Property and casualty insurers aren’t shying away from digital distribution. “[F]our out of five insurers either have, or are planning to set up, wholly digital sales processes in which humans are involved only when customers need advice,” Accenture global insurance industry Senior Managing Director John Cusano reports.
But taking digital distribution from concept to reality still poses major challenges for many P&C insurers.
Here, we look at some of the biggest challenges of implementing a digital distribution strategy and how to overcome them.
Everyone’s Going Mobile
In a 2013 article for Wired, Christina Bonnington predicted that the world would contain 24 billion connected devices by 2020 and that the Internet of Things would result in people doing ever more tasks from their smartphones.
We got there early: Statista estimates that the world of 2018 already contains 23.14 billion connected devices and that the number will be more like 31 billion in 2020. And more of these devices than ever are mobile devices.
It seems as if the insurance industry only just began to embrace the opportunities afforded by digital technology when customers’ attention switched to this highly connected, primarily mobile world.
Today, customers “expect the same intuitive experience from their insurance carriers as they do from their favorite mobile app,” says Rahim Kaba at OneSpan. And they’re not the only ones. “Even insurance agents are demanding better digital capabilities from insurers to increase their ease of doing business,” Kaba says.
Mobile is an essential consideration for insurance companies, according to Andrew Sheridan at DialogTech, who cites several statistics that illuminate the opportunity available:
40% of customers’ time researching insurance was spent on mobile, and 51% of these customers purchased insurance as a result of their research.
25% of insurance shoppers do all their buying via their mobile devices.
66% use a specific insurance company’s app.
Yet going mobile poses some challenges for insurance companies. For one thing, customers expect to be able to do everything from pay premiums to file claims, get driving tips or find a repair shop via a mobile app. That’s a lot of work for an app to do — and the more an app does, the slower and thus less appealing it is likely to be
Another challenge is the integration of older technologies with new ones. As Parmy Olson notes at Forbes, older telemetrics devices like Progressive’s Snapshot are starting to give way to smartphone apps that perform similar tasks, measuring speed, distance and other driving-related factors that can affect premium calculations.
These apps can seem more convenient to customers, but they can also make certain measurements or calculations more difficult. For instance, telemetric devices installed in the vehicle itself can more easily detect a crash and call for help, says Jim Levandusky, vice president of telemetrics at Verisk Analytics.
Embracing Industry Shifts
One solution? “Collaboration with the disrupters,” says Trevor Lloyd-Jones at LexisNexis Risk Solutions. Embracing mobile tools like telematics can make mobile apps easier for customers and more effective for insurance companies, and when these tools are approached through software as a service (SaaS) or similar providers, concerns about security or analysis are often addressed as part of the platform.
Companies that dismiss disruptors in the insurtech sphere do so at their peril, says Nikolaus Sühr, co-founder and CEO of KASKO. The era of relying solely on historical data may be coming to an end. “Disruption in other industries is actually changing user behavior and the nature of risk, so there is no relevant historical data anymore,” Sühr writes.
When moving into mobile for customers, agents or both, don’t be afraid to A/B test mobile apps, try new things and to innovate, says Amir Rozenberg, director of product management at Perfecto. While experimentation must account for the tight regulatory world insurance companies inhabit, trying out options in the mobile sphere allows P&C insurers to better understand how their customers use mobile — and how the company can use what it learns to attract and keep better customers.
Within this process, however, it’s important to keep mobile in perspective. “Even with this trend, companies need to ensure a mobile app supplements the overall experience and doesn’t dominate it,” says Rodney Johnson at Kony.
One Size Doesn’t Fit All
“With customers using more devices in more ways, there are new options for customer engagement,” stated a recent Incom Business Systems white paper. There are also plenty of challenges. Mobile devices feel personalized to customers, and with companies in other industries extending that personalization to their apps, insurance companies are feeling the pressure to personalize, as well.
A hallmark of in-person or traditional channels has been their one-size-fits-all approach to customers, according to Shashank Singh in an article at Insurance Nexus. Many P&C insurers have attempted to transfer this approach to the digital world, only to discover it doesn’t work.
Data and analytics offer insurers an unprecedented opportunity to understand and respond to each customer as an individual, from recommending products to calculating risk.
Digital distribution can also make it easier to capture a growing segment of the P&C insurance market that has changed its behavior as it finds itself priced out of coverage. “Rethinking distribution is key to successful inclusive insurance,” says Peter Wrede of World Bank Group USA. “Low distribution costs make insurance affordable for low-income people.”
A 2017 article by in The Street noted that 18 million adults in the U.S. currently cannot afford auto insurance, so they go without, often turning to public transportation or rides from friends instead. As a result, “personal automobile insurance is in a crisis,” said Dave Delaney of Owner Operator Direct. “Rates have been increasing steadily since 2011, and there is no end in sight.”
By turning to a digital distribution system to reduce costs, however, insurance companies gain the opportunity to make coverage more affordable, recapturing some of the 18 million customers who currently believe auto insurance won’t fit into their household budget.
Personalization of the digital customer experience, leveraging tools like mobile apps, presents a profound opportunity to understand and respond to customers’ needs better than ever before, said Ash Hassib, senior vice president of insurance solutions at LexisNexis. But “data availability isn’t the issue,” Hassib said. “It’s how you use it to underpin sustainable and profitable growth that’s the real challenge for insurers.”
And for many insurers, this challenge arises the moment they try to use that customer data within their current organization.
“Insurers have focused on digitalizing the front end, with insufficient focus on the systems that support distribution,” said a May 2017 report from the Insurance Governance Leadership Network. Additional challenges in retention have resulted, with insurance companies noting that customers leave because the system doesn’t provide adequate support for their experience.
Customers who use multiple channels to communicate with insurance companies are more likely to face problems caused by insufficient systems inside the organization itself. Perhaps this is why, relative to other industries, insurance company employees rated their companies 9% lower on providing a high-quality customer experience, according to Tom Bobrowski at The Digital Insurer. P&C companies were also rated 8% lower than average at “good cooperation between functions,” allowing the company to meet the customer’s needs effectively.
One option is to take a hybrid approach, says Sasi Koyalloth in a Wipro Ltd. white paper. A hybrid approach focuses on incorporating human agents into the digitization process, focusing on giving agents and employees the digital tools necessary for seamless communication throughout the organization.
Regardless of approach, “a single view of the customer is crucial,” says Robert Paterson at Afinium, noting that software as a service (SaaS) providers already exist with the tools and support needed to help P&C insurers move to a single platform for managing information.
And the systems’ cost needn’t be onerous. “Another key driver for adoption of SaaS solutions is its use in developing pricing models that can be directly related to system usage,” Paterson says.
The switch to digital is now or never for P&C insurers. Working with knowledgeable insurtech providers can help companies address concerns about data security, analysis and customer experience, allowing insurers to take full advantage of the digital world to build more personal and long-lasting customer relationships.
As data breaches increase in type, severity and number, more companies plan to purchase cyber insurance. While cyber insurance premiums in 2016 in the U.S. were $5 billion, projections indicate they will increase to $20 billion by 2020. Complex cyber crimes mean insurers find themselves facing contentiously complex relationships with their insureds. To create a resilient business model, both of these parties need to communicate effectively and understand the overt and hidden risks they face.
The Underwriting Communication Gap
Information forms the basis of strong underwriting. With traditional general liability policies, insurers can easily gather information on a company’s financial solvency by reviewing publicly available documents such as annual financial reports or credit ratings. With cybersecurity policies, attack vectors extend in a variety of directions, making information less tangible for underwriters.
With a compounded annual growth rate of 41%, cyber insurers need insight into the full range of their insureds’ risks. The present model relies on questionnaires from applicants; however, when insureds misrepresent or misunderstand their risks, insurance companies suffer billions in losses. Often, the cost of a breach exceeds the limits of a policy’s liability, meaning that even those companies with insurance find themselves underinsured. Because courts generally agree that general liability policies do not cover cyber loss, business continuity plans require appropriate insurance aggregates to fully cover losses.
Even the most sophisticated companies find themselves unaware of their biggest cyber risks. When insureds lack data, underwriters cannot effectively write policies. Thus, the communication gap poses a risk for both the insureds that remain underinsured and the insurance companies that may be overextending their books of business. Security ratings act as a tool that allow better communication between insurers and their insureds when establishing a cyber security policy relationship, similar to credit ratings in the general liability arena.
Insureds use insurance to protect their internal and external stakeholders. However, the communication gap creates a claims problem for insureds. Coverage litigation costs and a sense of betrayal ruin relationships between companies that share the economic ecosystem.
The Equifax breach offers a contemporary example. Most recent estimates place Equifax’s breach costs at $275 million, but the company retained only $75 million in cybersecurity insurance. A single employee’s failure to patch a known vulnerability in the Apache Struts Java application created an opportunity for hackers. Equifax’s failure to understand its own patching cadence led to its underinsured status and, ultimately, its severe losses.
Information Enables Resilience
The information security community focuses on resilience. When a distributed denial of service attack causes a company to shut down services for days or weeks, the company lacks cybersecurity resilience.
An insurance company’s resilience requires setting aside financial reserves to cover claims costs. Because cyber policies often cover business interruption costs, businesses that lack cyber resiliency too often claim losses and file insurance claims. Security ratings provide insight into an insured’s resilience. Because data breaches are inevitable, even companies with strong security ratings may be hacked, but their continued attention to their environments means they will have strong disaster recovery protocols limiting business interruption. To remain financially stable and resilient, insurance companies need to adequately estimate potential losses so that premiums adequately align with their risk acceptance.
Insurance companies and their customers need shared visibility into the protected cyber ecosystem. Otherwise, insurers continue to dissuade financial safety by overestimating premiums while companies risk their solvency by underinsuring their business. This business model promotes neither economic stability nor resiliency.
Remedying the information and communication gap between insurers and insureds provides the only solution to the current resilience problem. Companies often prove, through audit reports, that they engage in information security, yet those documents show proof of only a single moment in time. Insurers need tools providing visibility into their insureds’ ecosystems on a continual basis, such as security ratings.
Organizations face data security threats from both their IT environments and those of their vendors. One breached vendor creates a domino effect of cyber insurance claims as the damage travels through the supply chain. Insurers and insureds need to be able to communicate both visible and hidden cyber risks. Security ratings continuously monitor insureds’ endpoint security, IDS and antivirus, while also providing a shared language so they can effectively communicate with insurers. Insurers, conversely, can use the shared language of security ratings to communicate to insureds the impact that security vulnerabilities have on insurance premiums and coverage.
In the cyber insurance space, increased claim complexity degrades the symbiotic relationship. As insureds shop around for better premiums, insurers lose valuable business. To promote continued business relationships, the two parties can both benefit from automated tools that enable continuous communication about continuous monitoring. Tools to facilitate visibility help establish metrics for the appropriate pricing of risk to cover potential losses and set reasonable premiums.
Insureds must communicate with their insurance companies; however, companies focusing on the daily tasks of conducting business lose track of communication and time. Therefore, insurance companies need to protect themselves by monitoring their insureds. Security ratings are poised to help promote resiliency between, as well as within, industries by offering publicly facing data. With the right continuous monitoring metrics, SaaS platforms can enable continuous relationships that reinvigorate the insurer-insured symbiotic relationship.
In a meticulously planned operation, we filed for a license in 47 states simultaneously. We’ll be revealing the first states in which Lemonade will become available in a couple of months. One thing’s for certain, 2017 is going to be an interesting ride! Stay up to date with news about our progress here…
Now that I got this off my chest, I can add some color to why we’re doing this.
Many tech startups go through the famous Local vs. Global debate as they start to plan a market penetration strategy. This dilemma was born with the arrival of modern internet commerce and became even more prevalent with the emergence of SaaS companies that provide global coverage right out of the box.
When you’re selling a digital product, going global may seem like small overhead. Reality is a bit different, though, and, more often than not, small startups that take a bigger bite than they can swallow get into trouble.
When feasible, startups should consider aiming their launch beams at a single city or even a town with population that represents their typical customer.
1. Know thy users, and design for them
It always amazes me how often startups overlook usability testing during the initial design phase. Having videos of random people playing with your (barely working) mockup is priceless. We learned more in a couple of days of testing than we did in months working in our office.
The cool thing is that you only need about five testers to get value out of a session like that, so there’s really no excuse to not doing it. The smaller the area you launch in, the better the chance of getting valuable data in a user testing session.
We spent hours in WeWork and Starbucks with our early stage, smoke-and-mirrors version of the Lemonade app. We would show it to people, ask for their feedback, ask them some questions and record the entire session. We would then sit in the office and analyze the videos to figure out what worked and what didn’t.
Our early Starbucks user testing sessions allowed us to launch a relatively mature product into the market and achieve faster adoption by our New York customers.
Product launches require spending some money. To improve the chances of success, it is recommended to fuel the organic interest generated by social noise and PR efforts with some paid channels. Got a story in TechCrunch? Bloomberg? It will probably die down quicker than you think.
A nice trick is to use content recommendation tools like Outbrain and Taboola to promote content to users who may be interested in it. Google Ads are another obvious choice. Choosing the right outlets is one thing, but there’s a huge difference in costs between a global campaign and a local one.
This becomes much more dramatic when your company requires additional resources to operate in each region like Groupon and Uber. Lemonade recently closed its third round of financing ($60 million in one year of operation) from top VCs such as Google Ventures, General Catalyst, Thrive, Sequoia, Aleph and XL Innovate. We’re going to use this money to drive our expansion throughout the country and activate specific markets the way we did in New York.
3. Surgical use of media coverage
Getting great media coverage takes a lot of attention and time. Whether you can afford an agency or not, you’ll have to choose your battles well. Launching in a specific city allows you to focus on the outlets that are most relevant and will simplify your pitch to journalists.
If you’re creating something exclusive for a certain region, reporters who cover that region usually have a hunger for tech stuff that is happening, or launching in their hometown before everywhere else. BTW, there’s a case for launching in unexpected places like Portland or Philadelphia, which usually don’t get much attention from the tech and consumer industry for new products. There’s a good chance that media reach (which expands far beyond just the place you’re starting from) will be much stronger.
We chose New York for Lemonade’s home. We see NY’ers as an ideal representation of our target demographic and personality. So we invested our efforts in a select few outlets that are read by our first wave of early adopters of the city’s financial workers and young professionals — NY Post, Bloomberg and Wall Street Journal.
4 . Brand and messaging
Building a great brand involves a lot of consumer psychology. You spend weeks trying to figure out the best tagline, the perfect ad and the right illustrator to do your art. If you get this right, you have a real chance at grabbing your customers’ attention.
The first few months of brand activation are critical. Limiting yourself to a select region or demographic allows you to be laser-focused on framing and positioning.
Building an insurance company from scratch, in New York, one of the toughest regulatory environments in the country, is a huge undertaking. The sheer complexity and investment required to get to the starting point includes raising a lot of capital and hiring the right people to be able to get licensed by the state’s Department of Financial Services.
This is the life of a company that operates in a highly regulated industry, and it’s unlike anything I’ve ever seen in the tech space. For Daniel and me, the decision to start in one state was simple. There’s no other way. Insurance carriers have to choose a state. Just one. And then maybe, if you play nice, regulators will let you go for more.
We wanted to launch Lemonade in one state — NY, and even more so when we realized we had no choice 🙂
In the last three months since our New York launch, we’ve had overwhelming demand coming in from all over the country to open up for business in more states. This was very encouraging because it showed us hints of initial demand and product market fit to people and age groups that we never thought would be our early adopters.
But what surprised us most was the excitement coming from unexpected places, such as government offices and regulators. Having a favorable regulatory environment is a great opportunity to bring an honest, affordable, transparent and fun insurance experience to everyone in the U.S.!
Be the first to know how we’re making progress with our nationwide expansion.
Here’s the list of states where we will gradually launch in the coming year or so:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin
* States in bold represent the ones most requests to launch came from
This article originally appeared here, and you can find more about Lemonade here.
The rising business use of cloud services and mobile devices has opened a Pandora’s box of security exposures.
Software as a service (SaaS) tools such as Salesforce.com, Gmail, Office 365 and Dropbox, as well as social media sites such as Facebook, LinkedIn and Twitter, are all being heavily leveraged by companies to boost productivity and collaboration. This SaaS trend also has opened up a whole new matrix of access points for malicious attackers to get deep inside company networks.
Wall Street recognizes that all organizations will have to acknowledge and make decisions on how to mitigate new business risks introduced by cloud services. And big bets are being placed on new technologies to help companies get a handle on these fresh exposures.
ThirdCertainty recently sat down with David Baker, chief security officer at Okta, a cloud identity management vendor that’s one of dozens of security vendors developing cloud security systems. A $75 million round of private investment last fall pushed Okta’s market valuation to more than a billion dollars, vaulting it into so-called “unicorn” status.
Okta’s backers include a who’s who of venture-capital firms that are placing big bets on cybersecurity plays: Andreessen Horowitz, Greylock Partners, Sequoia Capital, Khosla Ventures, Altimeter and Glynn Capital, among others.
Baker talked to us about this particular big bet on cybersecurity tech. The text is edited for clarity and length.
3C: Congratulations on achieving unicorn status.
Baker: Thank you. We have a lot of work to do as a company to continue growing. The problem that we solve is really about enabling companies — enterprises, as well as small, medium and big companies — to adopt the cloud.
3C: How would you frame the big challenge?
Baker: The problem for companies now is that the things I need to access in the cloud bring a whole host of security concerns. I have users working within my four walls, and they have to authenticate into these applications where I have critical business data. It could be information about my company’s source code, or email or all of the files we share. So what’s needed is a secure way of authenticating users into all of those systems.
It also is a challenge to provision that identity into the downstream applications and, just as importantly, to de-provision users. So when a user eventually is transferred to a different group or is terminated, their access has to be disabled. So it’s about managing that identity and also managing the access of that identity to these cloud services.
3C: Lots of employees set up their own Gmail or Dropbox account to be more productive. It sounds like they shouldn’t be doing that?
Baker: Correct. The security piece is knowing what set of tools you want your employees using, and then making sure you have an authentication mechanism in place to enable them to go securely into those cloud-based applications.
3C: The company sets the rules, and its employees should use only the company-sanctioned versions?
Baker: Correct. Users get exactly the version of Dropbox the company wants them to use, not their own personal account. Okta creates a secure connection to that version. The IT administrator can give the employees access to hundreds of apps. Right now, we have connectors to well over 4,000 different applications across the internet.
3C: Seems like we’re extending the traditional network perimeter. It’s not just the on-premises servers and clients that companies have to be concerned with, it’s everything out in the internet cloud that employees might try to use.
Baker: I’ll do you even one better. The perimeter really exists with respect to identity. When I’m sitting at home or in the coffee shop and using my cellphone to get access into an application, I am now the perimeter. So that’s why we like to say, really, identity is the new perimeter.
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.