How COVID Alters Consumer Demands

Digital transformations that would have taken three to five years are now happening in under six months.

The insurance industry has long been suspended in a paradoxical state whereby state-of-the-art risk assessment actuarial models are used to project future losses, while being supported by notoriously lagging infrastructure and shared services. The need to leverage the ever-improving efficiencies offered by new technologies has become increasingly urgent, as have the variety and efficacy of those new technologies. Nevertheless, rapid innovation has been hard to achieve in the industry, and, while digital transformation has been happening in certain areas, the pace has historically been slow and reactive.

The 2020 COVID pandemic has served as a watershed moment for the industry. Prior to the COVID era, many carriers focused their digital transformation efforts on back-office areas:

  • Automating processing and servicing activities; including document ingestion, intrafirm data flows, insured notice generation and mailing, etc.
  • Modernizing the tech stack to facilitate internal operations; building workflows to connect distribution teams to underwriters, underwriters to support teams and so on. Additionally, underwriting platforms have been fit into multiple carriers’ process flows to get underwriters more existing risk details from brokers up-front, and the corresponding model inputs from actuarial teams, to improve risk assessment
  • Reducing middle- and back-office headcount, targeted at improving the expense ratio, a byproduct of the aforementioned focus areas

Now, as the world looks toward a post-COVID world, that focus has quickly shifted from back-office efficiency to front-office, customer-facing interaction. Seeing the shift that other areas, for example clothing retailers and retail banking, have seen toward always available, short interactions for customers to engage with services and acquire products, insurance carriers are moving their resources and strategic future planning toward areas where insurtech offerings can meet this new demand. 

Digital transformations that would historically take three to five years are now happening in under six months, spurred by software-as-a-service availability, ever-increasing service offerings for insurers and acquisitions. Customers simply do not want to interact with insurers the way that they have historically, and this is serving as the driving force for this digital transformation acceleration. Carriers that do not follow suit will quickly fall behind in this new digital reality.

See also: Re-engineering Claims Payments

Many high-impact insurtech capabilities are seeing massive growth in carrier interest and activity to address these new customer needs:

  • Virtual agents have gained popularity as a way to serve customers with specific needs who want to quickly complete their transactions. IPSoft and RozieAI both have virtual agent technologies that serve as omnichannel communication mediums between customers and carriers; no longer relying on preconfigured call routing or static online forms, these “humanized” virtual agents are able to parse and understand natural language, both text and voice, and either address customer wants completely virtually or route to a human agent quickly. This technology has driven increased volumes as well as higher customer experience reviews, both big wins in a highly competitive market.
  • Gig economy coverage is quickly becoming a necessary offering across major carriers to serve customer needs that have been growing rapidly both pre- and post-onset of the COVID pandemic, including food delivery, ride shares, home shares, etc. The digital nature of gig services requires a digital solution for the insurance covering them, and customers who seek coverage in the gig economy will always demand a more innovative model than the traditional insured-broker-carrier interaction paradigm.
  • Claims are being fully automated, both in adjustments and processing, in a customer-focused way that promotes speed and accessibility while still working to mitigate losses. Insurtechs such as OCTO Telematics and HOVER offer services that collect and process enough data to no longer require on-site adjusters for many auto or home incidents. With pre-installed data collection devices in commercial and personal vehicles, data about a car’s performance in an accident can be gathered at the primary source, rather than during an adjuster visit. Similarly, roof damage can now be adequately assessed via a series of customer-captured smartphone photos that are submitted to adjusters virtually, aided by technology that helps the adjuster properly assess the incident.

Industry disruptors serve as proof of the efficacy of focusing on these areas. Lemonade’s revolutionary customer experience has led to triple-digit year-over-year growth in gross written premiums, and it’s not difficult to see the popularity of its value proposition. A fully virtual chatbot, given a human name and face, quickly guides a potential insured through qualification questions for renter’s or home insurance (with more coverages promised in the future). Claims are often settled within minutes or seconds using propriety technology to assess customer reports. Lemonade has made it so easy to purchase insurance and file claims on a beautifully designed mobile user experience (UX), that customers are happy to never have human interaction.

In the post-COVID future, a differentiated, digital-driven customer experience and enhanced product offerings will determine who wins and who loses.  

Even with this new focus on front office engagement, there are still hundreds of insurtechs offering back-office solutions to further enhance risk analysis and processing, and the accelerating capabilities of these new services can have material effects on carrier performance. Data services increasingly rely on the Internet of Things (IoT) to collect data at the source and provide both risk-specific histories as well as aggregated datasets for new markets. Home monitoring systems and pre-installed vehicle sensors continuously collect massive amounts of data every day, and carriers must be ready to ingest and leverage it in their pricing and actuarial models, as well as use it to drive more robust loss prevention strategies.

To leverage these new technologies, carriers will need to become more comfortable using services operated on the cloud versus the traditional on-premises model. Of course, the sensitivity of customer data transmitted to an external service is of primary concern, and insurtechs are offering top-of-market security to address carrier requirements. The future of big data ingestion and efficient processing will require cloud solutions, and carriers who seize these new partnership opportunities will set themselves up for a better outlook in performance.

See also: 6 Megatrends Shaping Life Insurance

As carriers consider the new reality of customer-facing demands, as well as the new possibilities of internal process efficiency, potential partnerships have become more attractive, and even necessary, for success. As a result, clear opportunities for acquisition in these areas will likely emerge in the near future.

Kim Muhota

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Kim Muhota

Kim Muhota is vice president and head of financial services, North America at global consulting firm SSA & Co.

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