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June 19, 2019

Has Digital Insurance Failed?

Summary:

The digital insurance concept has lost most of its popularity. Insurers have learned that digitalizing the traditional process is not enough.

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“Digital insurance” was an exciting concept for the insurers until a few years ago. It was believed that digital transformation would change the insurance industry forever. We can say that digital insurance was the “autonomous vehicle” of the insurance industry.

Today, it seems that the digital insurance concept has lost most of its popularity. Insurers haven’t found what they expected from digitalization; now, they are dreaming of more disruptive technological transformations (like insurtech). So, why has digital insurance failed?

The truth is insurance companies realized that digitalizing the traditional insurance process is not enough. At the beginning, they must have thought that, after transforming all offline processes to online, digitalization will be completed, and everyone will be happy with that.

If you define digitalization as “transforming all offline processes to online,” insurance companies did their job completely, but ungrateful (!) consumers did not appreciate the change enough. Although most insurance companies have digitalized their sale process in the last five years, the share of online sales is still below 1%.

However, if you define digitalization in the broader meaning as “being a part of the online ecosystem, to respond to changing and diversifying customer expectations,” insurance companies are going nowhere fast. This makes clear why digital insurance projects haven’t reached expectations.

See also: Digital Insurance, Anyone?  

There are reasons why the digital world is growing incredibly fast, regardless of industry. These are also motivators for stakeholders to be a part of the digital ecosystem:

  • Low investment cost, easy entrance to the market and easy exit (means high competition)
  • Low agency and services cost (low price)
  • Easy-to-reach information (more comparison)
  • Real user reviews (more trusted purchase)
  • Product diversity (a tailor-made way to satisfy needs)
  • Easy purchase and live support (better customer experience)

These six topics are the essentials of a well-built digital ecosystem. Let’s check how many of these features are available in the digital insurance ecosystem: Zero.

So, we need to think about how we can bring the six fundamentals to insurance.

Low Investment Cost, Easy Entrance and Exit

The insurance business is strictly regulated in many respects, but, if we want to grow the digital insurance market, we have to make providing insurance easier. We need a new approach to insurance agency services, especially in digital platforms. Simple, fixed-price and easy-to-understand products should be sold by digital retailers or even individuals. Uber has transformed the individual transportation industry by providing a simple service.

Low Agency and Services Cost

Rule No. 1 about online shopping: Consumers want to have a significant price advantage while shopping online. Discount coupons, gift cards, limited time offers are necessary in online shopping. If you think that offering an off-season discount on health insurance is absurd, think again.

Easy-to-Reach Information

Insurance products are too complicated; we all know it. We also know they don’t have to be. We should simplify products and make them easier to understand. To sell a product online easily, you have to provide all key information in a few minutes. Why don’t we replace boring policy documents with YouTube videos?

Real User Reviews

Creating a name in the digital world has never been easier–or harder. While a no-name startup can become a well-known brand with thousands of fans in a few months, giant brands can lose all of their prestige with a simple case. If you want to exist in the digital ecosystem, you must have a good reputation and always protect it. Blogs, forums, customer reviews have a huge impact on the consumer’s purchasing decision, even more than TV ads bought with millions of dollars.

Product Diversity

There is a word that doesn’t exist in the digital ecosystem: “standard.” Almost every product sold online has different color, size, function, power and quality options. For the consumers who are familiar with these opportunities, a one-size-fits-all approach will not be appreciated. Do you think that the couple who are going to the Maldives for their honeymoon and to Tanzania for a safari have typical needs and expectations for travel insurance?

Easy Purchase and Live Support

We are all busy. Digital consumers want to handle all their business as soon as possible, including insurance. If a consumer prefers buying insurance online instead of buying from a traditional agency, he would like to save time. Long phone calls, pages of application documents, lengthy procedures… have no chance in the digital world. People don’t even want to talk on the phone any more; do you have a Whatsapp number?

See also: A Game Changer for Digital Innovation  

Unfortunately, insurers emptied the concept of digitalization. There is a myth that everyone is doing something, but no one can make progress.

We don’t have to wait for Amazon to change the rules of the game in digital insurance. The industry can catch the digital era with a well-defined and rational strategy, based on the requirements of a digital ecosystem. Even a collective transformation strategy that includes all stakeholders of the insurance ecosystem would be much more successful than what is happening now.

Without a new strategy, digital insurance will be a cool idea to mention in an insurance company’s annual reports but nothing more.

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About the Author

Hasan Meral is the head of product and process management at Unico Insurance. He has a BA in actuarial science, an MA in insurance and a PhD in banking.

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