Because of COVID-19, carriers are reeling from the moves they have to make to mitigate loss and churn, accelerate digital transformation and automation efforts and improve safety.
The pandemic caused a dramatic reduction in consumer driving with fewer cars on the road, for instance, and many auto insurance carriers issued partial refunds to policyholders. In early April 2020, Allstate reported it would return 15% of monthly premiums, more than $600 million, to auto policyholders to compensate for reduced driving due to state-issued stay-at-home orders. Most carriers also began to extend payment grace periods.
These swift moves were designed to minimize churn, as policyholders look to save money by reconsidering coverage limits or even reducing the number of vehicles they use. These changes are likely not just short-term. The impact of COVID-19 on the economy is expected to be long-lasting and will more than likely result in the reallocation of jobs, workers and capital across firms. The unemployment rate rose to 13.3% in May compared with 3.5% in February just before the pandemic hit, as reported by the U.S. Bureau of Labor Statistics.
What else can insurance carriers do?
To survive and thrive during this unprecedented time, carriers must empower economic recovery and innovate and reimagine business models and services, while serving policyholders’ rapidly changing needs. Retrenching through innovation is an important and necessary step. In my experience, one way to do this is by implementing a process known as "innovation groups" that spans the organization.
Properly structured, innovation groups increase the efficiency of work processes and empower employees. If innovation is too tightly concentrated in specialized departments such as strategic innovation teams, for example, or too tightly aligned with corporate venture interests, companies generally fail to leverage the deep knowledge and expertise of day-to-day operators. The best opportunities for innovation and new technology partnerships — those that truly drive a business forward — come from the active involvement of the people who are closest to the affected end-user and are most familiar with the incumbent process or technology and its deficiencies.
To succeed with a company-wide innovation process, companies must also consider culture and look for ways to make things work as opposed to reflexively saying “no” to challenging change. The most innovative companies have a similar formula for success:
- They forgo hierarchical authority in exchange for collaborative teams that value data and divergent creative thinking;
- They create a process and an environment where employees feel safe to bring (contextually focused) ideas without fear of judgment; and
- They reward bold ideas that challenge the status quo, even if they fail.
Cultural shifts like these do not happen organically or overnight, so carriers must be committed.
We work closely with many of the top insurance carriers to create and implement technology-based solutions. So, I’ve provided a few suggestions based on our experience working with carriers for innovating through disruptions that can drive your business forward.
Leverage third parties to increase carriers’ technology capabilities
The insurance industry was already undergoing a significant technological shift before this pandemic. However, insurance has historically been slower than other industries to shift systems and applications to the cloud, which offers much greater bandwidth and capacity than traditional data centers. According to Forbes, many digital-first business models are the product of increased collaboration between traditional insurance companies, testing new business models, and revenue streams powered by new technologies.
See also: Evolving Trends in a Post-Covid-19 World
Insurance carriers are experiencing pressure to come up with solutions faster. Working with third parties accelerates innovation and allows carriers to focus on enhancing their traditional value proposition with expanded services to meet new customer expectations and the changing behaviors of a post-COVID world.
Most importantly, technology solutions can reduce operational costs by preventing fraud and automating services, freeing employees’ time for initiatives that provide more value and allowing insurance agents to acquire and maintain business more efficiently.
Look for new ways to easily and quickly deploy AI across the business to increase accuracy and speed and to decrease costs.
Artificial intelligence (AI) has improved operations in multiple sectors of the insurance industry by lowering costs, driving efficiency across the business and enhancing the customer experience. If you’re not taking advantage of AI now, it is of utmost importance to start doing so immediately.
According to Accenture, insurance executives believe that AI will transform their industry, with insurers investing in AI to empower agents, brokers and employees. They aim to enhance the customer experience with automated personalized services, faster claims handling and individual risk-based underwriting processes.
Roadside assistance programs, for instance, are benefiting from AI, machine learning, automation and data transparency. For many insurers, roadside assistance is one of their highest-volume claims. So it’s vital to offer an omnichannel touchless claims process (voice, web, mobile with “hands off”) to AI-powered chatbots that provide customers with real-time information during a roadside service. New technologies for deep provider profiling and dispatching are also crucial. These digitalization efforts improve the overall roadside assistance experience and make it far more efficient.
Leverage insurance carrier and partner data more effectively to make more informed decisions.
All companies can do a better job of leveraging data. Leveraging data helps insurers make better and more informed data-driven decisions with regard to pricing, risk selection, fraud, claims and identifying trends.
Carriers can be more successful in this area by working closely with their third-party partners to design and implement data feeds or warehouses where relevant data is continuously updated and exchanged in a real-time environment. Introducing or evaluating new technology systems and partners is also an excellent way to rethink or update your data strategy. These efforts can unlock sources of data that were previously unattainable and, thus, not actionable. When vendors and clients work together to share data and operate transparently, they quickly become “partners,” with shared objectives and outcomes. They continuously hold each other accountable and are more likely, and more quickly able, to uncover insights.
Fraud is another area where insurance carriers can increasingly use data. Especially in difficult economic times, “bad actors” may look for ways to gain financially from fraudulent claims. Fraud is most effectively detected through artificial intelligence, which can increase efficiency and accuracy without adding headcount.
Improve the RFP process, which is largely seen as broken and lengthy by startups and innovative companies, to speed your process. Focus efforts on testing/piloting as quickly as possible.
Does RFP stand for “Request for Proposal” or “Really Frustrating Process?” That depends on whether you’re asking insurance carriers or startups.
Carriers, like many others, are used to using RFPs in their procurement processes. These RFPs have worked well over the years, comparing generally commoditized solutions in an apples-to-apples fashion. They shield operators from situations that might otherwise introduce bias (.i.e, the “procurement wall”), while also aiming to create a fair and equal environment for vendor competition. Sounds great, right?
Not if you’re a startup. By definition, startup companies are funded by investors that believe in a “moonshot vision” and want to see “disruptive innovation.” Investors don’t invest in startups with solutions that only marginally improve the status quo. Now, consider a startup with a highly differentiated solution. How is it supposed to explain that differentiation in a highly structured RFP document or web form in which the questions are often outdated or incorrect, answers are pre-canned or the startup has just 140 characters to explain its wildly different business model?
Analysts have documented that insurtech opportunities frequently fail to reach the test or pilot phase due to “internal difficulties.” And when the procurement process doesn’t actually evaluate a solution, it isn’t much of a procurement process, is it? Imagine trying to compare a potential switch from Yahoo search to Google search in the 1990s. What would that RFP look like? What questions would it have asked? “How many website categories do you support?” “How many human curators add links each day?” “Include screenshots of the search box.” Anyone that tried Google search would have spotted the difference in the quality and usefulness of search results immediately. Would the RFP have communicated this difference?
See also: Step 1 to Your After-COVID Future
To ensure your RFPs aren’t inadvertently preventing your organization from evaluating truly transformative technologies, focus on relationships and culture fit and, most important, try the technology. Make decisions based on the results. Revisit processes and make sure they open doors for innovative startups. The carriers that focus not only on fixing these “old” processes, but also introducing “new” ones will out-innovate those that do not. Some of these new processes could include startup engagement, integration and staging environments, sandboxes loaded with sample data, APIs and standardized/modern security audit processes,
A catalyst for change
The transformation of the insurance value chain as we know it — from policies, pricing and distribution to underwriting and risk management through to claims servicing and payments —will be accelerated by this pandemic and the resulting economic downturn. Use this opportunity as a catalyst to change outdated processes and technology, implement thoughtful innovation processes, seek high-value partnerships in the rapidly expanding insurtech industry and evolve company culture to come out ahead where others may stay behind.