For an industry that's seen as slow
in adopting digital technologies,
insurance has experienced its
share of fast-paced innovation over
the last few years. After the first
wave of change that saw the
digitization of products, services
and distribution, InsurTech is now
re-defining insurance's core risk
and distribution models to enable
customer-centric business strategies. Leveraging the latest in
digital technologies, the industry is
seeing a shift from fixed product
definitions and group risk
assessments to personalized
insurance covers. Insurers are
moving away from expensive and
push-based distribution pipelines
to more organic, customer-driven
distribution models with minimal
friction and costs.
We track some of the key trends
across risk assessment, product
definition, distribution and claims
management that are placing
customers at the center of
insurance operations. Within each
of these areas, we also discuss the
technologies at play to highlight
how they are enabling efficiencies
and scale across the insurance
value chain.
Wearable Tech: Connecting the Personalization Dots
Like most other industries, the
availability of extensive customer-level
data is driving personalization
in insurance too. Actuaries and
underwriters are moving from
broad groupings and
representational data to real,
individual customer data sets.
Demographics, claims history,
specific lifestyle risks as gleaned
through telematics devices,
wearables and smart home
sensors, are all being leveraged
to assess risks.
Customer engagement has now
become a critical driver for the
insurance business model.
Constant monitoring of customer
behavior and interactions to enable
dynamic pricing, gamifying
expected behaviors to minimize
risks and offering value-added
advisory and services for loss
prevention — these are all cogs of
personalization that move only
through constant and relevant
customer engagement.
Vitality,1 a U.K.-based insurance
provider, offers health and life
insurance covers wherein
customers have the chance to
control their premiums and earn
rewards with their Wellness
Optimizer program. Direct Assurance2 offers YouDrive that
uses telematics to gather
information on the driver and
car, and deliver daily personalized
driving advice as well as a
monthly score that impacts the
premium amount.
Technologies at Play:
While big data and advanced
analytics enable churning and
processing of customer data,
personalization is driven largely by
connected devices that allow constant tracking of and
engagement with customers.
Dynamic risk modeling, intelligent
automation and integration with
partner networks through
Application Program Interfaces (APIs) are critical back-end
enablers for risk assessment,
premium discounts, value-added
services, as well as real-time,
personalized customer
interactions.
New Products for the New Economy
Perhaps the biggest disruption in
insurance products is the
introduction of the 'all in one'
policy. By offering the customer a
single policy to cover health, home,
car, wealth, pets and travel, as well
as the flexibility to adjust the cover
as required across assets, insurers
are moving away from the
traditional model of fixed products
with exclusions.
Other innovative models explored
today include usage-based
insurance, on-demand insurance,
microinsurance and peer-to-peer
insurance — all driven by the core
ethic of offering customers
straightforward, relevant and
flexible coverage.
These innovations are placing
customers firmly in the driver's
seat, and encouraging them to actively think of 'buying' an
insurance cover instead of waiting
to be sold one.
With personalization, customers
may no longer need specialized
guidance on policies, thus
impacting the role of
intermediaries in insurance
distribution. The simplification
of products is also expected to
bring in transparency and
speed, thus improving customer
trust in insurers and possibly
reducing fraudulent claims
as well.
Metromile,3 a U.S.-based auto
insurer, offers pay-per-mile
insurance driven by a free device
(the Metromile Pulse) that can be
plugged into the user's car. GetSafe,4 a German InsurTech
company, offers one overarching insurance product covering life,
non-life and health allowing
customers to define their
personalized insurance
requirements.
Technologies at Play:
With big data, analytics and
Internet of Things (IoT) enabling
personalized risk assessment,
insurers are using Robotic
Process Automation (RPA)
and Artificial Intelligence (AI)
to manage sales and policy
servicing at scale.
Chatbots and intelligent
automation enable self-service
across the policy lifecycle, offering
customers real-time and
personalized guidance. AI,
automation and IoT are combined
to support the more parametric
forms of insurance.
Distribution Chains Go Digital
The insurance distribution chain is a
key focus area for most InsurTech
firms, with two emerging
distribution trends: the membership
model and the affinity ecosystem. In
the membership model, companies
charge a flat membership fee and
use the entire premium for risk
coverage. These companies use
their digital distribution platforms
for direct sales and service to
customers, completely eliminating
commission fees.
In the affinity ecosystem, companies
tie up with retail businesses with
large customer bases (for example,
e-commerce, wellness or personal
finance companies) and integrate
insurance covers in the relevant
purchase flows of the customer.
InsurTech disruptors are positioning
these trends as an advantage to
customers as they save on
commission expenses and thus premiums. Also, by riding on
established retail customer
bases, insurers do away with
market-making costs.
While these distribution chains may
be effective for the more
straightforward, shorter term-based
covers, it is too early to comment on
whether customers would be willing
to forego the advisory and claims
processing support of agents
when buying more complex
annuity or life products.
China-based Zhong An, an online-only
insurer, is a leading example
of the affinity ecosystem model.
Within three years of operation,
the company has acquired a
customer base of over 400 million
customers through 300+ partners
across health, travel, auto and e-commerce.5 Lemonade, a U.S.-
based renters' and homeowners' insurance provider, charges a fixed fee from the premium for
operational expenses, and has been able to charge significantly lower premiums than the market average.6
Technologies at Play:
Fully integrated digital platforms,
encompassing the complete product
and customer lifecycle, are a
mandate for insurers if they want to
own and service almost the entire
insurance value chain. This will
require the highest degree of
process automation, AI and analytics
to ensure that the necessary
customer experience is at scale.
APIs are critical to developing
partner ecosystems. Blockchain
holds great potential in this
context for allowing secure and
transparent data sharing across
stakeholders for large customer
bases, automating policy
execution via smart contracts
and identity management.
Claiming What's Right
Insurers universally are working
toward making claims processes
more efficient and fraud-proof by
leveraging IoT, big data and
automation. InsurTech companies
are looking at behavioral economics
to tackle fraudulent claims, while
aiming to use technology to bring
in transparency and trust to
the process.
Companies are achieving this by
restructuring their profit models to
separate operational capital from
risk capital, thus doing away with
any profit motive to withhold
claims payouts.
Products like peer-to-peer
insurance (where a group of peers
reviews claims) and offers to return
(or donate) unclaimed premiums
are other ways in which customers
are being incentivized to claim only
what's right.
There is growing acceptance among
insurers that the time and rate of
claims clearance are perhaps the
most important competitive metrics
today. Companies are using high
degree of automation to put the
customer in control of the claims
process, wherein data and
supporting images or videos are submitted on digital interfaces.
Claims reviews are automated and
if all is in order, the amount is paid
out promptly. While experts are
watching closely to see whether the
bet on behavioral economics to
reduce fraud pays off, the march
toward faster and more transparent
claims processes continues.
GetSafe and Lemonade both
promise to make donations to
causes selected by customers from
unclaimed premiums and have
almost completely automated the
claims processes. One U.K.-based
InsurTech company offers insurers
cloud-based claims management
software to drive digitization and self-service in claims.7
Technologies at Play:
Machine-learning and intelligent
analytics algorithms continue to be
critical for detecting fraudulent
patterns in claims. APIs
connecting insurers with IoT and
partner networks enable almost
real-time fact-checking and prompt
triaging of claims. Chatbots offer a
personalized interface to guide
customers through the digital
process of claims backed by
intelligent automation.
Blockchain is being explored for
automated execution of
claims via smart contracts.
While a lot of the concepts and
models proposed by InsurTech
still need to be tested for scale
and feasibility with the more
complex, longer term insurance
products, the shift toward
customer-centric strategies is
no longer just a trend.
Gartner predicts that at least
25 percent of current InsurTech
companies will be acquired by
insurers or go out of business by the end of 2019.8 For traditional
insurance companies, the time
looks ripe to firm up their
incubation, collaboration or
acquisition strategies to gain
a foothold in the digital
insurance stream.
References:
1. https://www.vitality.co.uk/life-insurance/optimiser/
2. https://www.direct-assurance.fr/nos-assurances/assurance-auto-connectee
3. https://www.metromile.com/
4. http://www.digitalinsuranceagenda.com/188/getsafe-europes-first-digital-multi-line-insurance-health-pc-life-for-the-mobile-generation/
5. https://medium.com/@mlcwong/lessons-from-the-front-lines-of-insurance-tech-innovation-in-china-a1568b69bfb7
6. https://www.lemonade.com/faq#service
7. https://www.claimable.com/how-it-works
8. https://www.gartner.com/smarterwithgartner/6-options-for-collaborating-with-insurtechs/