Insurance companies have been around for a while, and the traditional insurance business model has thus far been incredibly resilient, with factors such as regulation, product complexity and insurers’ sizeable balance sheets keeping unwelcome changes at bay. However, insurance companies today can no longer ignore that the digital age has arrived at their door with a vengeance.
The new 2016 Best Practices Study, which provides benchmarks and analysis of the group of 260 Best Practices agencies, reveals how insurance companies have been thriving in a difficult environment – but for how long?
Why it’s not measuring up today
The insurance industry is facing challenges in many areas, including those such as stagnation in growth, increased consolidation, (with more and more agencies selling every year since 2009), an aging workforce, and, perhaps the biggest game-changer, disruptive technology.
Furthermore, we have to remember that insurance companies are technically fighting over the same penny with their very much valued customer: Dan Ariely, a Duke University professor and the Chief Behavioral Officer at Lemonade, says: “Every dollar your insurer pays you is a dollar less for their profits. So when something bad happens to you, their interests are directly conflicted with yours…” On the other side of the coin, the savvy customer today, who could increasingly be the average Baby Boomer, Gen X, Gen Z, millennial or whoever comes next, are demanding things that previous generations never even dreamed of: the most relevant insurance quotes, or the best policy rates that can show up on their smartphone within minutes, in the comfort of their living room, kitchen, or wherever they may be.
But how can an insurance company grapple with such changing demands in an ever changing digital world, while at the same time manage risks better, improve customer relationships and optimize sales opportunities?
Case of patients and non compliance
What do we mean by managing risks better? If we deal with healthcare insurance, for example, we know that the agencies of yesteryear could rest a little easy knowing that many customers would probably only develop illnesses or symptoms years or decades down the line, perhaps even reaching retirement years pretty comfortably.
But fast forward to a ‘everything is now’ culture that abounds increasingly across the globe, and you’ve got a situation where a rising generation of less physically active, more smartphone-needy demographic may be cause for concern. How could an agency be sure that their scores of medical insurance subscribers are actually making a concerted effort to prolong their life? What are their eating habits? Are they on an exercise regimen of any range? And – in case one is worried we may be painting this younger generation too morbidly – are the more elderly subscribers remembering to stick to their medical prescriptions regularly? In other words, are they adhering to their physicians’ advice well, etc?
Ultimately, the insurance companies of today have a solid chance of killing two birds with one stone – generating customer satisfaction in a digital age, and generating profits in their core business. Both can be achieved by having a better grapple and implementation of technology.
Case for technology and its capabilities
As client demands escalate, agents increasingly turn to third-party partners to provide access to the value that certain tools and resources provide. New technologies may disrupt the traditional broker model, and yet seem to be the next big thing when it comes to keeping many industries – including insurance – relevant.
CB Insights tracks technology investments in the insurance industry (known as insurtech) and in the first half of 2016, the firm estimated that over $1 billion poured into over 80 investments in insurance startups. Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model.
There is increasingly substantial reason indicating that insurance is indeed heading down the path of disruptive innovation, due to any number of factors, from the rise of the tech-savvy customer, to the capacity to improve operations using artificial intelligence.
Almost all insurtechs rely on a digital customer interface for sales and service but many insurtechs are also adopting newer technologies and concepts that insurance incumbents are only just beginning to experiment with. For one thing, simpler tech and simpler functions result in less investment and quicker profits, and insurance companies that are keen on such developments can maximize value in a number of different ways, (let’s use the health insurance agency, for example):
- Increased connectivity: providing digital solutions via patient interface and digital distribution of whatever content is most relevant
- Targeted product concepts: insurtechs would be able to offer personalized small ticket products based on usage or value-added services, for example, allowing customers to buy hourly or daily medical insurance on demand using their mobile device. A company called Kasko and Simplesurance offers car insurance as an add-on purchase within listed e-commerce websites.
- Data-driven decision making and insights: insurtechs will have a database of diverse sources of information, (even from say smartphone apps that patients could opt-in to), be applying machine-learning techniques to offer innovative, personalized products and services that would serve on a person-by-person basis.
- Digitizing key moments: like any industry, insurance companies putting a premium on technology-based solutions are likelier to heighten customer interest and foster interaction by resolving customer pain points efficiently and quickly. Whether these arise in advice seeking or claims being sought, customer pain points can make or break customer relationships, hence the need for more insurance companies seeking live, real-time interaction with their customers, and providing live, real-time interaction as much as possible. For example, Bauxy simplifies claims by allowing its customers to initiate straight-through claims processing by simply snapping a photo of an invoice and submitting it electronically.
- Leveraging big data, online platforms and devices: There is a huge opportunity for insurance to leverage big data and online-scoring platforms to help improve their operations in everything from sales to underwriting. Real-time and near real-time data streaming — everything from environmental sensors to connected devices and wearables — will allow insurers to better manage risk, improve subscriber loyalty and optimize sales opportunities.
Kleiner Perkins Caufield & Byers (KPCB) reports that 2015 was a very important year for wearables as the market took several important steps, because innovation transitioned so quickly from hardware to software and services. The Food and Drug Administration (FDA) reported that approximately 500 million smartphone users around the world used a mobile medical app last year, expected to grow to 1.7 billion over 2018. Gartner projects there will be 20.8 billion connected devices in use worldwide by 2020, a dramatic increase from the estimated 6.4 billion in 2016.
Higher customer satisfaction is itself a catalyst for profit when we marry it to the improved services and faster processing times that digitization offers. At the same time, insurance companies will be able to price and underwrite with more accuracy, better identify fraudulent claims, and significantly lower costs across the value chain, with some studies revealing that automation can reduce the cost of a claims journey by as much as 30%.
Adopting technological solutions will yield great benefits such as cost improvements, better investment allocations, greater revenue; all possible when an insurance company takes steps to analyze their current landscape, compare in-house technological capacity with the operations of the up and coming insurtechs, and consider the best options moving forward.
Whatever those steps may look like, opportunities are there for incumbent insurance companies to evolve along with their customers, both to ensure they are happy, and to not only protect but also increase profits. However, those that move decisively and swiftly are more likely to flourish than those who linger over the old business model.