The notion of paying out an annual stream of income can be traced back to the Romans. It’s a simple notion and one of the earliest forms of wealth management. Today, the simplicity of that notion has been replaced by the complexity of the annuity product. Rooted in a time way before the iPhone, the conventional annuity looks tired in the digital world. It’s an old world approach long overdue for a refresh and reinvention. To explore this further, Rick Huckstep spoke with Matt Carey, CEO and co-founder of Blueprint Income.
It’s a different world now
The baby boomers are retiring. When they made their plans for the future, the world was analog. Individual advice was based on human judgment, the personal touch and “trusted, expert” relationships. This was how the world of wealth management worked pre-internet.
The point is that the baby boomer generation, and Gen X for that matter, have shifted from creating retirement wealth through a lifetime of work to protecting what they have for now.
Which means that the wealth management target client has changed. It’s no longer a baby boomer market, or a Gen X market for that matter.
Now it’s the millennials who are the core client (target) base for wealth management. With 40% of the global adult population under the age of 35 years old, this is a generation who has only known a digital world in adult life.
Rise of the affluent millennial
But it is more than a digital divide that separates the generations. Millennials’ attitudes and behaviors to creating their own wealth are different, too. These differences are shaped by factors such as: debt-funded education, greater levels of social conscience and engagement, a broader world view and higher levels of self-employment.
Which is a challenge for the wealth management industry as it adapts to a different customer profile. Building a wealth management proposition for the millennial generation has to reflect the different demographics compared with baby boomers and Gen X.
There’s tons of research out there that reports how attitudes and behaviors have changed over the generations, even back to the silent generation. In this 2015 survey of more than 9,000 millennials across 10 countries by LinkedIn and IPSOS, they found;
millennials expect to be financially able to travel and see the world,
There is another dynamic that is important to consider when looking at how the wealth management industry serves the millennial generation. Financial literacy, or the lack of it!
The millennial generation may be more informed than their predecessors, but not necessarily in everything. They are more likely to know who Kim Kardashian is than to understand the impact of inflation on their savings over time.
In itself, there’s nothing new in this, but the fact is that the level of financial literacy in the U.S. has been dropping for years.
The FINRA survey also reported a massive gap between the level of financial understanding and the desire to have one. The survey found that 70% of adults aged between 18 and 39 years old “know they will need to be more financially secure, they just don’t know how to get there.”
What is clear from the survey is that this lack of financial literacy is causing stress and anxiety among millennials (who, remember, now account for 40% of the adult population).
New platforms are emerging that change how consumers seek service and engage with brands. In doing so, these platforms are disrupting the traditional call center model. Today’s call centers range from the ancient and decrepit to the ultra-modern and technologically streamlined. Despite the differences in capability, though, they still rely on the telephone to call and connect with customers. As we shift into the messaging era, this is going to change.
The maturing millennial generation is sparking a mobile messaging revolution across all age groups. Text-based communication is fast becoming the most-preferred communication method. And to attract, engage, acquire and retain customers in the text-based era, businesses need a customer communication strategy that incorporates mobile messaging.
Executives are facing three key challenges:
Offering a mobile-native, text-based customer service solution to keep up with changing communication preferences of consumers.
Satisfying the demand for always-on, 24-7 responsive service.
Maintaining cost-efficiency in the call center.
A solution comes in the form of new technology: chatbots and intelligent automation.
Chatbots allow businesses to automate the 80% of general inquiries that are repetitive. This leads to a smaller volume of inquiries requiring live assistance from agents and reduces operational costs while maintaining — or even improving — customer satisfaction ratings. It’s this combination of chatbots and human agents that can usher businesses into the messaging era while reinventing the call center model.
The Current State of Customer Service
Every business strives to provide exceptional experiences that increase customer satisfaction and raise their Net Promoter Scores (NPS). The reality, however, is that executing an effective customer communication strategy is challenging. Often, exceptional customer service is limited by the capabilities of traditional service channels: email, social media and call centers.
By 2020, customer experience will have a such a significant impact on business success that it’s expected to play a bigger role in competitive differentiation than price and even product quality. Customer experience and NPS are fast becoming the new business battlegrounds. Providing experiences that meet or exceed the ever-increasing demands of customers could be the difference between success and failure.
Call center performance has a significant impact on a company’s NPS and customer satisfaction ratings. Given the direct and personal connection a call center enables between a business and its customers, the overall experience of the interaction can have a major influence on how that person perceives a brand on the 1-10 Net Promoter Score scale.
And while call centers work positively by enabling direct connections between businesses and consumers, there are endemic problems for both sides. Businesses are faced with high operating costs and are vulnerable to changing communication trends. Meanwhile, consumers often have to deal with long hold times, outdated Interactive Voice Response (IVR) systems, inter-departmental transfers and inefficient service.
As new technology such as chatbots and intelligent automation emerges, any business that relies on strong customer service can benefit from innovation.
There is a significant opportunity to gain competitive advantage and lead the market by developing call centers that are not only technologically advanced, but also resolve issues with far greater customer satisfaction.
The ideal result is customer service that improves the relationship with customers while maintaining cost efficiency for the business.
What follows is an outline of the current state of customer service in today’s fast-moving, on-demand and customer-driven world. We also detail how the call center can be reinvented through mobile messaging and intelligent automation to deliver a win-win solution for both businesses and customers.
Connected and Demanding: Generation Z, Millennials, Gen X and Baby Boomers
There is a reason why there is so much buzz around millennials: Their generation is one of the largest in U.S. history, and they are maturing into their prime spending years.
Starting in 2017, they will have the purchasing power of more than $200 billion annually. The opportunity for businesses to drive revenue and gain market share with this generation is unprecedented.
The driving force for new technology and communication trends
Millennials are driving mobile and instant messaging adoption. Because they have grown up with technology and information at their fingertips, millennials are highly connected and expect 24/7, on-demand access to the businesses and brands in their lives.
Gen X, baby boomers
In addition, the millennial obsession with mobile messaging is influencing older age groups, with text-based customer service now an increasingly popular choice for generation X and baby boomers.
Millennials have also set the precedent for generation Z. Mobile messaging use is even higher among the first true digital natives; they place even more emphasis on personalization and relevance when interacting with companies.
The Challenge of Delivering What People Want
The adoption of mobile messaging as the preferred communication channel is forcing companies to change how they approach customer service. Today’s call centers no longer meet customer expectations. From long wait times to frequent departmental transfers and ineffective IVR systems, customer service can be a frustrating experience for consumers.
Now, in 2016, with the proliferation of new technology and 24-7, on-demand services, the shortcomings of customer-contact centers are even more apparent.
The competition is fierce, and customers have no forgiveness for poor service. A sub-par experience can destroy a consumer’s relationship with a business.
Key Business Challenges Affecting Call Centers and Customer Loyalty
The shortcomings of the current call center model and its inability to effectively meet the needs of today’s customer also represent a significant opportunity for businesses. There has never been a more appropriate time to dissect the call center and explore new ways to increase its effectiveness.
Executives and business owners need to address the following three business challenges to ensure the future success of their contact centers:
Offering a mobile-native, text-based customer service solution to keep up with the changing communication preferences of consumers.
Satisfying the demand for always-on, 24-7 responsive service.
Maintaining cost-efficiency in call centers.
Each of these areas needs to be explored to maintain, or even improve, customer loyalty and Net Promoter Scores.
Challenge 1: Offering a mobile-native, text-based customer service solution
One of the drawbacks of telephonic customer service is the limit imposed by the phone on call center agents; they can only answer one customer inquiry per call. This limit drives costs up. In comparison, using mobile and web-based chat, agents can effectively manage as many as five inquiries simultaneously. This significantly reduces operational costs while providing a better experience for customers.
Fortunately, thanks to mobile messaging’s rapid rise in popularity, it’s now easier than ever to incorporate mobile chat into an existing customer communication strategy to better engage consumers. Mobile messaging is the modern vehicle for businesses to deliver great customer service at significantly lower costs. The result is a better customer experience that drives loyalty while improving the bottom line.
Using an intuitive interface familiar to more than two billion people, businesses can effectively engage with customers and fans using simple decision trees for fast and convenient issue resolution.
Benefits of mobile messaging solutions:
On-demand customer service that allows consumers to get the information they need, when they need it, without having to look for it.
Faster issue resolution thanks to an agent’s ability to manage more inquiries simultaneously.
Reduced, or potentially eliminated, hold times.
Real-time conversational connections with customers.
Improved customer experience with greater omni-channel service capability.
Secure identity authentication and user verification.
Challenge 2: Satisfying the demand for always-on, 24-7 responsive service
The role of automation, bots and artificial intelligence in customer communication has become an increasingly popular topic. And as the technology continues to develop, more businesses are starting to realize the benefits of automated customer service and how it can drive customer service ratings higher.
Chatbots are virtual agents that operate through natural language processing, meaning they are able to absorb, identify and react to a number of different queries. These sophisticated programs and targeted automated strategies provide an efficient solution to handle the high-volume, repetitive inquiries that overwhelm call centers. Businesses are then freed to devote more time and resources to customers who need one-to-one conversations. They can deliver a far better customer service experience at a far lower cost.
As with any emerging technologies, automation and chatbots need to be approached with tact. Currently, the best strategies use both human agents and chatbots. Businesses can test bot technology and assess what’s right for them without drastically affecting customer satisfaction.
A good starting point is a website’s frequently asked questions. Today, people are more inclined to seek information themselves than engage with a human agent. Using chatbots to automate FAQs is a cost-efficient test that can form the foundation for larger automation plans as the technology develops.
Chatbots can be used as the front-line customer service interface to answer the majority of repetitive inquiries. This combination helps businesses improve efficiencies without compromising customer satisfaction ratings.
Challenge 3: Maintaining call center cost efficiency
Businesses can improve customer communication and drive customer satisfaction ratings by following a simple five-step process to automation:
1. Opportunity Analysis
Review customer service data
Examine IVRs and CSR scripts
Conduct Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis
Identify all opportunities for automation
2. Chatbot Design
Sketch blueprints including flow designs for all areas
Identify integrations needed to enable bots
3. Engineering and Integrations
Receive blueprint approval
Develop bots for intuitive user experience.
4. User-Acceptance Testing
Demo bots in test environment
Adjust as necessary
5. Activation and Optimization
Conduct marketing efforts for Phase I onboarding
Track usage analytics and fine-tune
Benchmark performance against key performance indicators.
With this approach, businesses are able to automate as much as 80% of low-level, repetitive inquiries, saving call center agents for the complex and uncommon issues that require the nuanced knowledge of a live agent. This results in faster issue resolution and more efficient service.
Chatbots: An Emerging Technology
Other technologies may help improve call centers incrementally, but chatbots offer the best, most revolutionary opportunity to scale their capacity and ensure future success. If archaic call center models can’t innovate and keep up with changing consumer trends, they’ll fast become obsolete.
As with any emerging technology, chatbots are still experiencing growing pains. They’re not perfect; key development issues must be overcome to improve the flow of conversation. Increased investment in chatbots and NLP will help the technology mature fast. And as it does, chatbots will increase in capability and become more common, providing new opportunities for businesses across all industries.
Just before the Italian Renaissance, guilds were formed in Florence and throughout Italy to bring together people of like occupations under a social network. Their purpose was to agree upon standards and rules, represent the group to government, improve upon their art, science or trade and provide support services to families and widows when needed.
Working together, these guilds fostered Renaissance attributes. They were patrons of the arts. They contributed to the advancement of medicine and technology. They advanced construction methods and learning in all spheres. In fact, the end of many guilds was brought about when they were merged into universities. The Renaissance created a cultural bridge from the Middle Ages or past to modern history.
However, the Renaissance didn’t just sprout up overnight. It was spurred on by a convergence of factors, the greatest of which was increased wealth. Trading in Florence had produced a new class of financier who was willing to fund artistic and scientific endeavors. Wealth created ease. Ease allowed time for thought and innovation. Innovations in practical sciences, such as mathematics and architecture, benefited from broader thinking. Fast forward to today, and the comparison to that time is striking, with a similar influx of money and a new class of insurance technology investment via insurtech.
Insurtech as a concept has grown to become, not an official organization, but a collaborative movement. It has become a bridge from the old to new being created in the insurance industry today.
Insurtech: A New Era of Innovation
Insurtech as a movement branched out from fintech (financial services focus) earlier this year following reports of significant capital entering the market for insurance startups … from insurers and MGAs to technology providers. Significant capital investment in insurtech for new insurance greenfield or startup companies is fueling massive innovation in products, services and business models and de novo options. These de novo options are a driving force underpinning the insurtech movement and why new and existing companies are looking to new business models to innovate, test ideas and bring new products and solutions to market.
A host of venture-backed startups have propelled property & casualty insurance tech investment deals to a new high in 2016, with total funding to insurance tech startups topping $1 billion in the first half of 2016, according to CB Insights. 63% of deal activity to the insurance tech market went to U.S.-based startups in the first half of 2016. Startups that distribute policies or provide software and services across the P&C insurance value chain have risen 50% compared with all of 2015. And life insurance is now also ramping up.
We saw an innovation movement in spades last week at the much awaited InsureTech Connect Conference in Las Vegas, which brought together more than 1,500 entrepreneurs, technologists, venture capitalists, insurance executives and startups. The energy, engagement and enthusiasm were infectious. It had the feeling of the “dot com” era… but with more substance. This gathering sent a clear message to the insurance industry, that we have rapidly entered a new era that is more profound and important… a renaissance. It has placed the importance of innovation and technology on a stage and signaled that, from here forward, insurance must and will be innovating. But like the forming of guilds, insurtech demands cooperation and conversation.
InsurTech and Insurance Renaissance
Just like the original Renaissance, today’s Insurance Renaissance is spurred by the converging factors of people, technology and market boundaries. Insurtech is powered by all three. Within insurance, this new Renaissance represents a real shift with significant business implications beyond legacy modernization. It represents a whole realm of new opportunities via greenfields, startups and incubators to cover a fast-changing market landscape.
People – Expectations, products and business models that were built around the silent and baby boomer generations, do not meet the millennial and Gen Z expectations or needs. More importantly, Gen X is the “swing group” tipping with millennials and Gen Z. These changes in people’s lives drive changes in their expectations and their risk profiles/needs, reflected in our coming primary research on customer expectations for individuals and small business owners.
Technology – How often do you use your smartphone in your daily life for researching, buying, servicing and convenience? Think Amazon, Uber, news and music. These new expectations drive businesses and institutions to use technologies and processes to develop new business models and channels, which give customers the capabilities they’re seeking.
Market Boundaries – Market boundaries are being erased. New competitors and new channels are at the forefront of the insurtech movement. Consider how the largest number of startups are build around new distribution options. Then think about how existing and new businesses from Tesla, Ford and Trov are looking to offer insurance as part of an auto purchase. These new business models and capabilities will drive additional changes in people’s lives, leading to new needs.
Insurtech Leadership and Options
As we have tracked, observed and talked to our customers and other influencers/leaders in the industry this year, we are convinced this is not a “new fad” but a movement with substance that is just getting started. Unlike the “dot com” era, many of the insurtech participants have real capabilities, real business plans and real substance in how they can enable the industry through our renaissance to meet and exceed the expectations of our customers.
But it requires leadership, vision and active collaboration/participation. Standing on the sidelines waiting to be a fast follower or thinking you can do it yourself will likely not work this time. What is different? Chunka Mui reminded our customers at the Majesco Convergence Conference, just before InsureTech Connect, that the industry is moving at such a rapid pace that the gap between today’s technology and future technology possibilities is being filled by insurtech active participants. From here forward, tech advancement won’t slow to allow followers to catch up.
It is an exciting time for the industry…a time of great change, challenges and opportunities. While insurers have different strategies and paths to their future, we are convinced that insurtech will be a big part of that future and are committed to helping shape, embrace and engage in the movement to enable the renaissance of insurance.
Recently, our team attended the Silicon Valley Insurance Disruption symposium and were privileged to engage in a number of conversations with insurance industry leaders, and innovators in technology. One of the conversations I had with an individual revolved around social media and how it has changed our society; the way people communicate; and how people demand instant information and results. Think about digital disruption in marketing and selling insurance products, i.e., the millennial (on-demand) generation.
The term “social media” means a lot of different things in the insurance industry. I like the concept of using social media in two distinct methodologies; one, strategically; and two, tactically for the business of insurance. For strategic purposes, your company can use social media to communicate to customers and potential buyers of your products with a concise and cogent message. In addition, you can monitor and respond to what customers are saying about your company. For the tactical application, social media can be used for the underwriting and claims business processes. For example, tracking catastrophic events, like significant earthquakes, fire storms and hurricanes; monitoring what people are communicating while these events are occurring is invaluable for your response planning. For risk management in underwriting, the proper information can be obtained in a robust social media analytics solution that can be leveraged for better decision making.
The key is to use next-generation analytics with dynamic modeling.
Privacy and the ability to obtain information from social media websites have been analyzed and debated by governments and business leaders around the globe. Actions have been taken to protect an individual’s privacy. So how do you correctly utilize social media analytics in your business process?
Dynamic modeling of social media data begins with identifying the proper source of information. Dynamic modeling provides answers to questions in the underwriting process and claims process while keeping in mind the insured’s interest and experience. Is the API (application programming interface) open to web crawls? Can you filter out the vast amount of noise in the data? (An open-end Google-type search is not the best way to begin). Can you control the overwhelming amount of information? How do you know what to look for? If your team knows the “why” and the actual focus of deterring the risk, you will be able to deliver to the customer a better product, with a competitive price in the marketplace.
Now is the time to start moving forward with next-generation analytics and start being innovative in the marketplace.
This is the second in a four part series. To read the first article click here.
To help industry players navigate the changes in the banking, fund transfer and payments, insurance and asset and wealth management sectors, we have identified the main emerging trends that will be most significant in the next five years in each area of the FS industry.
Overall, the key trends will enhance customer experience, self-directed services, sophisticated data analytics and cybersecurity. However, the focus will differ from one FS segment to another.
Banks are going for a renewed digital customer experience
Banks are moving toward non-physical channels by implementing operational solutions and developing new methods to reach, engage and retain customers.
As they pursue a renewed digital customer experience, many are engaging in FinTech to provide customer experiences on a par with large tech companies and innovative start-ups.
Simplified operations to improve customer experience
The trends that financial institutions are prioritizing in the banking industry are closely linked. Solutions that banks can easily integrate to improve and simplify operations are rated highest in terms of level of importance, whereas the move toward non-physical or virtual channels is ranked highest in terms of likelihood to respond.
Banks are adopting new solutions to improve and simplify operations, which foster a move away from physical channels and toward digital/mobile delivery. Open development and software-as-a-service (SaaS) solutions have been central to giving banks the ability to streamline operational capabilities. The incorporation of application program interfaces (APIs) enables third parties to develop value-added solutions and features that can easily be integrated with bank platforms; and SaaS solutions assist banks in offering customers a wider array of options—which are constantly upgraded, without banks having to invest in the requisite research, design and development of new technologies.
The move toward virtual banking solutions is being driven, in large part, by consumer expectations. While some customer segments still prefer human interactions in certain parts of the process, a viable digital approach is now mandatory for lenders wishing to compete across all segments. Online banks rely on transparency, service quality and unlimited global access to attract Millennials, who are willing to access multiple service channels. In addition, new players in the banking market offer ease of use in product design and prioritize 24/7 customer service, often provided through non-traditional methods such as social media.
So what?—Put the customer at the center of operations
Traditional banks may already have many of the streamlined and digital-/mobile-first capabilities, but they should look to integrate their multiple digital channels into an omni-channel customer experience and leverage their existing customer relationships and scale. Banks can organize around customers, rather than a single product or channel, and refine their approach to provide holistic solutions by tailoring their offerings to customer expectations. These efforts can also be supported by using newfound digital channels to collect data from customers to help better predict their needs, offer compelling value propositions and generate new revenue streams.
Fund transfer and payments priorities are security and increased ease of payment
Our survey shows that the major trends for fund transfer
and payments companies are related to both increased ease and security of payments.
Safe and fast payments are emerging trends
Smartphone adoption is one of the drivers of changing payments patterns. Today’s mobile-first consumers expect immediacy, convenience and security to be integral to payments. In our culture of on-demand streaming of digital products and services, archaic payment solutions that take days rather than seconds for settlement are considered unacceptable, motivating both incumbents and newcomers to develop solutions that enable transfer of funds globally in real time. End users also expect a consistent omni-channel experience in banking and payments, making digital wallets key to streamlining the user experience and enabling reduced friction at the checkout. Finally, end users expect all of this to be safe. Security and privacy are paramount to galvanizing support for nascent forms of digital transactions, and solutions that leverage biometrics for fast and robust authentication, coupled with obfuscation technologies, such as tokenization, are critical components in creating an environment of trust for new payment paradigms.
So what?—Speed up, but in a secure way
Speed, security and digitization will be growing trends for the payments ecosystem. In an environment where traditional loyalty to financial institutions is being diminished and barriers to entry from third parties are lowered, the competitive landscape is fluid and potentially changeable, as newcomers like Apple Pay, Venmo and Dwolla have demonstrated. Incumbents that are slow to adapt to change could well find themselves losing market share to companies that may not have a traditional payments pedigree but that have a critical mass of users and the network capability to enable payment experiences that are considered at least equivalent to the status quo. While most of these solutions “ride the rails” of traditional banking, in doing so they risk losing control of the customer experience and ceding ground to innovators, or “steers,” who conduct transactions as they see fit.
Asset and wealth management shifts from technology-enabled human advice to human-supported technology-driven advice
The proliferation of data, along with new methods to capture it and the declining cost of doing so, is reshaping the investment landscape. New uses of data analytics span the spectrum from institutional trading and risk management to small notional retail wealth management. The increased sophistication of data analytics is reducing the asymmetry of information between small- and large-scale financial institutions and investors, with the latter taking advantage of automated FS solutions. Sophisticated analytics also uses advanced trading and risk management approaches such as behavioral and predictive algorithms, enabling the analysis of all transactions in real time. Wealth managers are increasingly using analytics solutions at every stage of the customer relationship to increase client retention and reduce operational costs. By incorporating broader and multi-source data sets, they are forming a more holistic view of customers to better anticipate and satisfy their needs.
Given that wealth managers have a multitrillion-dollar opportunity in the transfer of wealth from Baby Boomers to Millennials, the incorporation of automated advisory capabilities—either in whole or in part—will be a prerequisite. This fundamental change in the financial adviser’s role empowers customers and can directly inform their financial decision-making process.
So what?—Withstand the pressure of automation
Automated investment advice (i.e. robo-advisers) poses a significant competitive threat to operators in the execution-only and self-directed investment market, as well as to traditional financial advisers. Such robot and automatic advisory capabilities will put pressure on traditional advisory services and fees, and they will transform the delivery of advice. Many self-directed firms have responded with in-house and proprietary solutions, and advisers are likely to adapt with hybrid high-tech/high-touch models. A secondary by-product of automated customer analysis is the lower cost of customer onboarding, conversion and funding rates. This change in the financial advisory model has created a challenge for wealth managers, who have struggled for years to figure out how to create profitable relationships with clients in possession of fewer total assets. Robo-advisers provide a viable solution for this segment and, if positioned correctly as part of a full service offering, can serve as a segue to full service advice for clients with specific needs or higher touch.
Insurers leverage data and analytics to bring personalized value propositions while managing risk
The insurance sector sees usage-based risk models and new methods for capturing risk-related data as key trends, while the shift to more self-directed services remains a top priority to efficiently meet existing customer expectations.
Increasing self-directed services for insurance clients
Our survey shows that self-directed services are the most important trend and the one to which the market is by far most likely to respond. As is the case in other industry segments, insurance companies are investing in the design and implementation of more self-directed services for both customer acquisition and customer servicing. This allows companies to improve their operational efficiency while enabling online/mobile channels that are demanded by emerging segments such as Millennials. There have been interesting cases where customer-centric designs create compelling user experiences (e.g. quotes obtained by sending a quick picture of the driving license and the car vehicle identification number (VIN)), and where new solutions bring the opportunity to mobilize core processes in a matter of hours (e.g. provide access to services by using robots to create a mobile layer on top of legacy systems) or augment current key processes (e.g. FNOL3 notification, which includes differentiated mobile experiences).
Usage-based insurance is becoming more relevant
Current trends also show an increasing interest in finding new underwriting approaches based on the generation of deep risk insights. In this respect, usage-based models—rated the second most important trend by survey participants—are becoming more relevant, even as initial challenges such as data privacy are being overcome. Auto insurance pay-as-you-drive is now the most popular usage-based insurance (UBI), and the current focus is shifting from underwriting to the customer. Initially, incumbents viewed UBI as an opportunity to underwrite risk in a more granular way by using new driving/ behavioral variables, but new players see UBI as an opportunity to meet new customers’ needs (e.g. low mileage or sporadic drivers).
Data capture and analytics as an emerging trend
Remote access and data capture was ranked third by the survey respondents in level of importance. Deep risk (and loss) insights can be generated from new data sources that can be accessed remotely and in real time if needed. This ability to capture huge amounts of data must be coupled with the ability to analyze it to generate the required insights. This trend also includes the impact of the Internet of Things (IoT); for example, (1) drones offer the ability to access remote areas and assess loss by running advanced imagery analytics, and (2) integrated IoT platforms solutions include various types of sensors, such as telematics, wearables and those found in industrial sites, connected homes or any other facilities/ equipment.
So what?—Differentiate, personalize and leverage new data sources
Customers with new expectations and the need to build trusted relationships are forcing incumbents to seek value propositions where experience, transaction efficiency and transparency
are key elements. As self-directed solutions emerge among competitors, the ability to differentiate will be a challenge.
Similarly, usage-based models are emerging in response to customer demands for personalized insurance solutions. The ability to access and capture remote risk data will help develop a more granular view of the risk, thus enabling personalization. The telematics-based solution that enables pay-as-you-drive is one of the first models to emerge and is gaining momentum; new approaches are also emerging in the life insurance market where the use of wearables to monitor the healthiness of lifestyles can bring rewards and premium discounts, among other benefits.
Leveraging new data sources to obtain a more granular view of the risk will not only offer a key competitive advantage in a market where risk selection and pricing strategies can be augmented, but it will also allow incumbents to explore unpenetrated segments. In this line, new players that have generated deep risk insights are also expected to enter these unpenetrated segments of the market; for example, life insurance for individuals with specific diseases.
Finally, we believe that, in addition to social changes, the driving force behind innovation in insurance can largely be attributed
to technological advances outside the insurance sector that will bring new opportunities to understand and manage the risk (e.g. telematics, wearables, connected homes, industrial sensors, medical advances, etc.), but will also have a direct impact on some of the foundations (e.g. ADAS and autonomous cars).
Blockchain: An untapped technology is rewriting the FS rulebook
Blockchain is a new technology that combines a number of mathematical, cryptographic and economic principles to maintain a database between multiple participants without the need for any third party validator or reconciliation. In simple terms, it is a secure and distributed ledger. Our insight is that blockchain represents the next evolutionary jump in business process optimization technology. Just as enterprise resource planning (ERP) software allowed functions and entities within a business to optimize business processes by sharing data and logic within the enterprise, blockchain will allow entire industries to optimize business processes further by sharing data between businesses that have different or competing economic objectives. That said, although the technology shows a lot of promise, several challenges and barriers to adoption remain. Further, a deep understanding of blockchain and its commercial implications requires knowledge that intersects various disparate fields, and this leads to some uncertainty regarding its potential applications.
Uncertain responses to the promises of blockchain
Compared with the other trends, blockchain ranks lower on the agendas of survey participants. While a majority of respondents (56%) recognize its importance, 57% say they are unsure or unlikely to respond to this trend. This may be explained by the low level of familiarity with this new technology: 83% of respondents are at best “moderately” familiar with it, and very few consider themselves to be experts. This lack of understanding may lead market participants to underestimate the potential impact of blockchain on their activities.
The greatest level of familiarity with blockchain can be seen among fund transfer and payments institutions, with 30% of respondents saying they are very familiar with blockchain (meaning they are relatively confident about their knowledge of how the technology works).
How the financial sector can benefit from blockchain
In our view, blockchain technology may result in a radically different competitive future in the FS industry, where current profit pools are disrupted and redistributed toward the owners of new, highly efficient blockchain platforms. Not only could there be huge cost savings through its use in back-office operations, but there could also be large gains in transparency that could be very positive from an audit and regulatory point of view. One particular hot topic is that of “smart contracts”—contracts that are translated into computer programs and, as such, have the ability to be self-executing and self-maintaining. This area is just starting to be explored, but its potential for automating and speeding up manual and costly processes is huge.
Innovation from start-ups in this space is frenetic, with the pace of change so rapid that by the time print materials go to press, they could already be out-of-date. To put this in perspective, PwC’s Global Blockchain team has identified more than 700 companies entering this arena. Among them, 150 are worthy to be tracked, and 25 will likely emerge as leaders.
The use cases are coming thick and fast but usually center on increasing efficiency by removing the need for reconciliation between parties, speeding up the settlement of trades or completely revamping existing processes, including:
Enhancing efficiency in loan origination and servicing;
Improving clearing house functions used by banks;
Facilitating access to securities. For example, a bond that could automatically pay the coupons to bondholders, and any additional provisions could be executed when the conditions are met, without any need for human maintenance; and
The application of smart contracts in relation to the Internet of Things (IoT). Imagine a car insurance that is embedded
in the car and changes the premium paid based on
the driving habits of the owner. The car contract could also contact the nearest garages that have a contract with the insurance company in the event of an accident or a request for towing. All of this could happen with very limited human interaction.
So what?—An area worth exploring
When faced with disruptive technologies, the most effective companies thrive by incorporating them into the way they do business. Distributed ledger technologies offer FS institutions a once-in-a-generation opportunity to transform the industry to their benefit, or not.
However, as seen in the survey responses, the knowledge of and the likelihood to react to the developments in blockchain technology are relatively low. We believe that lack of understanding of the technology and its potential for disruption poses significant risks to the existing profit pools and business models. Therefore, we recommend an active approach to identify and respond to the various threats and opportunities this transformative technology presents. A number of start-ups in the field, such as R3CEV, Digital Asset Holdings and Blockstream, are working to create entirely new business models that would lead to accelerated “creative destruction” in the industry. The ability to collaborate on both the strategic and business levels with a few key partners, in our view, could become a key competitive advantage in the coming years.
This post was co-written by: John Shipman, Dean Nicolacakis, Manoj Kashyap and Steve Davies.