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Insurance used to be a straightforward industry, established with a simple premise of protecting oneself from a potential financial loss. There is a service provider (insurer) who offers to secure a customer (insured or policy seeker) from a perceived financial risk (insurance coverage) in exchange of periodic payment of a pre-decided amount (premium) for a specified duration. Then, there is also an agent who acts as an interface between the insurer and the insured. While the insurer holds the risk and offers the actual product, the agent markets and sells the product for the insurer. The customers usually prefer an agent over an underwriter as they are assured of the best available market price along with claims support. Irrespective of the type of insurance – life, property or pet etc. these are broadly the three personas that we deal with in this industry.
Changing Market Dynamics
In recent times, however, things have started to change and these changes are only going to get faster.. As the world is adopting a millennial mindset, policy seekers now rely more on digital channels than traditional sources when buying insurance included. There is a retail-like expectation for instant gratification of all services being subscribed too. The insurers and agents are facing competition from unheard quadrants, be it the InsurTechs who leverage technology to provide innovative solutions or the manufacturers themselves who are bundling their products with insurance cover. Abundant availability of real-time data has given way for extreme hyper-personalisation where the customers can now pay for precisely what we want.
Key factors that are disturbing the equilibrium of this industry and reshaping the ecosystem:
While the Insurance providers have always acknowledged these changing market dynamics, the inertia of their legacy systems has held them back. With COVID-19 acting as a catalyst, the modern insurance carriers have realised that going digital is a ‘need’ and no more a ‘want’; a ‘must-have’ and no more a ‘good to have’.
The impact of COVID-19 on the insurance industry has been so profound that insurers are repositioning themselves to ‘thrive’ and not ‘merely’ survive. According to an Accenture Research based on analysis of global publicly listed insurers, in March 2020, post the coronavirus outbreak, the average insurer lost 41% of its market capitalisation in Europe.
In the aftermath of the COVID-19 health crisis, the key to success would lie in developing an experience-led engagement model tailored for the new-age customer, who is socially connected, review seeking, willing to explore new products and is convenience focused.
According to “Insurance 2020: The digital prize”, a report published by PwC, 71% of the surveyed consumers use some form of digital research such as social media or visiting a price comparison website before buying an insurance cover. The need to go digital will be felt even more by the insurance industry in the coming time with rising operational costs due to crisis management, decreasing premiums in many lines of business and changing claims landscape.
Business Imperatives to Withstand the Tide
- First and foremost, ensure the digital transformation of the legacy core systems to support innovation
- Harness the power of consumer data for cost-effective targeting
- Expand the product offerings to cater to future needs
- Leveraging predictive analytics to anticipate customer needs
- Enabling data minimisation to ensure security, compliance and efficiency
- Strategic partnerships with InsurTech and aggregators to foster innovation
- Adopting cost-effective processes to meet regulatory compliances
- Reskilling the existing workforce and automating low-value business tasks
The way to achieve these business imperatives for the modern insurance provider is by leveraging digital to the fullest potential. The pace of change is overtaking the insurance industry. The industry needs to become more agile to keep up with the ever-rising demands of the next-generation digital consumer, respond to nascent threats, and close gaps by leveraging digital technology.
As you can see in the adjacent chart from a McKinsey report, already there has been some penetration of digital innovations across the insurance value chain. Firms have been leveraging technologies to improve efficiencies, reduce costs and enhance the customer experience. However, we feel there is enough and more scope for digital to reshape the insurance industry to be ‘future-ready’.
AI and machine learning have emerged as disruptive technologies that are rapidly transforming the insurance industry by helping automate claims and underwriting processes. AI is also helping insurers augment the human workforce, freeing them up to focus on customer experience and from complex risks
The Internet of Things has enabled the insurer to better understand the customer needs in real-time, offer hyper-personalisation and usage-based insurance. Acumen Research and Consulting have predicted that the usage-based insurance market will grow to reach $190 billion by 2026, at a CAGR of over 29% from 2019 to 2026.
In a hyper-connected world driven by smart devices, organisations collect data at every digital touchpoint to deliver better products and services. Data is a highly valuable commodity and vulnerable to theft. Blockchain technologies can offer secure and efficient operations by enabling transparency and minimal dependency on the workforce.
Below is a snapshot of potential use cases across the value chain.
Cutting-edge digital technologies for underwriting, claims, and administrative processes put the insurers in a unique position to deliver exceptional customer experiences. Insurers still operating on analogue business models with cruder workflows stand the risk of losing business to their digitally-enabled competitors.
From a readiness standpoint, the insurance industry has inarguably lagged behind other sectors in going digital. However, the COVID-19 health crisis has acted as a tipping point for highlighting the need to embrace digital technology. Going forward, adoption of digitised systems, cloud-based services, automation including the use of AI and robotics would be the new normal for the insurance industry.