeper role here.
Another trend emerging in Q1 includes insurers starting to provide a range of innovative value-added services, in addition to the core insurance product, for better customer engagement. This is important as value-added services may be the answer to the threat posed by technology entrants who have a strong brand presence to traditional insurers. By engaging regularly with customers through technology that help customers manage their property, receive timely assistance or achieve cost savings, traditional insurers are building a stronger brand engagement similar to technology giants.
Some insurers are also using innovative non-insurance related services to reach out to new customers. For example, one insurer now offers a tool which provides users with a forecast on gas prices and recommendations on when they can fill up to gain cost savings. This app is available for non-customers also, giving the insurer access to new markets that can potentially be converted to customers. As many of the value-added services are geared toward proactive risk management, they help insurers improve their profitability as well. An important consideration, however, is evaluating the impact of benefits in relation to costs as such services are not always monetized.
In addition to the evolution of insurance business and operating models, we’ve also started to see a significant change in market dynamics due to the emergence of insurtechs. Insurance distribution is changing due to new channels such as chatbots, growing popularity of direct channels in the small business market, and online research tools that are creating greater market transparency.
Insurers have started exploring the use of automated and AI driven chatbots for customer engagement as these can help reduce costs as well as provide a more streamlined experience. Direct channels are slowly gaining popularity in the small business market this year: one major insurer debuted a high-tech business insurance quoting platform which allows small business owners to buy a policy in less than five minutes. Other insuretech firms also provide innovative front-end solutions for small businesses that have traditionally been only agent driven.
Online research tools in the information gathering stage are redefining insurance selling to follow more of a marketplace format, which we’ll see continue to see even more of in 2017. This and the entry of insurtechs offering specific solutions disaggregating the value chain increasingly challenge the most profitable segments from traditional insurers. This trend is also driven by customer demand for greater transparency, convenience, and personalization, leading to popularity of platforms that aggregate information from multiple insurance firms.
Customer behavior is already driving a shift to aggregated one-stop platforms to buy and manage their policies, leading to a dilution in brand loyalty and increased competition for insurers. Given this scenario, there will be a greater need to focus on customer retention through innovative engagement.
On the other hand, this trend also provides incumbents a plug-and-play system for exploring new technology capabilities, unrestrained by legacy systems and processes. The new ecosystem of players makes it imperative for insurers to develop the right partnerships and integrate with multiple partners.
Insurers are also using artificial intelligence and robotic process automation to explore automation of more complex processes such as receiving customer insights, personalized customer interactions, fraud detection, and claims verification and processing. Property assessment and claims estimation can be done quickly and efficiently using drones. With the huge volumes of data generated by IoT and wearables, intelligent automation for analysis is becoming more of a necessity than a luxury.
Augmented reality (AR) is also finding innovative applications in insurance. It’s already being used in marketing as a more effective means to capture customer attention while simultaneously educating them about the insurer’s products and services. For example, one insurer distributes flyers which show a 3D illustration of a house, identifying the various objects that can be insured. Beyond the purchase stage, AR apps are being used to guide customers to become aware of the potential fatalities that can occur and guide them to take appropriate safety measures.
Another major insurer is leveraging AR to educate customers about the possibilities of home accidents, while another has designed an AR app to make their customers more aware about car accidents. AR also has applications in areas other than marketing such as training and claims inspection. For example, one insurer has invested in building mobile apps, which will track the employees’ training schedules and provide materials to match their learning style.
A key technology which we have yet to see have an impact this year for insurance is the blockchain or distributed ledger technology (DLT). Effective use of the blockchain can lead to a streamlined, transparent, and autonomous operating model in insurance. Policy administration can be automated by coding policy and claims pay out conditions in blockchain. These ‘smart contracts’ can be triggered by data feeds from public databases and connected devices and when the insured event occurs, an alert can set off an automatic claims payout.
By creating an infrastructure of smart information assets that are recorded in real-time, the blockchain could lead to new insurance models such as decentralized autonomous organizations (DAOs). However, lack of trust, understanding of the technology and regulatory roadblocks will potentially affect how much of an impact this technology will have on the insurance industry this year.
In light of these trends that we’ve seen accelerated growth in the first quarter of 2017, insurers should continue to:
- Focus on the core and leverage it as a foundation for enhanced capabilities and speed to market.
- Strengthen data infrastructure and analytics capabilities.
- Prepare for a shift to more dynamic and on-demand insurance.
- Plan the right partnerships and collaborations in the new insurance and technology ecosystem.
- Renew their focus on customer retention through innovative engagement schemes and ecosystem plays.
- Explore new technologies and product innovation to deliver new insurance products to consumers and businesses.
Freed from the status quo of the past, opportunity awaits the industry over the rest of 2017. It is now just a matter of insurers implementing the correct technological innovation for them to retain or assume leadership positions in the marketplace.
(Mahendra Nambiar is vice president, global insurance solutions and innovation lead for Capgemini.)
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