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Road to Success for P&C Insurers

Digital transformation initiatives have become an imperative for businesses in the modern age, but many organizations struggle to reach their objectives. Based on a survey of 200 respondents (the majority in the financial services field) conducted by IDG Research Services, more than half of organizations have been forced to pause or completely abandon digital transformation projects.

Where the insurance industry is concerned, the struggle is real. Friss, a risk assessment and detection services provider, discovered that only 69% of insurers offer some form of online distribution.

On the surface, it appears that the industry is moving in the right direction, with more than half of insurers on the digital track. However, this number has risen only 4% since 2016, even though as many as 80% of consumers use digital channels during the purchasing process, according to some research.

Survey findings indicate a strong disconnect between insurer expectations and objectives. In 2016, 25% of insurers that had not introduced online distribution expected to do so within a year. Had they been successful, the current number of online insurers would now be around 75%. Currently, only 69% of insurers report offering some form of digital distribution.

Through its research, IDG discovered that organizations stall or fall short because they have failed to lay the groundwork for successful transitions. Sixty-two percent have not documented or communicated their plans across the organization, and 64% have no plan for dealing with outdated or legacy technology.

To put the insurance industry on a contemporary path toward digital prominence, insurers need to plan for the obstacles they face and implement a strategy that ties legacy systems into future-proof distribution designed to reduce internal costs and meet the needs of consumers.

Understanding Digital Transformation Opportunities and Challenges

According to Forrester, implementing digital technology “dramatically alters the balance of power between customers and companies.” Customers gain the upper hand with better information and choice, but insurers succeed by lowering the cost of doing business.

Digital leaders find it a factor of 10 cheaper and faster to engage customers and provide them with an experience that meets their rising expectations than those relying on traditional practices. Considering the benefits, digital transformation tops the agendas of many executives, but businesses across the board find it difficult and costly to modernize their operations.

In IDG’s research, 64% of companies cited legacy technology as a top transformational impediment, followed closely by technology silos (59%) and cost (50%). At least half don’t know where to start.

It’s interesting to note that businesses in general experience many of the same top challenges as insurers when it comes to digital transformations.

Often, policy administration is handled in silos operating on outdated technology stacks. With so much data at stake, it’s difficult to create a plan of attack for uniting back-end systems. However, it’s a situation where the effort is worth the price.

Bain prioritized 30 fundamental values that, when in place, can elevate the customer experience and push insurance products above the commodity status.

Values were divided into four categories: social impact, life-changing, emotional and functional. Each category is defined by consumer needs, such as “saves time,” “reduces anxiety” and “avoids hassles.” Insurers that rank high in more elements of value achieve higher Net Promoter scores and realize above-average growth, according to Bain.

To excel in these categories, however, insurers need to establish relationships with customers. According to Bain, staying in frequent contact, digitizing purchasing and servicing and offering ancillary services are the primary components of an insurer’s relationship-building strategy.

However, legacy technology and product silos impede insurers’ ability to swiftly react to customer inquiries and issues. Accessing the necessary information is often limited or time-consuming, and, when it comes to offering additional products or services, insurers are unable to extract the necessary insights quickly enough to make real-time product recommendations a reality.

Beyond technology considerations, 62% of organizations have failed to lay a solid foundation for transformation by establishing a plan and effectively communicating it to relevant stakeholders.

Planning and communication become necessary in light of the impact digitization has on the organization, particularly where resource management is concerned.

As insurers engage in digital transformations, processes within the organization change, affecting job functions and the people who perform them. McKinsey says that up to 25% of current business processes could be automated, resulting in the consolidation or elimination of up to 25% of full-time positions.

See also: Culture Side of Digital Transformation  

Technology and automation also open doors to new roles and occupations. McKinsey points out that 25 years ago jobs in areas such as IT development, hardware manufacturing and app creation did not exist. Just as new employment opportunities arose out of the technology revolution, automation will generate demands for new skills, creating job roles in insurance that we can’t imagine today.

Part of a successful transition is understanding what processes will change and how those changes will affect existing roles across the organization. Envisioning new roles at the beginning allows insurers to identify existing talent that can be upskilled or reskilled to fill new vacancies.

Making for Successful Digital Transformations

At the heart of successful digital transformations is a focus on the customer. Digital leaders understand this, with 92% reporting that customer experience is central to their strategy.

Digital leaders, such as Amazon, become industry giants because they can tie revenue outcomes to specific measures of customer satisfaction and tweak or completely revolutionize their business approach accordingly.

According to Forrester, digital leaders succeed by adhering to four basic principles:

A customer focus during digital transformations ensures that outcomes meet the intended objectives. Insurers can plan from the outset to build the necessary speed and efficiency into digital channels while ensuring cross-functional capabilities.

A recent consumer study conducted by Facebook and comScore revealed that the typical insurance-buying journey is short. Thirty percent of consumers made a decision within a day, while the same number took less than a week to select their insurer.

That gives insurers a short window of opportunity to engage with consumers and secure their business.

According to J.D. Power, a preference for digital interactions is on the rise. In their surveys, over 60% of consumers use online channels when researching insurers, but only 42% use these channels to purchase.

Pitted against consumer expectations shaped by the Amazon experience, too many insurers fail in speed, efficiency and convenience, J.D. Power says, forcing consumers to seek out more digitally proficient insurers or to switch to other channels when purchasing coverage.

Filling the Gap with Digital Transformations

When it comes to improving the customer experience, insurers are filling the gap between expectations and reality by ramping up their digital capabilities. In a recent survey of industry executives conducted by SAP, 85% were prioritizing the development of digital and mobile channels.

Findings like these indicate that insurers understand the need for digital engagement. However, there is no indication that insurers have conquered the impediments to creating an efficient omni-channel environment. To do so, they need to unite back-end systems to obtain a complete view of the customer, including every policy on record, as well as consumer data and related insights.

With legacy technology and siloed systems at the top of executive concerns, it’s no wonder that business leaders are partnering when it comes to gaining digital capabilities. Respondents to the IDG study expect more than 1/3 of their transformation initiatives to be handled by a third party. This approach is particularly applicable to the insurance industry where overhauling systems is risky and problematic.

“In a time of disruption, the smartest insurers recognize they can’t do everything on their own. They’re teaming up with insurtechs and other companies to modernize their operations, from distribution to claims processing,” said Dr. Henrik Naujoks, head of Bain & Co.’s financial services practice in Europe, the Middle East and Africa.

Integrating third-party solutions with existing technology puts insurers on the digital fast track without the worry of disrupting data held in traditional systems. According to Rick Huckstep, chairman, Digital Insurer, the insurer’s existing system becomes the system of record, while digital distribution platforms supply the digital front end.

In the process, back-end systems are connected through a single point of access, providing clear visibility across policies to all channels. This capability is necessary to ensure an efficient omni-channel experience for the customer.

By connecting all policy silos, agents and customers are able to quote, issue and bind multiple policies from a single application. Through automation, the process is completed in minutes, ensuring that insurers capture customer purchasing intentions at the moment they are ready to buy.

See also: Future of Digital Transformation  

Digital distribution platforms also simplify the approach to ecosystem environments, providing insurers with a ready platform for connecting with ancillary service providers or other insurers.

Bain’s in-depth consumer research reveals that digital leaders are excelling with three main capabilities. These core components of a leading digital strategy are all easily addressed with the application of a digital distribution platform:

Core Business

High-quality products are delivered at competitive prices. Customer experiences are simple and digital.

How a Digital Distribution Platform Helps: Automating much of the quote-to-issue lifecycle reduces insurer costs and provides an ecosystem environment where insurers can connect with other insurance companies. By using products from other insurers to meet price points or when there is no appetite for the risk, insurers can always fulfill the needs of their customers.

Going Beyond Insurance

Insurers foster engagement and a sense of affiliation by offering ecosystem services from third-party providers.

How a Digital Distribution Platform Helps: Outside vendors can be connected to digital distribution platforms, allowing customers to move freely from the insurer’s website to third-party applications. Customers can simply and easily take advantage of ancillary services right from the insurer’s website.

Prioritize Innovation

Insurers understand the urgency behind digital initiatives and push for speedy digital transformations.

How a Digital Distribution Platform Helps: Digital distribution platforms provide insurers with a complete digital environment, from online storefront through back-end integration, in a matter of weeks.

Connecting with digital distribution platforms drastically improves the odds of transformation success. Aside from implementation simplicity, insurers gain the benefit of expertise.

Platform providers are well-versed in the impacts that transforming to digital distribution have across the organization and are equipped to lead insurers through the process. They advise on staff changes and have resources on hand to fill talent gaps, thereby increasing the odds of success.

Smart Home Devices: the Security Risks

Smart devices have become a popular topic in the P&C insurance world. Tools like smart thermostats, smoke detectors and water sensors offer the potential to halt property damage before it starts, protecting insurance customers from injury, property loss or both. Yet these devices come with risks.

Smart devices often represent the most vulnerable point on any given network, exposing customers and insurers alike to potential risks. Insurance companies that understand these risks are better-poised to protect both customers and themselves.

The Rising Trend of Smart Device Use

Smart home devices were a wildly popular gift during the 2018 holiday season. Amazon broke records for sales of its Echo and Alexa devices, Voicebot’s Bret Kinsella says. Sales of smart sensors, security systems, wearable devices and smart toys were also strong.

Currently, the most common smart devices used in private homes are televisions and digital set-top boxes, says Gartner research director Peter Middleton. Initially more popular among businesses, tools like smart electric meters and security cameras are becoming more popular among homeowners.

As more people use smart devices, insuring these devices becomes more important. Even Amazon has announced an interest in offering homeowners insurance to complement its smart devices like Alexa speakers and Ring Alarm systems, says Julie Jacobson at CEPro.

Growing Security Concerns for the Internet of Things

As reports of data theft, hacking and other malfeasance reach the news, concerns about security and privacy in the smart device realm grow. For instance, a distributed denial of service (DDoS) attack in 2016 incapacitated websites for internet users across the East Coast of the U.S. The attack was launched from an army of smart devices conscripted by malware, says Lisa R. Lifshitz, who works in internet law and cybersecurity. In this attack, many of the device’s owners didn’t even know they were involved.

These events have raised concerns about device security among both government regulators and private device owners. Insurers seeking to offer smart devices to customers can play a role, as well.

See also: Smart Home = Smart Insurer!  

Laws and Regulations Address Smart Device Security

Most laws and regulations to address smart device security are still in their infancy. Although the U.K. introduced guidelines for improving IoT security in 2018, the guidelines remain voluntary. This means that not all manufacturers will adhere to them, says Rory Cellan-Jones, a technology correspondent for the BBC.

In September 2018, California became the first U.S. state to pass a law addressing smart device security. The bill sets minimum security requirements for smart device manufacturers selling their devices in California. It takes effect Jan. 1, 2020.

Rather than listing specific requirements, the California law sets a standard for determining whether security is reasonable. For instance, the security features must be appropriate to the device’s nature and function. They must also be designed to protect the device and its information from unauthorized access, modification or other forms of tampering, say Jennifer R. Martin and Kyle Kessler at Orrick.

Customer Interest in Security Has Increased

As smart devices become more popular, so do demands for greater security and privacy regulations. A 2018 study by Market Strategies International found that people who use smart devices at home or at work are twice as likely to believe that governments should regulate the devices.

“We believe that these workers have already seen the massive potential of the IoT and recognize that the risks – data security, privacy and environmental – are very real,” explains Erin Leedy, a senior vice president at Market Strategies. With a sense of both the potential and the risks, smart device users become more interested in stronger regulations to protect privacy.

A 2017 study by digital platform security firm Irdeto polled 7,882 smart device users in six different countries worldwide. Researchers found that 90% of those polled believe that smart devices need built-in security. Yet, respondents also said they too had a role to play in keeping themselves secure: 56% said that users and manufacturers share responsibility to prevent their devices from being hacked, security director Mark Hearn says.

Consumers understand that their devices can pose risks, and they’re willing to join the fight to protect their privacy and data security. Insurance companies can help them do so by providing the information they need to make smart decisions with smart devices.

Who Controls Your Customers’ Devices?

When today’s smart home devices were designed, the main goal was to simplify tasks and make life more efficient. Security took a backseat to functionality, Fortinet’s Steve Mulhearn says. To function well, smart home devices must integrate seamlessly with other devices — meaning they’re often the weakest security point on a network.

Hackers have noticed these weaknesses and are taking advantage of them. In August 2018, the Federal Bureau of Investigation issued a public service announcement warning that IoT devices could be hacked, conscripting them into malicious or illegal online activities.

“Everything from routers and NAS devices to DVRs, Raspberry Pis and even smart garage door openers could be at risk,” says Phil Muncaster at Infosecurity Magazine. While some devices are at higher risk than others, no smart device is totally safe from attempts to use it for ills like click fraud, spam emailing and botnet attacks.

Helping Customers Understand and Address Smart Device Risks

Most smart device users want to play a role in preventing privacy and security breaches. Yet, they don’t always know how to participate effectively.

Helpnet Security managing editor Zeljka Zorz recommends that homeowners adopt smart devices only after asking and answering two questions:

  • Will the device improve the quality of my life/fill a need I have?
  • Am I satisfied with the level of security and privacy the manufacturer provides users?

Insurers seeking to incorporate smart devices into their business and their customers’ lives can help by providing answers to both questions.

As Steve Touhill explains on the Resonate blog, demonstrating the usefulness of smart devices can help insurers attract new customers. Smart device owners are 42% more likely to change insurance companies in the coming year. They’re also more open to embracing insurers that offer smart device discounts or support.

Insurers can help customers protect themselves by providing information on privacy and security issues. Options include comparisons of security options for various devices, information on changing usernames and passwords, how-to guides for installing regular updates and checklists for spotting signs of cyber tampering.

When presented as best practices for using smart home devices, these steps can help homeowners and insurers address security risks without raising undue alarm.

Property and casualty insurers that encourage smart device use play an important role in influencing how customers use their devices. While this relationship can be beneficial for both insurers and customers, insurers that enter it face further privacy and security complications.

Protecting Customer Privacy

Insurance companies will need to consider how to protect customer privacy while still gathering relevant data from smart home devices.

This is because smart devices offer the potential to provide more data to insurance companies, changing everything from policy recommendations to underwriting accuracy, Mobiquity’s Sydney Fenkell says.

See also: How Smart Is a ‘Smart’ Home, Really?

Gathering this data requires insurance companies to be smart about protecting the privacy of customers and the security of the information received.

“It is not a matter of if but when these systems will be compromised, and the consequences could be much more severe than lost Social Security numbers,” says Dimitri Stiliadis, chief technology officer at Aporeto.

Moreover, P&C insurers will also need to protect their internal networks when communication with these devices presents a weak point.

Being Smart About Smart Device Data Use

The use of smart device data was recently brought to light by an announcement from the insurance company John Hancock. It made public the company’s intention to incorporate information from fitness wearables like the Garmin or FitBit into calculations of life insurance premiums.

This raised a number of concerns with customers, says Chris Boyd, a MalwareBytes senior threat researcher who goes by the pseudonym paperghost. Boyd notes that these devices often have weak security, which means that a user’s personal data could be altered — affecting  insurance premiums.

Similar concerns arise for users seeking to link smart devices with their auto, homeowners or renters insurance. A hacked or malfunctioning device that reports multiple loss events, or that fails to report events that did happen, could affect customers’ insurance rates. Unless, however, human intervention in the system verified the event.

For insurers, one of the best early principles to adopt may be one of transparency, says Chris Middleton at Internet of Business. When consumers know what information their smart home device collects and transmits, and under what security protocols or safeguards, they are better-equipped to understand and use the device in a way that benefits both their interests and those of their insurer.

How to Attract Digital Natives as Employees

The need for insurance agents will grow 10% faster than the overall job growth average between now and 2026, the U.S. Bureau of Labor Statistics  reports. Yet hiring in the insurance industry remains precarious, with only temporary periods of stabilization, The Jacobson Group  says.

As digital natives form an ever-increasing percentage of the workforce, this tech-savvy demographic will become the backbone of our organizations. Ed Kooijman, head of operations at 12CU, adds that many traditional organizations will adopt digital natives as leaders as a key strategy for getting ahead.

This gives rise to an important question: How are P&C insurance companies preparing to attract and retain a workforce consisting primarily of digital natives?

The truth is that property and casualty insurers face multiple challenges when it comes to recruiting and retaining digital natives. To attract digital native workers and stay competitive, P&C insurers are changing their approach in several ways.

Creating a Digital-Friendly Workspace

The term digital native is used to describe workers who grew up in today’s high-speed, screen-focused digital environment. When used in a hiring context, this term helps explain what millennials and Gen Z expect from the workplace.

As more digital natives occupy the workforce, adapting modern workspaces is a predictable response. In fact, workspaces have changed with every generation to leverage emerging technological assets and meet new demands, Nick Mason writes at OfficeSpace Software.

Nevertheless, the changes occurring in modern workspaces differ from those experienced by previous generations. Today’s digital natives expect to be able to communicate and collaborate easily whether or not they occupy the same physical space, PwC technology leader Antonia Cusumano explains. They want to collaborate to produce results more than they want to clock a specific number of hours in the work day or week.

Digital natives’ focus on collaboration and results has changed their view of the office. “The workplace is no longer a specific destination where employees gather,” CIO contributor Paul Chapman says. He explains that working is more about a mindset than a physical location. “83% of workers don’t think they need an office in order to be productive.”

To this end, insurance companies seeking to enhance their internal culture with the digital native perspective need technologies that match or exceed the tools these workers already use daily. According to John Mancini at the Association for Intelligent Information (AIAA), organizations that fail to adopt new technologies will struggle to attract and retain the industry’s best digital native talent.

See also: Winning With Digital Confidence  

Using outdated, siloed systems is confusing and inefficient in the minds of digital natives, IO Integration contributor Mike Watson says. This is especially true because millennials are well-versed in technologies that empower smart, dynamic collaboration across remote and in-person teams.

Making Information Easy to Access

The internet provides the foundation of the digital native experience and helps define their approach to the world. Marie Puybaraud at Work Design Magazine explains that cloud-based data, along with multi-platform connections, provide digital native workers with instant, streamlined access to social and professional networks.

This is why dark data, or siloed data that isn’t being used to make better decisions, can frustrate digital native workers. They’re accustomed to information being readily accessible, and they see this as a fundamental aspect of strong decision-making.

Digital natives usually see technology as a tool rather than a solution, writer Jillian Richardson says. Consequently, insurance companies that invest in the latest technology simply to do so may be pushing these workers away, rather than attracting them. A clear goal for technological tools like software platforms, along with a careful consideration of how the new technology will be implemented, can help companies create a digital and physical environment optimized for these employees.

It’s important to bear in mind, however, that while digital natives are comfortable with a wide range of technologies, they weren’t born with a complex understanding of cutting-edge tools like artificial intelligence or machine learning. Rather, digital natives have a lower learning curve for the technologies that are changing the insurance industry, says RapidValue marketing consultant Shuvro S. Sarkar.

Similarly, multitasking isn’t a skill that digital natives have developed independently of previous generations. Although digital natives’ willingness to attempt multiple tasks at once is often higher than that of previous generations, their ability to succeed at those tasks is about the same, according to an October 2017 study published in Teaching and Teacher Education. Workspaces that allow digital natives some quiet time and space to focus on a single task remains essential.

Speaking the Language of Digital Natives

Insurance is also uniquely poised to speak the language of digital native generations. Digital natives may possess a confidence with technology that previous generations lacked, but they are keenly aware of the uncertainties in the broader world. Addressing this uncertainty within the context of insurance can make digital natives more interested in pursuing a career in the industry, says Michelle Tucker, global head of analyst training at AIG.

“Insurance can provide some degree of certainty as a safety net supporting people’s lives and business pursuits,” Tucker says. “That idea really resonates with the individuals that we’re bringing into our organization.”

The uncertainty that digital natives face in their overall lives is, in part, driven by the technology they are so comfortable using. Many are concerned, for instance, that the jobs they pursue at the start of their careers may be eliminated by technology, says Richard Partington, economics correspondent at the Guardian.

This fear isn’t entirely unfounded in the insurance industry, says Peter Westerman, who works in product development at ALM. Highlighting the value of digital natives — and their ability to spot and implement insights that technology can’t replicate — is key to addressing these fears and hiring top-tier talent.

See also: Workplace Wearables: New Use of Big Data

In return, digital natives can help P&C insurers speak the language of their prospective and current client base. Younger generations are currently the most frequent users of new insurtech tools and systems, L’Atelier managing editor Sophia Qadiri says. Recruiting these natives can help established property and casualty insurers better adopt these customers’ viewpoints, making it easier to create the seamless digital experience this rising customer base demands.

Like the rallying cry that early internet and software pioneers declared, the internet wants to be free. Today’s digital natives don’t always see information as free, but they do expect the information they need to be readily available when they’re pursuing a goal on the job.

Attracting and retaining digital native staff can help property and casualty insurers better understand and address the changing world of insurance. To do so, these insurers will need to invest in technological tools that provide the information access and collaboration capabilities digital natives have come to expect from their technology.

How Insurtech Helps Build Trust

The insurance industry was built on mutual trust. Insurance companies trusted their insureds to give truthful accounts of losses and the events that caused them, and insureds in turn trusted their insurance company to pay what was owed under the terms of the insurance contract.

The ability to gather and parse massive amounts of data, however, has changed the way insurance companies and their customers regard the trust relationship, Wilds Ross at KPMG says. Available data can now help insurance companies create personalized coverage for each customer, but it can also raise doubts in customers’ minds as to how that information is protected and used.

Here, we explore some of the biggest trust hurdles to arise in recent years and how insurtech is poised to address the twin issues of privacy and transparency to rebuild trust.

A Crisis of Trust?

Customers are pretty evenly split as to their trust in insurance companies, according to data journalist Paul Hiebert. Forty-seven percent of Americans say they trust insurers, and 43% say they do not. There’s a clear generational trend, as well, with a greater lack of trust in customers younger than 55. Further, only 42% of people agree that insurance companies act in the best interests of their customers.

As a result, many people are choosing to go without insurance rather than work with an insurance company they don’t trust. For instance, 83% of California homes lack earthquake insurance, financial columnist Liz Pulliam Weston writes, in part because customers don’t trust that available earthquake policies will come close to addressing their needs after a catastrophe.

See also: Insurtech Starts With ‘I’ but Needs ‘We’  

Insurtech startups are sensitive to the atmosphere of mistrust and are capitalizing on it, say Jagdev Kenth and Grace Watts at Willis Towers Watson. For instance, German startup Friendsurance uses the trust built in a peer group to take a sharing economy approach to insurance. Meanwhile, Lemonade publishes its flat fee of 20% of premiums and its donation of unused money to charity each year.

“We have been giving insurance a free pass for way too long,” says Sophie Grønbæk, co-founder and CEO of insurtech startup Undo. “The products are confusing, which means that customers are completely dependent on the insurance company.”

The power to change this relationship — and the atmosphere of suspicion it has created — lies with insurance companies, and insurtechs are taking an early lead. “The insurtechs can use their cost efficiencies to provide bespoke policies that create an intimacy with a customer and that, in turn, builds trust,” says Etherisc co-founder Stephan Karpischek.

Yet the use of technology for its own sake creates additional uncertainties, particularly when it comes to privacy.

The Links Between Privacy, Transparency and Consumer Trust

“Consumer trust in insurance has been badly hit by distrust of financial services following the banking crisis,” Fairer Finance’s Melissa Collett says. This mistrust sprang from countless stories of people losing their homes and life savings — a catastrophe that, in turn, sprang from a lack of privacy and transparency in the financial industry.

The mistrust spillover carries with it the same concerns in customers’ minds. Can insurance companies be trusted to keep their information safe, particularly in a world where identity theft and digital compromise is rampant? What are insurers doing with their information — and their hard-earned premium dollars — anyway?

While state and federal regulations set the bar for privacy in many ways, insurance companies that rely solely on regulations for guidance often find themselves at a loss, entrepreneur Jason T. Andrew says. Because lawmaking tends to lag behind the rise of the social problems it addresses, concerns about data breaches and identity theft are already common — and customers want to see every business, including insurers, taking an aggressive approach.

Even insurance companies with a strong commitment to privacy, however, may not be able to build trust on that commitment alone, particularly if it is not communicated or demonstrated clearly.

Customers want to know how, where, why and with whom their information is shared. Thus, the shift to a customer-focused model has started to encourage transparency among insurance companies, consultant David Cabral says. Transparency sells, which means customers are hungry for it.

Yet when it comes to implementing transparency, many insurance companies find themselves with little regulatory guidance. “Consumer protection in most domains of financial regulation centers on transparency,” University of Minnesota Law School Professor Daniel Schwarcz wrote in a 2014 article for the UCLA Law Review.

Insurance companies, however, are an anomaly: State regulations of insurers typically don’t address transparency at all. Where transparency regulations exist, they’re often misguided or poorly written, which can make consumer trust issues worse.

Building transparency and the trust that comes with it, then, lies in the hands of insurance companies rather than in the regulatory power of the state. And as Risk Cooperative founder and CEO Dante Disparte writes, insurtech ventures are demonstrating technology’s myriad opportunities to build that transparency.

Building Trust Through Technology

Technology alone won’t solve the trust problem. Far from being neutral or disinterested, algorithms have been found to replicate societal biases in everything from job recruiting to evaluating parole requests, FiveThirtyEight’s Laura Hudson reports.

Meanwhile, interactive voice tools like Google Duplex have been criticized for misleading customers who believe they’re talking to a human, reporter James Ball points out.

Instead, insurance companies seeking to build trust with customers — and to rely on their own ability to trust those customers in turn — will need to apply technological solutions thoughtfully to their current processes to produce results consistent with their own visions, missions and goals.

“Gathering data is only beneficial to insurance companies insofar as it raises the profit/policy ratio or increases the overall policies sold rate,” Sureify CEO Dustin Yoder writes, arguing in favor of a well-thought-out approach to customer privacy and transparency.

See also: How Insurtechs Can Win Consumers’ Trust  

Cake & Arrow’s Christina Goldschmidt suggests that to improve customer trust relationships, insurers could learn from the application of e-commerce tools in the retail sector. By using tech tools like a SaaS platform to establish consistent workflows, enable customization, build a more interactive marketing approach and protect customer information within a de-siloed company, insurers can make it easier to provide trustworthy service and to gather trustworthy data.

Building trust with customers is a multi-step process that technology can facilitate, says Alex Schmelkin, also at Cake & Arrow. For instance, tech tools can make it easier to allow customers to interact with the company via their preferred channels; help insurance company staff stay on track with the company’s goals; and incorporate new products, services and tools to provide a better customer experience.

The single best step may be to talk more about customers and less about tech. By focusing on words like tech and digital, companies are focusing on the tools, not the customers, says Zaid Al-Qassab, chief brand and marketing officer of telecommunications group BT.

“Write a brief that’s about your customer and business results you hope to achieve,” Al-Qassab says. “Let’s talk about target audience and how to sell to them” — and how to leverage technology to do so in a trustworthy fashion.

New Power Shift in P&C Insurance

P&C insurance carriers have witnessed a lot of changes in the past decade, but few have been as surprising as the shift of power currently taking place across the industry.

According to Dennis Chookaszian, the former CEO and chair of CNA, carriers maintain only 40% of profits today, representing a drop of 20 to 25 points from the 1960s. An equal share now goes to the distribution system, as carriers line up to acquire and maintain more customers.

What’s behind this shift in profitability can’t be summed up in a single word, but increasing competition, new market entrants, improving technology, changing customer expectations and continued consumer price sensitivity all play a role.

To remain competitive, carriers will need to gain more control over distribution, a goal that even Chookaszian admits will not be easy to achieve.

Why the Power-Shift Toward Distribution

In the mid-part of the last decade, insurance carriers required two primary competencies to operate: data and capital. Because neither was easy to acquire, competition was less robust, and incumbent carriers found greater profitability, taking in roughly two-thirds of insurance transaction profits.

Today, data is everywhere, and through the use of analytics, simpler than ever to understand and use. Capital is also easier to acquire, as is evidenced by the growing number of insurtech players in the industry. According to Willis Towers Watson, $2.3 billion was invested in new insurance tech companies in 2017.

According to Chookaszian, the core competency for insurers now lies in distribution and control of the customer.

“It’s become so competitive that the carriers basically are always out looking for new accounts,” Chookaszian says.

That means higher commissions are paid to agents as carriers battle it out for market share, resulting in shrinking margins.

“Given the shift in profitability to distribution, the carriers that will be better off will try to regain some control over distribution,” Chookaszian says.

Admittedly, that is not an easy thing to do. The agent enterprise is part and parcel of most insurance operations. Directly selling insurance to consumers will require insurers to set up their own distribution systems, while still supporting their vast networks of independent or captive agent forces.

See also: The Future of P&C Distribution  

Distribution Goes Digital

When Benjamin Franklin started the first successful U.S.-based insurance company in 1752, he was dealing with a localized Philadelphia population, but, by the end of the 18th century, citizens were moving westward, making it necessary for insurers to expand their distribution networks.

The Hartford made the first foray into direct distribution by offering insurance through the mail, but few consumers of the time were willing to give up the personal services of an agent when it came to purchasing something as critical as insurance. Carriers of the time faced a similar dilemma as carriers do today: how to acquire customers in a changing marketplace.

According to the J.D. Power 2018 US. Insurance Shopping Study, insurers are aggressively courting customers with new options and amenities as auto insurance rates remain stagnant and the number of consumers seeking coverage declines.

“We’re entering an era of consumer-centric insurance that will likely be marked by a surge in new digital offerings and serious efforts by insurers to improve the auto insurance shopping experience,” says Tom Super, director of the property and casualty insurance practice at J.D. Power.

This shift is happening across all lines of coverage, even small commercial.

While citizens on the new 17th-century frontier may have been hesitant to buy coverage without the guidance of an agent, many 21st-century buyers have no such qualms. Nearly half of consumers responding to a survey conducted by Clearsurance said that they would purchase an insurance policy online, while 65% believe this will be the primary channel for purchasing coverage within the next five years.

According to research conducted by Accenture, consumers are open to a number of new possibilities when it comes to buying the policies they need:

Power in the form of profits may have shifted to distribution, but consumers are making a power play of their own, demanding greater service and amenities and taking their business to the carrier most capable of meeting preferences and price points. In a world of shifting power, creating an active, online distribution channel puts more of the profit back into the carrier’s bottom line and allows it to attract more customers in three distinct ways.

Cutting Transaction Costs

According to a report from the Geneva Association, the leading international insurance think tank for strategically important insurance and risk management issues, 40% of P&C premiums are absorbed by transaction costs, leading to inflated policy pricing that drives away potential customers. PwC pegs distribution as a heavy culprit, reporting that 30% of the cost of an insurance product is eaten up in distribution.

On the other hand, Bain predicts that insurers could cut the cost of acquisition by as much as 43% through digitalization. Underwriting expenses could drop as much as 53%.

Reducing these costs allows insurers to present a more attractively priced product to consumers, an important consideration given that 50% of customers base their loyalty with an insurer on price.

To understand how costs are reduced through digital distribution, it helps to understand how a leading digital distribution platform works to raise efficiency. According to PwC, up to 80% of the underwriting process can be consumed by administrative tasks that require manual workarounds, such as re-entering information into multiple systems.

Much of this re-inputting of data is due to the siloed nature of insurers’ administration systems. Digital distribution platforms create a layer between the front-end online storefront, where customers enter application data, and the back-end systems used to store information.

As consumers enter their personal details into the online application, all back-end systems are populated automatically, eliminating the need for manual work-arounds. Everyone across the organization has the same view of the customer and access to any information that has been provided.

Digital platforms are also masters of straight-through processing, automating the quote-to-issue lifecycle and reducing the need for manual underwriting. By automatically quoting, binding and issuing routine policies, insurers reduce costs and also provide a more “informed basis for pricing and loss evaluation,” according to PwC.

As costs drop, insurers are also able to more competitively price insurance coverage. Lower prices win more customers allowing insurers to take back some of the profitability of distribution.

Improving Customer Experiences

When it comes to insurer-insured relationships, there is a gap between what consumers want and what insurers provide. Consumers rate the following points as very important aspects of the insurance buying experience:

  • Clear and easy information on policies
  • Access to information whenever it is needed
  • Ability to compare rates and switch plans
  • A wide range of services

But few consumers agree their insurer is meeting these expectations:

27% see clear and easy information on policies

29% report access to information whenever they need it

21% say there is the ability to compare rates and switch plans

24% see a wide range of services

The customer experience is becoming a key differentiator across the insurance industry. McKinsey reports two to four times higher growth and 30% higher profitability for insurers that provide best-in-class customer service, but here’s the rub. Only the top quartile of carriers fall into this category.

Becoming a customer experience leader requires insurers to understand that the separate functions associated with policy sales and distribution appear as a single journey to consumers. They expect to quote, bind and issue multiple policies through a single application, using as many channels as they feel necessary to get the job done.

While 80% of consumers touch a digital channel at least once during an insurance transaction, 45% of auto insurance shoppers use multiple channels when making a purchase. They expect to be recognized across these channels, picking up in one where they left off in another.

The multiple back-end systems employed by most insurers present a strategic dilemma here, as well as in the area of cost containment. Without transparency between channels, consumers are forced to restart a transaction every time they change their engagement method.

“It amounts to a great deal of frustration for the consumer,” says Tom Hammond, president U.S. operations, BOLT. “You start an application online and then call the customer-facing call center, and they can’t see what you did through the online storefront.”

Hammond explains that digital distribution needs to be omni-channel distribution, seamlessly integrated with a single view of the customer. It’s the only way to meet consumer experience expectations now and into the future.

Thanks to advances in analytics and artificial intelligence, the amount of data that is available to carriers has grown significantly, and consumers expect that information to be leveraged for their benefit. Eighty percent of consumers want personalized offers and pricing from their insurers.

Progressive is one of the 22% of carriers currently making strides to offer personalized, real-time digital services, having recently released HomeQuote Explorer. From an app or computer, consumers can enter information once and receive side-by-side comparisons from multiple homeowners insurance providers. According to the company, they leverage a network of home insurers to make sure customers can find the coverage they need at a comfortable price.

Oliver Lauer, head of architecture/head of IT innovation at Zurich, believes these collaborative networks are an integral part of the digital future of insurance.

“Digital innovation means you have to develop your insurance company to an open and digitally enabled platform that can interface with everybody every time in real time – from customers to brokers, to other insurers, but also to fintechs and insurtechs,” Lauer says.

Using a digitally enabled market network, insurers can fill product gaps and even meet customer needs when they don’t have an appetite for the risk. The premise is simple. By offering coverage from other insurers, they maintain the customer relationship and reap the rewards of loyalty.

As society changes and consumer needs evolve, the ability to personalize bundled coverage to the needs of the individual will become increasingly important. Consumers are now looking for coverage to mitigate risk in previously unheard-of areas, such as cyber security, identity theft and even activities related to legalized marijuana.

When an insurer is unable to provide the coverage a customer needs, it risks forfeiting that relationship, and any other policies bundled with it, to another carrier. But when the carrier takes part in a market network, it can bundle the appropriate coverage from another insurer with its own products, personalizing the coverage to better fit the needs of the customer.

See also: Key Strategic Initiatives in P&C  

Digital platforms offering market networks also set the stage for insurers to offer ancillary services, such as roadside assistance, that make their insurance products more attractive to consumers. We see this happening with increasing frequency as carriers seek to improve the customer experience and lift their acquisition efforts.

DMC Insurance, a provider of commercial transportation insurance solutions, recently announced a partnership with BlackBerry Radar. The venture would provide transportation companies with real-time data on vehicle location, as well as cargo-related information, such as temperature, humidity, door status and load state. Information like this will help companies better manage risk.

In the personal lines market, insurers are partnering to offer services that enhance the life of their customers. Allstate’s partnership with OpenBay allows consumers to review repair shops and schedule an appointment from an app. Allianz is helping home owners safeguard properties by partnering with Panasonic on sensors that monitor home functions and report issues. Customers can even schedule repairs through the service.

Digital Distribution Benefits All

J.D. Power reveals that digital insurers are winning the intense battle for market share in the insurance industry, starting a shift that could help level the profitability field between distributors and carriers. In a recent insurance shopper survey, overall satisfaction was six points higher for digital insurers over those that sell through independent agents. This lead grows to 12 points when compared with carriers with exclusive agents.

According to research by IDC, digital succeeds on the strength of its data. The ability to collect and analyze the vast stores of data available through these interactions, including such variables as the time of day the consumer shopped for coverage, the channel the consumer used, and stores of information collected from third-parties as part of the automated application process, provides the key to improved customer service.

“By analyzing this data, insurers can understand each customer’s lifestyle, behaviors and preferences in order to engage with them at the right time and place, offer personalized service and offers and more,” says Andy Hirst, vice president of banking solutions, SAP Banking Industry Business Unit.

As insurers create omni-channel engagement, they’re strengthening distribution from every angle, giving consumers the option to quote coverage online when it’s most convenient for them, and then buy it right then and there or to seamlessly call an agent to discuss their options and their risk.

Customer experience is rapidly becoming the foundation of success in the industry, and digital distribution provides the first link in building that base of core customer satisfaction. By providing consumers with multiple channels of engagement and the ability to meet more of their needs at any time, day or night, carriers are taking back the lead on profitability.