There are four fundamental drivers of the seismic changes:
New expectations are being set by other industries—the “Amazon effect”;
New products are needed to meet new needs, and risks are distributed in new channels;
Channel options are expanding;
Lines are blurring between insurance and other industries.
In this blog post, we’ll discuss how the final three fundamental drivers have contributed to an environment of challenges and great opportunities. Those who adopt a 2D strategy will be better-prepared to seize the opportunities:
First, by optimizing the front end with a digital platform that orchestrates customer engagement across multiple channels
Second, by creating an optimized back end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel
Customer expectations, behaviors and risk profiles are evolving thanks to technology, social trends and other changes happening around us. These are driving the need for new insurance solutions and, consequently, new distribution methods, such as:
We all know about autonomous cars and increasing car safety technology. Autonomous cars have created questions about where liability lies in the event of an accident involving one of these vehicles. Volvo has laid down a challenge to the auto and insurance industries with its recent announcement that it will assume liability for crashes of its Intellisafe Autopilot cars.
The sharing economy—whether it’s for transportation, lodging, labor or “stuff”—has created a multitude of questions regarding coverages. People have realized they don’t need to buy and own cars or pay for hotel rooms when they can use someone else’s stuff for a cheaper price. People who own these items can monetize them when they’re not being used.
Cyber risk has been around for a long time, but numerous high-profile hacks have made it a hot topic again.
And, finally, the Internet of Things: Connected cars, homes and personal fitness trackers are generating lots of data with tremendous potential to improve pricing and create products and services, while at the same time reducing or eliminating risk.
The seismic impact has resulted in companies developing and offering new products to meet the changing needs, preferences and risks being driven by consumers. There are several relatively new peer-to-peer companies that have entered the market, such as Friendsurance, insPeer, Bought by Many and the recently announced start-up Lemonade. Metromile addresses the sharing economy trend with its product for Uber drivers, and addresses the niche market of low-mileage drivers.
Google Compare, with its focus of “being there when the customer wants it,” has rapidly expanded from credit cards (2013) to auto insurance (early 2015) and now to mortgages (December 2015), all the while expanding to new states and adding product providers to its platform with a new model that leverages customer feedback.
John Hancock is using Fitbits as part of the company’s Vitality program, which started in South Africa and which uses gamification to increase customer engagement and lead to potential discounts. Tokio Marine Nichido is using mobile (in an alliance with NTT Docomo) to distribute “one-time insurance” for auto, travel, golf and sports and leisure. HCC, which was recently acquired by Tokio Marine, has a new online portal for its agents to write artisan ontractors coverage for small artisan contractor customers.
The overarching theme in all these examples is that each company is pioneering ways of distribution, not just new products or coverages. Many companies are direct e-commerce because they are low premium, quick turnaround/short duration and potentially high volume; they are not well-suited for agent distribution.
Expanding Channel Options
Channel options and capabilities for accessing insurance are expanding rapidly. New brands are entering the market, giving customers new ways to shop for, compare and buy insurance.
Comparison sites, online agencies and brokers—such as Bolt Insurance Agency, Insureon, PolicyGenius, CoverHound, Compare.com and the Zebra—are relatively new to the market and are gaining significant market interest and penetration. There are also new brands in the U.S. selling life and commercial direct online, like Haven Life, Assurestart and Hiscox. Berkshire Hathaway will jump into the direct-to-business small commercial market in 2016, a potential game-changing move for the industry.
Finally, there are some intriguing new players that are focusing on specific parts of the insurance value chain.
Social Intelligence uses data from social media to develop risk scores that can be used for pricing and underwriting.
TROV is a “digital locker” with plans to use the detailed valuation data it collects to create more precise coverage and pricing for personal property.
Snapsheet is the technology platform behind many carriers’ mobile claims apps, including USAA, MetLife, National General and Country Financial.
The insurance industry is so valuable that outside companies are trying to capture a share. This has created a blurring of industry lines. Companies like Google, Costco and Wal-Mart are familiar brands that have not traditionally been associated with insurance, but they have offered insurance to their customers. The first time most people heard about these companies’ expansions into insurance, it probably struck them as unusual, but now the idea of cross-industry insurance penetration has become normal.
In addition, insurance products are blurring and blending into other products. For example, Zenefits and Intuit are considering bundling workers’ compensation with payroll offerings.
So, what does all of this mean? There are two key implications from all of this for insurance companies.
First, multiple channels are now available to and are expected by customers. There are many ways for customers to research, shop, buy, pay for and use insurance (as well as almost all other types of products and services). Most customers demand and use multiple channels depending on what they want or need at the time. They are more ends-driven than means-driven and will pick the best channel for the task at hand.
Second, multiple channel options give customers the freedom to interact with companies anywhere, anytime, in just about any way. But this only works if these channels are aligned and integrated. An organization can’t just add channels as new silos; they must be aligned, or they will do more harm than good.
So, while distribution transformation and digital capabilities promise an easier, better experience for customers, they actually result in increased complexity for insurers. Orchestrating all these channel options is hard work and can’t be done with legacy thinking, processes or systems. This expansion of channels requires insurers to optimize both the front end and the back end of the channel ecosystem. In my next blog post, we’ll discuss these in more detail.
U.S. life-annuity insurers will enter 2016 in relatively good financial condition but facing exponential changes from rapid advances in technology, rising customer expectations and growing competition. These market shifts will require insurers to reinvent their strategies, services and processes, while coping with nagging financial, economic and regulatory uncertainty. Fortunately, after years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel future growth.
Growing customer expectations
Digital technology will continue to transform the life-annuity industry in the coming year. From anytime, any-device digital delivery to customized services, today’s diverse insurance customers will demand flexible solutions that go beyond one-size-fits-all product offerings. To take advantage of these trends, insurers will need to adopt a customer-centric approach that relies on deeper relationships, more personalized advice and more rigorous information. At the same time, life-annuity insurers must integrate emerging distribution technologies to reach customers through multiple channels, all without disrupting traditional distribution.
Millennials and mass-affluent consumers, in particular, are seeking the latest digital tools, such as on-demand insurance apps and robo-advisers for automated, algorithm-based financial advice. Meanwhile, insurers are establishing omni-channel platforms to reach and service customers more effectively and exploring the use of wearables and health monitors for usage-based life insurance. Advanced analytics, such as predictive models, combined with cloud and on-demand technologies, will provide insurers with the instruments to re-engineer front and back offices.
To fast-track digital transformation, insurers are turning to partnerships and acquisitions. For example, in 2015, Northwestern Mutual purchased online planner LearnVest to provide more customized support to customers. Other insurance firms, such as Transamerica and Mass Mutual, have set up venture capital firms to invest in digital service providers.
But digital innovation also carries greater risks. Digital technologies make insurers more vulnerable to financial fraud, data theft and political activism. Privacy breaches are becoming a bigger concern as insurers gain wider access to sensitive financial and health data. Even the use of social media is exposing firms to risks from reputational damage.
Competitive pressures are building
As digital technology becomes more pervasive, insurers will face greater competition from new digital start-ups. Although much of the recent innovation in financial services has occurred in the banking and payments sector, insurance is now squarely in the cross-hairs of new digital providers. One example is PolicyGenius, which is offering digital platforms to help consumers shop for insurance. With the recent launch of Google Compare, the rise of InsuranceTech will gain momentum in 2016.
But competition will also come from existing insurers leveraging new digital solutions and business models. For example, John Hancock recently launched Protection UL with Vitality, which rewards life-insurance policyholders for health-related activities monitored through personalized devices. In 2016, more insurance stalwarts will jump on the digital bandwagon through new product development, acquisitions and alliances. At the same time, changing insurance attitudes and practices among Millennials will spread to other age groups. Insurance firms reluctant to embrace innovations for fear of cannibalizing their own market space may be overtaken by more nimble firms able to capitalize on a shifting insurance landscape.
Uncertain economic and regulatory conditions
Life-annuity insurers are operating in a tenuous economic and financial environment with sizable downside risk. In 2016, global economic weakness will continue to be a worry, particularly as emerging market growth decelerates, financial volatility escalates and the U.S. economy muddles through a presidential election year. Regulatory and monetary tinkering will further complicate macro conditions.
The political landscape is likely to remain gridlocked at the federal and state levels as the election cycle concludes. Tax policies are unlikely to change in 2016, but insurers should prepare for new post-election regulatory headwinds in 2017. Insurers should also stay on top of the Department of Labor’s evaluation of fiduciary responsibility rules, which will remain a disruptive force in 2016.
Regulations originally designed for other industries and jurisdictions are being extended into the U.S. insurance market. International regulators are moving ahead with further development of Solvency II and IFRS. The NAIC and state insurance departments are adjusting risk-based capital charges and will react to the first year of ORSA implementation.
Mixed impact on life-annuity insurers
Premiums will grow moderately in 2016. Individual life premium growth will be particularly sluggish, as consumers remain focused on retirement savings. Faced with equity market volatility, consumers will continue to invest in fixed and indexed annuities and avoid variable annuities.
To cope with torpid market conditions, insurers will focus on growing premium and investment income, managing risks and controlling costs. Companies will continue to identify opportunities to improve return on equity through active balance sheet and back-book management. Among the strategies are investments in organic and inorganic growth, seeking reinsurance and capital market capacity and returning excess capital to shareholders. M&A activity will likely accelerate in 2016 as Asian insurers and private equity firms continue their interest in U.S. insurance companies.
Margin compression will dictate sustained emphasis on cost management through centralized control, technology upgrades and better integration of business units. With mission-critical information becoming more accessible, data-driven business decisions are moving to the C-suite. At the same time, regulatory demands and business imperatives are elevating risk management responsibility to the C-suite and board.
STAYING IN FRONT OF CHANGE: PRIORITIES FOR 2016
In 2016, life-annuity insurers will need to take decisive measures to cope with market upheavals – or risk the consequences. By staying in front of change, insurers can strengthen customer relationships, build market share and gain competitive advantage. Tapping their strong capital positions, insurers will invest in new technologies, systems and people that will allow them to capture their future.
Specifically, leading insurers will focus on the following pathway to change:
1. Pick up the pace of business transformation and innovation
Time to reboot
The life and annuity industry has never been considered highly innovative or nimble. But the convergence of technological, regulatory and customer trends is creating a perfect storm, with the power to upend the industry. EY’s 2015 Retail Life and Annuity Survey of senior executives identified the need to embrace new market realities in 2016, highlighting innovation as a top strategic priority. To cope, industry leaders must act now to rethink their business approach:
Priorities for 2016
Create a company-wide culture of innovation. To foster transformation, insurers will need to break away from their conservative leanings, and create a culture that encourages new thinking. Such a culture should allow for greater experimentation, and even short-term failures, to achieve long-term success. Senior leaders through to middle-managers should champion change and avoid the danger of the status quo.
Drive innovation through cross-functional teams. In 2016, life and annuity insurers will need to cut across organizational silos to drive innovation. Establishing cross-functional teams of sales, underwriting and policy administration can lead to new ideas
that enrich the customer and distributor experience. Similarly, a cross-functional team of actuarial, finance and risk management can help build consensus around new analytical and risk approaches.
Share information openly. Overcoming departmental silos will not be easy. Executives should ensure that information-sharing occurs at the right time and that teams are working from the same set of high-quality data. To avoid time-consuming reconciliations, managers will want to address data discrepancies across business units. Using skilled program managers to track progress against timelines and budgets can help.
2. Reinvent products and services for the new digital consumer
Addressing ever-rising customer expectations
In 2016, life insurance and annuity products will need to come to grips with tectonic shifts in consumer expectations and behaviors. Driven by their experiences in other industries, customers will demand greater digital access, better information and quicker service. Failure to respond will make it difficult for insurers to acquire and retain customers. Fast-moving insurers are redefining their customer relationships and products and services to cope with these new market dynamics.
Priorities for 2016
Offer anytime, anywhere, any-device access. Banks now provide customers with unprecedented 24/7 access and self-service on multiple devices, from PCs to smartphones. In 2016, life insurance customers will expect a similar anytime, any-device experience from insurers from point of sale and throughout the relationship.
Provide greater transparency to customers. In today’s digital world, customers expect clearer product information and pricing transparency. To respond, insurers should reduce the complexity and definitional rigidity of current life insurance products, while providing a more streamlined and transparent issuance process.
Deliver more flexible solutions. Insurers will need to emphasize product flexibility to cost-conscious customers and offer hybrid products that combine income protection, such as long-term care and disability insurance, with life and retirement coverage. For high-net-worth customers, insurers should stress the tax advantages of life insurance and annuities and develop features to compete with alternative investment products.
Build continuing engagement with customers. The life and annuity industry has long suffered from “low engagement” with customers following the initial sale. More customer engagement will minimize the risk of customer indifference and potential disintermediation. Developing an integrated, personalized digital experience that leverages the latest mobile and video technology will be a key to success.
Move toward a service orientation. To differentiate themselves, insurers will want to shift from a product placement to a trusted adviser approach. With established personal relationships in place, and access to more flexible products and services, new sales will occur more naturally in response to customer needs.
3. Adjust distribution strategies for technological and regulatory shifts
The rise of omni-channel distribution
Technological and regulatory changes are prompting life and annuity insurers to think beyond traditional distributors. For example, robo-advisers, growing in popularity in the wealth industry, could offer insurers a way to reach the underserved mass-affluent market. Yet, unlike property and casualty carriers, life and annuity insurers have made little progress in selling through digital channels. Looking ahead to 2016, life and annuity insurers may find themselves losing market share if they fail to adapt to an omni-channel world.
Priorities for 2016
Prepare for new fiduciary standards. In 2016, the Department of Labor’s proposed fiduciary rule could upend existing distribution models. The rule strengthens consumer protection, constrains distributors and alters compensation for advisers providing retirement advice. Similar changes in the UK widened the gap in personal financial guidance between wealthy and mid-market customers – a potential impact in the U.S. The ability to recommend specific products may become more difficult, creating a ripple effect on retirement sales and advice.
Adapt services for new distribution models. Insurance firms, particularly those focusing on retirement services, will find themselves under pressure to transform their distribution platforms. In 2016, insurers should consider developing products for an “adviser-less” distribution model that delivers financial and product information directly to consumers through digital platforms. Insurers will need to adjust compensation systems to meet new fiduciary requirements, while maintaining existing distributor relationships.
Explore the use of robo-advisers. Robo-advisers represent a new self-service channel aimed particularly at younger, tech- focused consumers. In 2016, insurers will need to consider the best way to incorporate robo-advisers into their current distribution platforms-through internal development, partnership or acquisition. To help make that decision, insurers should ask themselves: Would the robo-adviser be a new distribution channel, a supporting tool for current distributors or some combination of the two approaches? Insurers will need to evaluate the costs and potential impact of integrating systems to improve sales and service. And with regulations in flux, firms will want to give compliance and suitability careful attention.
4. Reengineer processes to drive efficiency and market growth
Building operational agility
Changing customer expectations are opening up new opportunities for life-annuity insurers to grow their business through innovative products, solutions and go-to-market strategies that focus on the customer experience. However, existing process silos and legacy systems can restrict operational flexibility, so insurers may need to focus on reengineering processes and systems in the year ahead.
Priorities for 2016
Determine if your systems are ready for rapid market change. Today’s assembly line approach to policy quoting, issuance and administration can slow application turnaround and detract from the customer and distributor experience. Once a policy is issued, legacy administrative systems can limit the ability of customers and distributors to access current account information, especially policy values, and to self-service their accounts. This problem can be exacerbated as customers purchase additional products from the insurer, particularly if those purchases are on different platforms.
Ensure that your systems can stand up to new regulatory rigors. Policy issuance and administration are not the only areas affected by process silos and legacy systems. Regulatory changes and risk management imperatives are putting pressure on finance to improve the quality and speed of reporting, as well as the use of advanced analytics for predicting and stress testing trends. As companies expand into new geographic markets and lines of business, the complexity of reporting and analyzing data is multiplied. A review of your systems through a regulatory lens could be helpful.
Invest in next-generation processes and analytics. Recognizing the importance of operational excellence to future strategies, insurers will continue to invest in straight-through-processing in 2016 to speed application turnaround times. They will also use more advanced analytics to enable underwriters to minimize the amount of required medical data, slash decision- making time and improve accuracy. Data consolidation projects will remain a high priority for many IT departments.
Revamp IT systems built for simpler times. During 2016, insurers will need to improve and replace IT systems that have reached the end of their useful life and are no longer fit for purpose. Unlike past investment cycles in IT systems, when one generation of hardware replaced another, the emergence of cloud technologies and on-demand solutions create new flexible options that can be implemented more quickly.
Consider partnerships that will facilitate transformation. To support critical business data processes, life-annuity insurers should explore creating strategic alliances with outside specialists. Insurers have already worked on consolidating legacy information systems and integrating data from around the firm, which will facilitate their transition to cloud and on-demand platforms. However, management must clearly understand the auditing, control and business risks of taking that leap.
5. Bring in the right talent to lead innovation
A growing talent gap
Life and annuity insurers are finding that driving innovation will take fresh ideas and new talent. As they age, distribution teams are falling out of sync with emerging consumer demographics.
The result: Life insurance and annuity sales to younger generations are declining, a trend that will only build momentum over time. In 2016, insurers will want to meet this challenge head-on by developing initiatives to attract young, diverse workers.
Priorities for 2016
Take concrete actions to compete for talent. The talent shortage affects every layer of the organization, from gaps in senior executive roles to deficiencies in technical skills. At the same time, the industry’s image as staid and risk-averse often does not appeal to the brightest and most promising young people, who view fast-growing technology companies as their employers of choice. Insurers will need to compete fiercely for the talent required to build the next-generation insurance company.
Go beyond image-building to attract fresh blood. Executives recognize that simply burnishing the industry’s image will not be enough to draw in new talent, such as data scientists and digital experience designers. In 2016, insurers need to offer greater flexibility in work locations, find creative ways to motivate and reward employees and fine-tune talent management programs.
Make diversity a strategic imperative. Workforce diversity is more than a compliance exercise; it offers a powerful way to achieve key strategic objectives. An employee base that reflects the customer universe is better-equipped to respond to changing customer needs. Diverse teams make better decisions by avoiding groupthink. In 2016, life and annuity insurers will broaden their efforts to attract a workforce representing a mix of cultural, demographic and psychographic backgrounds.
6. Put cybersecurity high on the corporate agenda
Escalating cyber risks
Leveraging social media, the cloud and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. These risks can run the gamut from financial fraud and corporate terrorism to privacy breaches and reputational damage. To protect their businesses and their clients, insurers will need to take strong measures to keep their technical platforms air-tight.
Priorities for 2016
Make cybersecurity a priority. Inadequate cybersecurity can cause a serious financial, legal and reputational fallout. In today’s digital age, hacking often involves organized crime looking to steal data and trade secrets for financial gain. Cyber attacks can also be politically motivated to disrupt organizations. Whatever the motive, insurers will want to ensure that growing digital connections between their systems and outside parties are well-protected.
Take a broad view of the potential risks. Cybersecurity is not the only data-related risk for insurers to consider. Privacy issues surrounding consumer and distributor information are a mounting area of concern, especially as insurers use that data in product pricing, underwriting and target marketing. In addition, social media can make insurers vulnerable to reputational risks – in real time.
Safeguard customer data from misuse. Although consumers have grown accustomed to providing personal information to third parties, there is still uneasiness over usage, especially when it involves sensitive consumer medical and financial information. Insurance firms, particularly those with a global client base, need to stay abreast of emerging privacy regulations that could affect the use of digital technology and analytics. Crucially, insurers must invest in internal firewalls that protect personal data from misuse.
Assess your exposure to data sovereignty risks. As insurers move toward cloud computing and on-demand solutions, issues surrounding data sovereignty are becoming more complex. In a hyperconnected world – where a U.S. insurer might partner with a Dutch firm using a data service in India – the concept of data residing in one jurisdiction is difficult to apply. To cope, insurers will want to set up processes to monitor changing data regulations around the world and their impact on their businesses.
This piece was written by Doug French and Mike Hughes. For the full white paper, click here.
SMA has announced the winners of the 2015 SMA Innovation in Action Awards, recognizing three insurers for truly ground-breaking projects and initiatives with demonstrable real-world impact. In conjunction with the announcement of the winners, SMA published a collection of case studies on all the insurer award submissions this year, showcasing the remarkable innovation taking place in the industry today.
The submissions for the SMA Innovation in Action Award ranged from the introduction of business models to the invention of creative distribution models, along with an array of technology projects that focus on the adoption of maturing and emerging technologies that position insurers to differentiate and win in the industry.
Last year, a chief characteristic of the winners was that they were using maturing technologies like telematics and cloud in unexpected ways to really differentiate their projects and solutions. That pattern shifted among the 2015 winners, who focused on initiatives using several emerging technologies in combination with each other or in combination with maturing technologies. Not long ago, the rate of adoption of emerging technologies that we saw this year would have been unthinkable. Now, insurers are clearly realizing the advantage of implementing emerging technologies in tandem with maturing technologies, as seen in this year’s insurer winners:
Haven Life Insurance Agency
Offers the first solution for purchasing medically underwritten term life insurance online. Haven Life users can calculate their needs, then apply for and start coverage on the Haven Term policy in about 20 minutes. Its sophisticated underwriting algorithms leverage external data sources to render an instant decision on applications. By reinventing the traditional, four- to six-week process of buying life insurance into an entirely online, 20-minute process, Haven Life has successfully streamlined how life insurance policies are sold, underwritten and administered.
The John Hancock Vitality Program
Offers a new approach to life insurance that rewards policyholders for the steps they take to promote their health and wellbeing. The program fosters a revolutionary bond between policyholder and life insurer using interactive emerging technologies like wearables and “gamification.” Activities, including exercise and annual health screenings, can be tracked via a mobile app, a dedicated website or a free Fitbit to earn Vitality Points that determine a member’s status for a broad range of rewards and premium savings.
Is a pioneer in the use of drones in the insurance industry, particularly in P&C claims following natural disasters. In collaboration with the nonprofit Roboticists Without Borders, USAA deployed drones after the Oso, WA, mudslides in 2014 to provide data and imagery to county officials to assist in rebuilding. USAA was also the first insurer to file a request with the FAA for permission to utilize fixed-wing drones for research and development.
These insurers are springboarding into the future with forward-thinking applications that use a wide range of different technologies to differentiate their offerings, the customer experience and company capabilities. Their winning initiatives demonstrate commendable examples of innovation in action.
Insurance has been around for a long time … dating back to ancient times. The first written insurance policy was carved into a Babylonian obelisk; the “Hammurabi Code” offered basic insurance for individuals if a personal catastrophe made it impossible to pay back a debt. Insurance continued to grow and evolve across centuries and continents. The guilds in Europe supported master craftsman with a type of group coverage to subsidize them and their families upon injury, disability or death. Deals made in London coffee houses to cover maritime risks were the beginnings of the London Market. These efforts met a universal and timeless need to stabilize individuals and the economy against risk.
The evolution of insurance often followed emerging developments such as the agricultural revolution, the industrial revolution and the information revolution. Each of these revolutions created and reshaped businesses, including insurance. Insurance evolved with each revolution to meet changing needs and to adapt to new developments or technologies that changed businesses, markets and risk. Each revolution required a re-thinking and re-alignment. It required business leaders to shed sacred notions and wake up to the possibilities of rebuilding on a new foundation while maintaining the old structure long enough to move out safely.
Erasing the notion of moderate change
Our industry is waking up and finding itself in the midst of seismic shifts. A revolution is underway: the digital revolution. This revolution is different because of the complexity, breadth and depth of converging factors and global changes. Our industry, steeped in centuries of tradition, must erase the idea that we can ease our organizations into the new era with minor adjustments.
Think of how the digital revolution is going to reinvent your business model. Insurers are moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line-of-business silos to customer-centricity and customer experience for all products across all lines; from simply containing risk to actively providing personal risk management; and from siloed solutions focused on transactions to a platform portfolio that brings together real-time interaction for all products and services for customers, giving them an Amazon-like experience. Whew! It stretches our minds to consider it all at once.
The rebirth of real opportunity
These influencers of change are challenging traditional insurance models, resulting in declining customers, loyalty and premiums. Whether it is the demand for mobile channels in addition to agents; or declining life insurance or personal auto and home insurance because of demographic changes; or declining premiums for products like auto insurance because of the emergence of technologies like crash avoidance, connected cars and autonomous vehicles, these influencers of change demand we have a re-imagination and a rebirth of insurance.
The promise of the digital revolution is that we can. Traditionally damaging business factors no longer have to be met with traditional business adjustments.
Insurers must look to reinvent the business model, not unlike how Uber reinvented the taxi model. Increasingly, insurance CEOs are speaking out about the coming disruption of insurance and the need for insurance to aggressively rethink the business model.
On May 27, 2015, Generali’s CEO, Mario Greco, commented in the Financial Times that insurers will disappear unless they embrace sweeping technological change. He went on to say that the insurance sector is “on the verge of a revolution and has been lagging behind every other industry — it has been paralyzed.”
On June 30, 2015, Lloyd’s CEO, Inga Beale, stated in the Financial Times that insurers are in danger of being “uberized” as technology allows companies from other sectors to undermine insurance sectors role to manage risk.
So how do insurers move forward? First they need to keep their current business viable and growing to fund the future. This requires transformation of the existing business by leveraging a platform of integrated solutions — laying the groundwork for a renaissance of insurance.
Insurers may enhance auto or life insurance policies, processes and customer interaction. Foundational transformations can also be used to reinvent insurance such as by offering a “family or lifecycle policy” that offers a single bundle to meet the broad risk of individual or family needs instead of individual policies for each of the needs. Alternatively, insurers could offer new risk mitigation or value-added services that leverage technology from the connected home and connected auto … all creating a new customer experience and engagement model.
In recent UK consumer research published by Majesco, one in every three customers feel that insurers are failing on minimum service expectations. Even the highest customer satisfaction score in the insurance industry — 69%, reached by motor insurance providers — compares unfavorably with world-class companies such as Amazon, which scores 87% based on the UK Customer satisfaction Index for January 2015. Furthermore, more than 70% of the market indicates they want a “family” product, combining motor, home, travel and pet in a single insurance policy. Nearly 42% would buy a family product tomorrow, while 30% were unsure but did not rule out the option – highlighting that a significant majority (72%) of the market expects access to a product that is not available today.
While some insurers will dismiss the findings as not relevant to them, they should instead see a warning signal that policy bundling is growing in demand. The Internet has created a market with “no borders” because customers research online to seek out offerings and options to meet their needs. In today’s digital world, what happens in one region does not stay in one region. Rather, these new developments from products to services, new channels and new approaches to risk are rapidly rippling to other regions.
The examples are many. John Hancock’s new life product uses South Africa’s Vitality concept. Google’s Compare site was the result of a UK acquisition. Direct-to-consumer models cropped up first and most strongly in Australia and the UK. Any one of a hundred multi-national insurers can send an idea rippling across continents at the speed of an e-mail. Meeting the digital revolution with real transformation is going to require an acceptance that everything we have known about insurance was good for yesterday. The only thing we can count on is the necessity of insurance that has held true from the Hammurabi Code until today.
So as you attend industry events and read articles, blogs and reports, put the topic of business transformation into strategic perspective. Is business transformation helping you move from legacy software solutions to modern, configurable solutions that will handle the unexpected future? Are you providing a foundation to change traditional business assumptions and business models to provide an enhanced customer experience and value? Will you be the traditional retailer or an Amazon? Will you be the traditional taxi or Uber? Your answer will influence your strategic direction and relevance in an industry that is on the precipice of disruption. Will you be disrupted or be the disruptor? Majesco is focused on transformation as a path to renaissance. Are you?
How long is it until my smart bowl tells my Apple Watch how many grams of Fruity Oat Puffs I consumed this morning? The watch could then contact my life or health insurer, which may notify me or my healthcare provider, sending a text to my smartphone reminding me that I’m on target to reach my life and wellness goals…if I can avoid eating a second bowl. The circuit will then be complete. Digitized automated processes flowing real-time through a channel into the insurance and healthcare value chain, beginning with behaviors and ending in better life and health outcomes. I’m all in!
This is reality today! Just look at John Hancock’s recent introduction of a health activities rewards program utilizing mobile apps and wearables to improve mortality and lower life insurance premiums for participants.
We are rapidly moving into a new age of digital delivery for every area of insurance, not just healthcare. The digital windows are opening faster than we can gather the information that is flooding in. The proliferation of sensors and the Internet of Things will forever change our business models and our system architectures. The Apple Watch, like my smartphone, is another window into my habits and preferences, and it will be a valued source of feedback for any insurer that becomes digitally ready to capitalize on it. The key to digital readiness, however, is to tackle preparations in the proper order.
Focusing on an individual channel and technologies should take a backseat to foundational tasks such as preparing the core data environment. In many cases, an organization needs to do a much larger enterprise-wide assessment to make sure certain digital initiatives are built upon a solid backbone of system and server readiness. These are not steps backward. They are surefooted steps forward to create new systems and rewrite processes in a manner that will serve the entire organization.
It’s important to remember that great benefits (cost savings, efficiencies) can be found when looking at technology threads across the value chain, whether you are looking at data storage or mobile integration. Who, inside and outside the organization, will benefit from digital transformation? Mobile technology is an excellent example because it touches a broad set of services — from telematics to “gamification,” customer service to agent service, billing to claims, marketing message delivery to weather and property alerts. Digital preparedness, from the bottom up, will include strategies that reach into every corner of carrier operations. With all of the digital possibilities, starting at the core becomes a clear necessity.
There is evidence that many organizations are laying the proper groundwork. For example, in a 2014 Celent survey of North American P&C CIOs, the top three digital priorities were:
Industrializing business processes,
Streamlining communications with customers in an online portal, and
Being able to sell insurance products online.
At first, these don’t seem to fit with 2015 smart watch and drone use headlines, but they do fit with a wise approach to establishing digital readiness. Any enterprise digital strategy aimed toward personal device technologies needs established online capabilities, mature automated business processes and modern data warehousing. Insurers can begin by consolidating siloed systems. This makes “one customer view” across systems and products possible. Transforming online quoting, underwriting and selling technologies is a logical next step, if it is still needed.
These base capabilities speak directly to insurance business objectives regarding growth, loyalty, retention, cost reduction and process optimization. If an insurer succeeds at these crucial first steps, it is a much shorter route from core digital readiness to capitalizing on Apple Watch data opportunities (and any other data opportunities).
If the Apple Watch can do one thing for the insurance organization, it can be a driver to accomplish digital readiness goals. Smart watch headlines should be a signal to the C-suite that the Internet of Things will be the fuel of real-time data and competitive analytics for years to come. Any technology promising a closer tie to customers is one in which we should all be interested.