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Digital Future of Insurance Emerges

I regularly communicate with a very large and diverse cross-section of the broad insurance ecosystem. and almost everyone expresses the same professional anxieties and frustrations. With regard to the business of insurance, very few have a clear view of the future, and for obvious and good reasons. However, I believe that several discernible patterns are emerging out of the fog of this pandemic and together they provide a fairly well-defined view of the future of insurance, leaving only the timing uncertain.

Digital Evolution

It’s a good bet that you are reading this article on digital media and that it was published in digital format. As overused and abused the word “digital” may be, it is mission-critical to every aspect of our industry. And, although the migration from analog to digital was already well underway in 2019, the arrival of COVID-19 acted like gasoline on a fire and accelerated the trend. Data by its very nature demands to be digitized to be useful, and no industry has more data than insurance. Technologies such as mobility, connectivity, imaging and artificial intelligence in all of its manifestations are useless in an analog environment. Paper is the enemy of efficiency, information and cost management.  

Claims Is a Major Beneficiary of Digital

No single area of insurance has benefited more than claims from the digital revolution. The “claim is the moment of truth” mantra is tiresome but truer than ever. As insurance fell victim to commoditization, and as advertising budgets became bloated, insurers turned to claim service to differentiate and promote their brands. But true claims excellence is only attainable through end-to-end claims process digitization. From first notice of loss automatically transmitted by connected sensors and devices all the way to claim payments made instantly and digitally, and for every step in between, digital solutions are being adopted and integrated into digital claims platforms at breakneck speed.

Digitization and Innovation 

If, as it often said, “data is the new oil,” then digitization is the refinery, storage facility, pipeline and the distribution network. Innovation essentially means connecting the dots, particularly the ones that others have missed and those that were previously unconnectable. Digitization enables the connection of “dots” – individual bits of information from myriad sources all strung together in an electronic chain to arrive at a critical outcome. That could be an insurance quote, an estimate of repair costs, the identification of a likely fraud and thousands of others, all of which are required to make, build, operate and maintain an insurance enterprise and partner ecosystem. And digital, next-generation technologies enhance an insurers’ ability to easily build a partner ecosystem, embed insurance offerings and enable an innovation culture.

See also: For Agents, COVID Means Digital or Bust

Digitization has enabled mobility and connected vehicle telematics, which in turn has spawned exciting cross-industry partnership products and services linking auto makers, insurers, information and service providers as well as drivers. The resulting rewards and benefits include hyper-personalized auto insurance products, services and rates for drivers, deeper engagement with vehicle owners and greater certainty of safe and proper accident repairs for OEMs, faster and better claims service for insurers and safer roadways for all of us.  

Similarly, digitization has enabled property insurers to develop and market new risk avoidance and claims services for connected homes, factories and businesses. Life, health and accident insurers are leveraging wearables and telehealth to drive meaningful customer engagement and potentially significant new revenue. 

Digital Communications and Customer Experience

A new universe of digital messaging platforms, chatbots, business texting, voice assistants and more has emerged and is in widespread and general use in commerce today, and the insurance industry has taken notice and is quickly playing catch-up. During a recent virtual insurance industry event, a SMA (Strategy Meets Action) survey of participating insurers asked about their interest in and objectives for digital communications and found that 83% consider it a vital part of the overall digital transformation strategy; 75% expect digital communications will help to improve the customer experience (CX). And who among us is not routinely conducting business through videocast – the ultimate digital/human interface? 

Accenture says that “CX is the new battleground for brands.” 72% of businesses say improving customer experience is their top priority, according to Forrester. And no wonder – Forrester found that each single point increase in CX can translate into tens of millions to hundreds of millions in annual revenue.  

In its “Digital Transformation: Powering the Great Reset” of July 2020, the World Economic Forum (WEF) states that as the world moves even more online due to the coronavirus pandemic – which has driven a 50% to 70% increase in global internet usage – the ability to serve customers on the digital channels they choose is no longer an option, creating what the WEF calls a “watershed moment for the digital transformation of business.”

Digital Disruption

The insurance industry has been a laggard in digital transformation, yet a new class of venture-backed startups has disrupted and refocused incumbents and exploited their weaknesses by leveraging new digital technologies. 

Specific legacy vulnerabilities and areas of opportunity for these well-funded startups have included new cyber risk and gig economy protection products, underwriting, administration and claims management. 

Applying many types of artificial intelligence (AI), including machine learning (ML), natural language processing (NLP) and imaging technology to fraud prevention addresses one of the industry’s most enduring pain points. 

Another intensely painful area is the claims process, which has long been a protracted, labor-intensive, inefficient and costly process and has hurt customer satisfaction, loyalty and retention. New technology offerings have come to market that streamline and compress the end-to-end claims process using AI and digital imaging to augment damage appraisals, track and report repair status, automate disbursements to policyholders and vendors and better engage with policyholders. 

See also: New Digital Communications

Insurance claim payments have always been slow and complicated, involving multiple parties such as other insurers, attorneys, healthcare providers, auto and property repairers and contractors. New digital claims payments systems have come to market to solve those challenges, and the rush to touchless and virtual claims processes, boosted by pandemic-driven consumer preferences for safer contactless transactions, is driving adoption of these systems.

None of these advances would have been possible without digitization. The future of insurance is starting to come into focus, and it is filled with exciting new digitally enabled opportunities for everyone involved.  

This theme will be explored in depth with industry CEOs and C-level speakers during The Future of Insurance USA from Reuters Insurance Events online, Nov. 16–18, 2020.

Why COVID-19 Must Accelerate Change

While the COVID-19 pandemic and the ensuing economic downturn have prompted consumers to curb their spending, consumers are increasingly mindful of risk and therefore more inclined to purchase insurance. 

A recent survey conducted by Lightico and Sapiens found that a fifth of consumers are exploring purchasing new auto, home and life insurance products amid the pandemic. Those directly affected by the coronavirus – meaning they or someone they knew tested positive – were even more likely to be considering more spending on insurance products. These consumers were 2.3 times as likely to plan on spending more on property and life insurance and 1.8 times as likely to say they would spend more on healthcare and health insurance.

Given that nearly half of consumers in the survey reported that their incomes had plunged by at least 20% since the pandemic started, those figures are remarkable – but for insurers to truly meet the needs of these consumers and stand out from the competition, they must deliver streamlined digital experiences, powered by strong core systems.

Here’s what today’s consumers expect from insurers, and what insurers can do to provide the quality digital journeys that customers crave:

See also: Strategic Planning in the COVID-19 Era

Living in a Digital World

Long before the novel coronavirus outbreak began, consumers were living in a world digitally transformed. Thanks to innovations in e-commerce, content streaming, mobility and beyond, people now enjoy rapid access to consumer goods, groceries, movies, music, car services and much more, all available at their fingertips. 

After months of widespread remote work, millions more now have first-hand experience with a virtually overnight shift in workflows, collaboration and company culture, enabled by innovations in cloud computing, information technology and business software. 

Not surprisingly, 68% of consumers surveyed in the Lightico-Sapiens study indicated that they expect businesses, including insurers, to enhance their capabilities for serving customers remotely. When it comes to purchasing new products and policies, today’s consumers have little patience for analog practices: Three in five consumers surveyed said that they now have less patience for filling out and sending paperwork, and 51% had already e-signed documents within the previous month. 

What Insurers and Carriers Should Do

How satisfied are consumers with insurers’ track record of meeting their expectations for seamless digital experiences? In key areas, insurers are falling well short. According to the survey, insurers are 50% behind consumer demand for online chat servicing and 25% behind demand for website servicing.

The takeaway? While it’s vital for insurers to digitize their business processes and strengthen their core systems, these steps alone won’t suffice to meet the market’s needs. Ramping up online communication capabilities is an absolute must, and insurers can boost the effectiveness of that outreach by getting smart about data.

Robust customer data collection – supported by efficient core systems – yields critical insights for understanding customer behavior, diversifying product offerings and unlocking revenue opportunities. This is especially important amid the pandemic, with the public set to continue practicing some degree of social distancing for the foreseeable future and predictions that COVID-19 will permanently alter consumer behavior. 

Accenture consultancy points to much greater use of digital commerce as one of the most consequential of these changes. While face-to-face sales and customer interactions aren’t going the way of the dinosaurs, insurers seeking to thrive in this new normal must make room for a more prominent role for AI-powered chatbots, personalization and cloud-powered services. Each of these is only possible with a granular understanding of how customers behave, what they want and how insurers can make their offerings meet customers’ needs and expectations.

Necessity, the pandemic has harshly reminded the world, is the mother of invention. For insurers, the crisis has driven home the reality that innovation is a fundamental matter of survival. Through creative partnerships, investments in technology and a commitment to improving customer service, insurers and carriers will propel lasting industry changes and position themselves to meet evolving consumer demands.

Lowering Costs of Customer Acquisition

Customer acquisition costs are a familiar problem throughout the business world. On average, businesses spend five times more to acquire a new customer than to keep an existing customer, according to Khalid Saleh at Invesp. Companies focus more attention on acquisition than retention, too: About 44% dedicate themselves to acquisition, while only 18% focus on retention.

For insurers, customer acquisition is even pricier. “The insurance industry has the highest customer acquisition costs of any industry. It costs seven to nine times more for an insurance agency to attract a new customer than to retain one,” says Lynn Thomas, president of 21st Century Management Consulting.

While customer retention strongly affects insurers’ bottom lines, new customers are essential to maintain a steady pace of growth and build a competitive edge. Controlling costs while still attracting new customers presents a challenge for insurance companies.

How Expensive Are New Insurance Customers?

When you compare the high price of customer acquisition with the low net margin of property and casualty insurance — which hovers between 3% and 8%, according to Mary Hall at Investopedia — It’s easy to see why acquisition costs are a concern.

Direct insurers have had an advantage in this area for quite some time. As early as 2014, William Blair & Co. analyst Adam Klauber determined that direct insurers like Progressive and Geico paid an average of $487 to acquire a customer. Meanwhile, captive insurers like State Farm and Allstate paid $792 on average.

See also: Who Is Your Customer; How Is the Experience?  

When independent agents were added to the mix, Klauber said, the average cost of customer acquisition rose to $900 per customer.

One reason new customer costs are so high in insurance is that the industry has lagged in adopting digital technologies that meet the expectations of today’s insurance shoppers, say Tanguy Catlin and fellow researchers at McKinsey.

Customers want simplicity, 24/7 availability and quick delivery. They also demand clarity about pricing, value and services designed for the digital age, no matter what they’re shopping for. “They have the same expectations whatever the service provider, insurers included,” according to Catlin et al.

Improving technologies also helps transform customers’ perception of insurance as an outdated, unapproachable industry to one that is personalized and consistently present. When insurance is easier to access, customers are more likely to see it as a valuable and important facet of their lives.

KPIs in Customer Acquisition

It’s important to differentiate between customer acquisition cost (CAC) and cost per acquisition (CPA). While they sound similar at the outset, Proof’s Drew Housman outlines the difference: “CPA measures the cost of an action, CAC measures the cost of acquiring a customer.”

For example, if you want to measure the effectiveness of clicks on a digital ad or buy button, use CPA. To factor in every click a customer makes on the way to completing the transaction, use CAC.

Tracking both CPA and CAC is important, however, because not all methods of acquiring new customers yield results in the same period, says Gordon Donnelly at WordStream. For instance, combining SEO and content marketing with Google and Facebook advertising results may make insurers think their SEO is overperforming while their advertising is underperforming. This is because SEO and content marketing “typically take longer to yield results,” Donnelly says.

While a good customer acquisition cost varies by the type of insurer, one way to track CAC effectively is to balance it against customer lifetime value (CLV), Jordan Ehrlich at DemandJump says. Customers who offer a higher lifetime value may be worth more to acquire at the outset.

Ideally, the ratio between CLV and CAC will always show a higher number for the former metric: A customer’s overall value will always be higher than the cost to acquire the customer. “The less it costs you to acquire a single customer and the more overall value that customer represents, the more profit you stand to make,” Donnelly says.

Treating customer acquisition, retention and value as three facets of the same goal can improve insurers’ ability to attract, retain and profit from customer relationships. “Since new policyholders immediately become current policyholders, your improved customer experience increases the likelihood that they will stay with your company, refer you to others and so on,” Patricia Moore at One Inc. says.

How to Lower Costs Without Losing New Customers

Cutting customer acquisition costs won’t help an insurance company if it also results in fewer new customers. Fortunately, there are several effective methods for reducing these costs while improving the quality of new customer relationships.

1. Use Incidental Channels

Incidental channels are products or services that deliver value separately from insurance but that build a customer relationship and gather data that ultimately support an insurance relationship, says Kyle Nakatsuji, principal at American Family Ventures.

These channels can help lower customer acquisition costs and improve engagement by demonstrating value to customers early in the process. Customers are more amenable to an eventual insurance purchase because they’ve already received value from the service and have perhaps considered how insurance could further improve that value. These services can also perform data-collecting functions, making it even simpler for new customers to choose and purchase coverage, Nakatsuji says.

2. Leverage Retention by Seeking Referrals

An added benefit of incidental channels is that they make it easier for your current customers to recommend your insurance services to potential new customers, says Srikumar Rao, author of Happiness at Work.

For example, imagine an app that helps homeowners identify and mitigate the most common causes of household fires. When a loyal customer uses the app, benefits from it and recommends it to others, that customer “is no longer a supplicant when she draws the attention of her contacts to you. She is the enthusiastic and proud bearer of a gift. She has bounty that she will bestow on the deserving,” Rao says.

Not only have you made it easier for your loyal customers to refer their associates to your company, you’ve made it gratifying to them to do so.

3. Recognize Why Loyal Customers’ Referrals Matter

Customer retention has a profound effect on the bottom line. When customer retention increases by only 5%, profits increase by 25% to 95%, according to research by Frederick Reichheld at Bain & Co.

Nurturing relationships with existing customers builds trust, allowing companies to offer additional products and services with a lower chance of rejection, startup adviser Yoav Vilner says. It also increases the chance of attracting new customers through referrals — by far one of the least expensive methods of customer acquisition.

Referrals, or word of mouth, account for 20% to 50% of all purchasing decisions, say Jacques Bughin, Jonathan Doogan and Ole Jørgen Vetvik at McKinsey. Experiential word of mouth, in which existing customers share their own firsthand experiences with a product or service, is perhaps the most powerful. It’s also the most common: 50% to 80% of word-of-mouth marketing is based on a consumer’s personal experiences.

Loyal customers are more likely to speak highly of their insurance company when services exceed their expectations, according to Bughin and fellow researchers. As a result, insurance companies that underpromise and overdeliver stand a better chance of generating praise and referrals from their existing customer base.

When should insurance companies ask for referrals? Sooner is better, says Eric Wlison, national account director at Kaplan. Waiting until a customer’s transaction is finished increases the chances that something might go wrong, spoiling the customer’s inclination to speak positively of the insurance company to friends and family.

“Remember that it is human nature to want to help others succeed. If you don’t ask for referrals you’ll likely get zero, and if you ask and get zero you are still at the same spot as if you hadn’t asked,” Wilson says.

4. Embrace Digital Tools That Promote Loyalty

Here is where customer loyalty and technology intersect to drive down the costs of acquiring new customers.

Nearly every consumer-facing industry has grappled with how to meet evolving customer expectations. Any fast food restaurant will offer bundled meals as well as a la carte menu items from which customers can choose. Even change-averse airlines and cable providers have learned to offer customizable levels of service because that’s what their customers have demanded.

See also: The Missing Piece for Customer Experience  

This is the point the team at McKinsey is making when they say insurance customers want simplicity and quick delivery. Today’s customers want to be able to choose from any and all available product lines, regardless of which carriers provide them.

This is what the BOLT Platform facilitates. Our users are able to offer and sell their own products alongside bundled products from other carriers because, ultimately, customers only care about getting the coverage they need. The best way to meet this need is to become a one-stop-shop for your customers.

Insurance companies that embrace this will earn increasing customer loyalty. And, as new potential customers come forward, it will require less time, less money and less effort to convince them to buy.

What Digital Can Do for Disability Claims

Healthcare is being transformed by advances in artificial intelligence, virtual reality, machine learning, sensors and other innovative technologies. Practically everybody has a smartphone, making it easier than ever to gather data and consent to third-party access. Unique data insights mean providers can offer people products and services tailored to them individually.

For insurers, digital technology offers new ways to manage risk that relies less on face-to-face and traditional clinical assessment; this is why there is so much interest in understanding how innovation might work. Selected comments from four key players in the digital health ecosystem make clear the appeal of putting two and two together.

Thomas Lethenborg at Monsenso, a mobile platform for mental health, said, “Digital technology helps an individual move from reactive behavior to being more proactive – and this changes the paradigm in particular with engagement.”

It’s a view shared by David Forster of Thrive, a digital interventions app for mental health: “Data drives our understanding of what works best for the individual.” According to Forster, the success of digital technology in clinical settings points to real opportunities in insurance: “It makes it possible to provide policyholders help with illness prevention, early detection and assistance on a personal level.”

Ian Prangley, of exercise rehabilitation service TrackActive, continued the theme when he said, “For insurers, digital solutions can drive connectedness, engagement and customer satisfaction while enabling people to self-manage their health. Harnessing data insights and implementing artificial intelligence (AI) is key to achieving this.”

See also: Why to Digitize Disability Claims  

A comment by Danny Dressler of AIMO, an ecosystem integrating intelligent motion analysis into musculoskeletal care, added further confirmation: “As more and better data is gathered and processed safely, AI offers the most promise to take care of people’s health, and fix issues in both healthcare and the life and health insurance sectors.”

By using digital means, insurers can create scalable, automated, speedy ways of supporting people when they need help the most. Proponents argue it offers better health outcomes for policyholders that will reduce the costs associated with long disability claims – a win-win for both insurers and consumers.

Dressler also said that “technology like ours lets insurers offer customers new solutions such as dynamic pricing and automated claims and even help to prevent claims from happening.” Lethenborg says it represents “an opportunity to ensure the data collected gives holistic insights and analytics that we can use to intervene more rapidly, when help is needed.”

But it’s crucial the highest levels of privacy and data protection are guaranteed and operators are in full compliance with regulations. An imperfect balance of privacy with innovation is a deal-breaker for consumers.

Forster is clear how delicate this balance is: “We recognize our responsibility to safeguard users’ data, but at the same time information technology empowers people to make choices and participate actively in managing their own health – it puts them in the driving seat for the first time.”

For digital solutions to be convincing, research and scientific evidence are needed, but with newly made services, long-term experience is scarce, and a leap of faith is required.

Dressler spoke for all in saying, “We maintain strong links to scientific institutions because the general technologies underpinning our solutions emerges from scientific thesis…[This means] we only implement new features or functions after a rigorous validation process, especially because we are asking people to trust us with their health and well-being.”

Dealing with high volumes of data is not without risk, particularly when it’s shared with third parties.

See also: Digital Innovation in Life Insurance  

Prangley has pointed to recent concerns over how sensitive data is being used to highlight the challenges faced, “The key is to anonymize and protect data, and have customers consent to sharing it on the understanding it will be used solely to improve their health.” This insight is driven home by Lethenborg, who said, “Transparency about how the data will be used is essential to building trust.”

Digitization has already brought new products and services that have had positive medical and scientific impact. As Prangley said, “Technology has connected people and changed how we relate to each other. There [are] arguments for and against this of course, but in the context of health and wellbeing we believe it’s a great thing.”

With mental health and musculoskeletal problems as the leading causes of disability claims in every market, these companies can bring digital solutions and opportunities – and health insurers can also feel great about them.

Small Insurers and Digital Priorities

From what I’ve seen in recent insurance technology news updates, it appears that the insurance industry is finally ripe for change, ready to make the leap to digital technologies that will lead us into tomorrow. Or is it?

Consider these core drivers of change: digital innovations such as cloud, telematics, IoT, analytics and AI, mobile, real-time 24/7 access to data, the growing need for on-demand products and, in general, using these transformative technologies to create operational efficiencies, adopt new business models and anticipate and exceed customer expectations.

Even though we know these technologies are enabling new insurance products, methods, processes, services and business models, there is still an omnipresent culture that hangs on to the troubling “it’s the way we’ve always done it” battle cry. This is often voiced by insurers that share their frustrations with being challenged to change existing culture from inside out to address these digital drivers.

My view is that, while many of the larger insurers are making the hard move to adopt digital technologies, it’s still not a priority for many small- to medium-sized insurance companies. And now, more than ever, there is a certain urgency to having that discussion. Tanguy Catlin, senior partner with McKinsey & Co., when addressing the issue, referred to it as the “tipping point” that is “where those that have not adapted their [digital] strategies fade away.”

See also: Darwinian Shift to Digital Insurance 2.0  

In research results published by MIT Sloan Management Review (SMR) and Deloitte’s Digital practice, 87% of executives queried believe that digital technologies will disrupt their industries, yet only 44% felt they were adequately preparing for it. Gerald Kane, professor of information systems at the Carroll School of Management at Boston College and MIT Sloan Management Review guest editor for the Digital Business Initiative, compares insurers’ thinking about digital disruption to homeowners in disaster-prone areas who often seem caught off guard when an actual hurricane or cyclone strikes.

Source: MIT Sloan Management Review

So, why isn’t adoption of digital technologies a priority for more small- to medium-sized insurers? While many see the opportunities presented by digital technologies, perhaps they don’t believe the likelihood is high that digital will actually disrupt their own organization. But the authors of the research note that, if digital technologies represent an opportunity for your organization, they also represent a threat for your competitors — and vice versa.

I get it, change is hard… but, the argument, “we are not in a financial position to prioritize” is irrelevant to the discussion of digital technology investments. Competitors aren’t waiting for your company to be in a better “financial position” before they act. Moreover, because at some point in the coming years insurers will need to replace their growing faction of retirement-age employees with a younger, more tech-savvy labor force. And in a war for the best talent, the A and B players have absolutely no desire to work on outdated systems. So, what does that mean for the future of your company?

See also: Digital Insurance, Anyone?  

Just remember, technology is an accelerator for your company and your staff. In other words, the more digital technologies that are put into play, the greater and faster the return. Those insurers that ignore its call will fall further and further behind until they reach the tipping point and slowly fade away. Remember what happened to Blockbuster Video when it failed to adapt in a time of digital change. Don’t be a Blockbuster in a Netflix world.