Chips. Who knew they could be such disruptors?
As COVID affected supply lines throughout the world, the manufacturing and supply of computer chips that seemed to cause the most disruption. Everything from PlayStations to pickup trucks were placed on wait lists — parked in anticipation of necessary microprocessors and controller boards. The fallout is pushing some industries to their limits. This one supply chain issue can be linked to a host of consumer disruptions.
Take auto rental. At the onset of COVID, rental companies decided to thin their fleets in an attempt to ride out the travel-sparse months with low auto rental demand. At the same time, computer chips weren’t arriving at auto manufacturers in time to keep up with demand for new cars. New car lots emptied out. Used car lots emptied out. Used car values skyrocketed (up 40% in 2021).
Now travel picked up. Rental car companies couldn’t meet demand. They couldn’t expand their fleets with new cars. Many are scrambling to find acceptable used cars. No matter what they do, they can’t shift gears fast enough to meet the market. They are forced to raise their prices to all-time highs. The result is that they are sending frustrated customers straight to Uber, Lyft and Turo.
Are insurers on the cusp of frustrating customers, as well?
Choosing to wait on technology transformation in insurance can be just as disruptive as not receiving timely technology in manufacturing. Insurers need to rapidly adapt and let market demand pull them into the future.
A joint Majesco-Deloitte paper titled, Insurance Billing and Payments: From Back Office Calculators to Channel Growth Accelerators, examines how and why insurers' billing and payments operating model is changing — as seen through the eyes of insurance executives at a recent round table.
In our last blog on billing, we established the case for billing transformation. Using current data and interviews with engaged insurance executives, we discussed how customer service is increasingly difficult without next-gen, digital billing. Difficult service will soon become impossible service as new products and value-added services require new billing models. These models are not compatible with yesterday’s billing systems, and patchwork solutions are not feasible.
“How agents and insureds are dealing with every other type of bill or payment is the last experience that they think about. Insurance legacy systems are not the way they want to deal with insurance.” — Roundtable Participant
The convergence of different forces is driving new customer behaviors and creating new risks. At the same time, new expectations for the interactions between customers and companies are rising in communications, education/researching, transactions, problem resolution and buying. In Majesco’s customer research, we found strong interest in using innovative methods for pricing, billing and payments for insurance across a range of methods as well as the demand for value-added services. These new products and services demand new billing and payment options.
The result of these changes is creating a series of “from – to” shifts that have huge implications for billing and payments. We’ve identified six of the shifts as those that need a quick response to align billing models with customer trends.
From contents coverage to coverage of single items
Digital data and advanced analytics now allow insurers to break apart the “lump” of contents coverage in a standard property policy to focus coverage on a limited set of specific items of highest importance or value to the customer.
From standard six- and 12-month billing to on-demand, parametric and usage-based billing
Similar to single-item coverage, digital data, advanced analytics and mobile technology now let insurers break apart the standard lengths of insurance policies into flexible, non-contiguous “chunks” of coverage whenever they are used, as determined by the customer, not the company. Parametric insurance uses defined parameters that trigger different elements including on/off coverage and payout, such as insurance for Uber or Airbnb coverages for the sharing economy. Parametric insurance makes a mess of traditional billing systems. (For an example, read the introduction to our last billing blog.)
Usage-based insurance (UBI) requires billing to be more flexible and transparent based on mileage driven or timeframe of use. UBI includes the capture of real-time data to calculate the price.
From personal use OR commercial use of assets to personal use AND commercial use
Platform companies like Uber, Lyft, VRBO, Airbnb and Turo have liberated people’s assets from the confines of "personal use only" by connecting them with people who want to use them temporarily and are willing to pay to do so. Because many personal assets like cars, homes or rooms within homes can include significant periods of non-usage that still incur costs for their owners, these platforms empower millions of asset owners to earn money at a scale that was never possible before.
From indemnification to prevention
Insurers have decades of historical data on losses, so it is well known how often different perils occur and how much monetary damage they incur. The problem is that this knowledge is only created after the losses have occurred. Sensors and IoT technology are lifting the veil on these events as they’re happening or even before they happen, making it increasingly possible to prevent losses from occurring in the first place, or limiting the damage they cause.
From standard billing to subscription billing
Subscription billing has grown very popular across many industries, but insurance is just now beginning to catch up. Subscription types require more than just calendarized transactions. Subscription capabilities include frequency changes, free trial periods and the application of promotion codes. Billing’s subscription capabilities should also extend to freemium or premium services — mimicking popular app features, where services could be supplemented by ads.
From standard billing to seasonal billing
Insurers have traditionally shied away from seasonal insurance products and those that you can turn on and off — likely because of the loss of consistent income and the possibility that, once the product is turned off, it may not be turned back on again. The consumer, however, might rather pay for the seasons in which they are using the insured property.
Ultimately, what is required is that billing and payment solutions must be built to adapt and flex as the market, product, services and customer expectations continue to shift. Insurers need the flexibility to deal with anything new that might be thrown at them, enabling agility, innovation, and speed.
“The big challenge is keeping up with the customer because they are groomed by forces outside of insurance. They pay online. They order online. They pay with credit card, Venmo, PayPal and even Bitcoin.” — Roundtable Participant
See also: 3 Steps to Achieve a Digital Architecture
Meeting the shifts with a tech vision that delivers ROI
“If you take the technology and put it into the old operating model, it will underperform what you get from the investment, operationally and strategically.” — Roundtable Participant
Most carriers are primed for growth as the economy rebounds, with firms bullish about top- and bottom-line gains fueled by greater technology investments. According to a 2021 survey of top executives by the Deloitte Institute for Financial Services, most surveyed insurers have pivoted to a post-pandemic growth strategy, often doubling down on technology investments that allowed them to engage with customers to drive further efficiencies and deliver long-term business model upgrades. Given the need to digitize and virtualize their operations overnight, 96% of firms are accelerating major digitization and platform initiatives, intending to enhance efficiencies and improve customer experiences.
While recognizing that delivering near- and mid-term ROI is a key lens by which firms need to develop and execute a sustainable technology vision, it is critical that technology executives keep two long-term trends in mind:
- Empowered customers: The explosion of data has paved the way for the AI-enabled personalization of the customer experience. As customers increasingly recognize the value of their activity and the data it generates, it is inevitable that they will demand more power to create, capture and transfer that value themselves. This will herald a new era of customer empowerment, with the value of data dictated by the ability to access it.
- Ecosystem strategies: Innovative firms will continue to emerge in the distribution, payments and servicing space, further challenging existing operations and supporting technology. Firms that actively monitor ecosystem players and develop "agile" partnerships will capture more value.
“With today’s technology, it shouldn’t be a moonshot to be able to know who the customer is, what products they have and what information will be most valuable to anticipate and help them. Data and analytics can help them digitally and predict and meet those needs.” - Roundtable Participant
In addition to collaborating with business and operations executives to redesign operating models, executives need to design their technology vision based on a few considerations:
Understand where ROI is generated and the horizon for capturing it.
The technology stack that supports billing includes engagement, integration, core and data layers. Innovation pace at each of these layers is different and so are the time horizons to capture value. Engagement and data/insight capabilities have the power to deliver significant value while core platforms are more foundational investments. Build-vs.-buy decisions should be dictated by speed to market, speed to value and sustainability criteria.
Pursue a holistic, enterprise model with rapidly expanding capabilities for billing.
Insurers need to consider much more than just redesigning for a modern solution. Instead, they must shift to an enterprise model with modules and services, a configurable chassis and a robust ecosystem of partners that provide new capabilities, data and services that together can help insurers rapidly adapt to changing market demands.
Impose “digital first” through APIs.
Fully digital insurers can react to trends and establish a presence through multiple sales channels, and storefronts. To get a better picture of the importance of establishing an API platform in the cloud, read this blog.
Embrace the need for pervasive data access and insights for both internal and external stakeholders.
In addition to regulators, external stakeholders, including the customer, as well as distribution and servicing partnerships, will increasingly need data access. Internal access to data and insights is more critical in the near term while expectations of external stakeholders on access will increase over time.
Understand and accept execution complexity.
The scale and complexity of billing modernizations requires very detailed planning and risk management across operations and technology. This is usually further complicated by the complex legacy architecture landscape involved. A few considerations include:
- A compressed timeline between deployments where teams are given only one sprint each for design, development and testing
- Releases of new functionality at the same time or just prior to a customer migration/deployment
- The number of migration/deployment events and the ‘fatigue factor’ of repeating this for an extended period
- The ability to support an overlapping chain of activities required from testing to validation to migration to operation readiness
Develop an ecosystem of partners.
An enterprise billing chassis provides the configurability and flexibility needed to respond to the requirements of innovative products, services and payment methods, and it answers the need for customer service capabilities that will pay off in customer engagement, loyalty and retention. A payment gateway can provide flexibility through security within its domain, but payment integration outside the gateway.
“Billing has been underinvested for a long time. The entire paradigm of what we need to do in the future, how we need to shape all the investments that need to be done versus playing small ball must change. We need to show the bigger picture of what’s at stake.” — Roundtable Participant
Caring for the customer experience is key. It is becoming clear that the product shifts required to meet customer demands will mandate the long-overdue modernization of billing and payments. Now is the time to act to ensure that billing technologies won’t be the disrupter of insurance experiences and insurance profitability.
Today’s blog is co-written with Ajay Radhakrishnan, managing director at Deloitte Insurance.