For anyone involved in vehicular transportation, it’s accepted that distracted driving is a deadly problem that needs continued attention. Earlier this year, the National Highway Traffic Safety Administration (NHTSA) published a detailed research report on Distracted Driving in 2016. According to the NHTSA’s statistics:
Nine percent of fatal crashes in 2016 were reported as distraction-affected crashes
In 2016, there were 3,450 people killed in motor vehicle crashes involving distracted drivers.
Six percent of all drivers involved in fatal crashes were reported as distracted at the time of the crash.
Nine percent of drivers 15 to 19 years old involved in fatal crashes were reported as distracted. This age group has the largest proportion of drivers who were distracted at the time of the fatal crashes.
In 2016, there were 562 nonoccupants (pedestrians, bicyclists, and others) killed in distraction-affected crashes
Notice that teen drivers are the largest proportion of drivers who were distracted at the time of fatal crashes. However, a recent Arity survey shows that millennials are significantly less likely than the general population to say that “I never multi-task while driving” (48% vs 57%). What does this say about that demographic? With National Teen Driver Safety Week approaching at the end this month, it’s important to fuel this age range with the danger that distracted driving imposes on them.
Here at Arity, we used our own data to compare the rate of smartphone penetration in the US, with distracted driving activity of telematics users and industry losses. Our research goes a step further to demonstrate that this problem is only getting worse. The percentage of losses attributed to distraction over the last several years has tripled, costing the industry an estimated $9 billion annually.
The insurance industry has taken a multi-pronged approach to reduce distracted driving. In addition to high-profile campaigns designed to raise general awareness of distracted driving, such as AT&T’s #ItCanWait initiative, distracted driving solutions have been developed by insurance providers, OEMs and shared mobility and telecommunications companies.
As these solutions get closer to reality, there are a few core elements to consider. Here is a five-step process for the creation of a superior recipe for distracted driving detection:
Mobile Phone, No Substitutes: While embedded systems and OBD devices are the gold standard for assessing vehicular motion and risky driving patterns, today there is no substitute for the mobile phone in distracted driving detection. The mobile phone is the leading culprit fueling higher rates of distracted driving accidents. Pinpointing mobile phone movement and interaction is the most robust way to identify and prevent these risks.
One Part Movement, One Part Interaction: Phone movement only reveals part of the story. Distracted driving algorithms that rely solely on sensor information―accelerometer for translational motion, gyroscope for rotational motion, gravitometer for orientation, etc.―will be subject to false positives and false negatives. For instance, a motorcyclist with a phone safely in his pocket could be unfairly penalized each time he puts his foot down at a stop for balance.
Measure Each Ingredient Carefully: Not all forms of distracted driving are equally risky. Checking navigation while stopped at a traffic light is generally less risky than taking a selfie while speeding down the beltline during rush hour. To effectively assess relative risks, there are two fundamental considerations: context and mode. Context means, what were the conditions present at the time of the distracted driving behavior? At what speed was the car being driven; what was the weather like; was there traffic? Mode means, what distracted driving behaviors were taking place? Phone call; texting; navigation; gameplay; etc.
Monitor Continuously: Discrete or instantaneous markers only tell part of the story. For instance, counting only moments of large phone movement omits important information about the behaviors that took place interstitially. We can conceptualize distracted driving in terms of continuous sessions and endeavor to identify the starts and ends of these sessions. The total duration of distracted driving will provide the most predictive metrics for risk.
Modeling Bakeoff: Distracted driving models can be founded on logic and intuition, but they should be developed and validated with a data-driven approach. For the best solution to emerge, many alternatives should be assessed relative to their performance on labeled data sets―data sets composed of both telematics data as well as reliable labels for the periods of distracted driving. An example of this blended approach would be the Arity and Allstate research that estimated the cost of distracted driving for the insurance industry at $9 billion. This insight was derived from data sourced from national smart phone usage, vehicle telematics and incident claims data.
At Arity, our mission is to make transportation smarter, safer and more useful for everyone, and understanding and eliminating distracted driving is central to why the company was founded. What’s important is that we don’t see this solely as a technical problem. Aside from understanding the true behaviors that are causing insurance loss, we must also provide a meaningful experience to the driver to eliminate the behavior. It’s important that we don’t stop learning and experimenting; there’s so much more we can do to #enddistracteddriving.
The National Safety Council reported a 14% increase in fatal auto accidents between 2014 and 2016, reaching the highest total since 2007. More accidents lead to more insurance claims, and thereby more payouts from insurers. As a result, insurers are striving to more accurately measure and stratify the risk associated with their customer base to help lower claims and increase profits. Unfortunately, it’s difficult to accurately assess risk, and many insurers are stuck using traditional methods to determine rating policies.
For years, insurers have used factors like credit score, age, gender and location to set rates, but these traditional factors are not adequate alone to accurately stratify the customer base by risk. When insurers began to use credit score, they were pleased because drivers classified in the riskiest decile based on credit cost two times more to insure than those in the lowest risk decile. Although a 2x lift may seem significant, it pales in comparison to what can be achieved using modern technology to directly measure driving behavior. In particular, data shows that, by using smartphones to measure distraction, at-risk speeding, harsh braking and other factors, smartphone telematics can provide a 17x lift from lowest to highest deciles in terms of crash risk.
Using smartphone sensor data – and thereby leveraging technology their customer base already possesses – insurers can more accurately measure and analyze driving behavior, and use this information to stratify risk and set pricing based on driving performance. This also aligns with what consumers want. A recent survey revealed that only 20% of respondents had full clarity on how their insurance providers set prices, which seems out of touch given consumers’ overall push for transparency across industries. What’s more, 73% of drivers surveyed want insurance rates based on how they drive, not traditional factors such as gender, age or income level.
Despite the significant benefits of adopting a smartphone telematics program, some insurers have been hesitant due to concerns about customer adoption, user satisfaction and ease of implementation. For example, survey respondents indicated that only 22% had ever been offered such a program by their insurer. Considering that 75% of drivers said getting a discount from an insurance provider would motivate them to be a better driver, it is time for insurers to put their concerns aside and try offering a smartphone telematics program.
Not only can these programs help insurers assess risk, but they can help build a loyal customer base dedicated to safer driving, because smartphone telematics apps offer a way to engage with customers through gamification features and real-time feedback. These features have been shown to help change driver behavior for the better: One insurer saw 74% of their drivers improve. Among these drivers, there were 47% fewer claims and 48% less-severe claims.
By extracting behavioral risk factors from smartphones – a modern, ubiquitous technology – and combining them with traditional assessment factors, insurers can achieve better risk stratification, set more accurate rates, reduce the quantity and severity of claims and improve loss ratios. Also, by implementing a comprehensive smartphone telematics program, insurers obtain a direct channel to their customers, where they can engage to improve driving habits and increase loyalty to the insurers’ brand.
The power of social media is undeniable. Whether it’s political movements, disasters, or breaking news, social media delivers unfiltered information instantaneously to people around the world. When a catastrophe occurs today, comments, pictures and video are likely to appear on the Internet as it happens. For instance, a deadly explosion at a Texas fertilizer plant was caught live on video and posted to social media, as was an enormous explosion that rocked the Chinese port of Tianjin. But when social media posts about a catastrophe go viral, the company involved can be in for a struggle.
To avoid getting left behind, companies need to prepare for how they will communicate using social media when a catastrophe strikes. A company that plans ahead and is able to mount a robust response may not only salvage its reputation, but may actually enhance its public image if it is seen as managing a difficult situation well. Because many companies lack this kind of communications expertise, they may want to work with consultants that can help them prepare for a disaster and respond appropriately. In addition, they should consider insurance that provides coverage for experienced public relations catastrophe management services to protect their corporate reputation.
Social Media Plays a Crucial Role in a Crisis
When it comes to disasters, mobile apps and social media are seen by the public as crucial ways to get information, according to a Red Cross survey. During Superstorm Sandy in 2012, social media played a significant role in providing official information and combating rumors. When Cyclone Tasha struck Australia in 2010, the Queensland Police Service made extensive use of Twitter to provide information to people spread over a vast area.
Social media, however, is widespread and public information, which means that if there is an explosion, fire, or other disaster, chances are someone may be streaming it live to the Internet, tweeting about it, posting it to Facebook or uploading pictures to Instagram even before the affected company is aware of it. In essence, that means public opinion about the incident, as well as the company involved, is already being shaped, possibly without any direction from corporate communications.
Because information travels so quickly through social media, the public no longer has to wait for the evening news to receive the most up-to-date information. Therefore, companies are not afforded the luxury of time to gather all available facts before addressing the public. Traditional media and news organizations are also feeling an increased amount of pressure. Since social media has enabled news to travel quicker, stories may not receive the same level of scrutiny as they once did. That leaves plenty of opportunity for the spread of misinformation, which can be very difficult to counteract. On the Internet, inaccurate information may persist long after it has been thoroughly discredited elsewhere.
Embrace Social Media in Crisis Communications
To handle the social media aspect of a crisis, companies need to be able to act immediately or risk allowing reporters and “citizen journalists” to tell the story they want to tell, which may not provide a complete and accurate picture. Being unprepared can lead to inconsistent messaging, or even misstatements that may create confusion and ultimately damage a corporation’s reputation. A company that is seen as clumsy in its media response to a crisis risks losing credibility.
When a disaster is handled well – by providing the public with timely and accurate information as well as proper reassurances about its products and services – an organization can actually bolster its reputation. While social media accelerates the media cycle, it can also enable a company to take control of its image by acting as a primary and reliable source of information when a catastrophe occurs. This requires planning and preparation.
An initial step is to review the corporate crisis communication plan to understand its limits in social media. A traditional crisis plan provides for one-way, controlled communication through prepared statements, press conferences, marketing tools, and commercials.
Such an approach is likely to be viewed as unresponsive by the public seeking immediate information. Incorporating social media into the traditional plan provides for two-way communication that allows for debate, insight, and opposing viewpoints that can guide the company’s responses.
The social media plan, however, should remain consistent with the company’s traditional media efforts. The company should provide consistent messaging in both traditional and social media about its culture and philosophy, the actions it is taking and the expected results, and its concern for those who have been affected.
Develop a Detailed Social Media Plan
The plan should delineate the policies and procedures to be followed in the event of a catastrophe, and – most importantly – assign roles and responsibilities to specific staff. This ensures that someone who understands the company’s message will maintain control, which can help lessen potential mistakes. Both external and internal policies should be covered so that the information communicated to and among employees and the public is timely, accurate and consistent.
The written policy should detail the information to be provided – for instance – pre-vetted information about the company and its corporate philosophy. It should establish guidelines pertaining to the types of social media posts that necessitate a response. Not every
post merits a reply. Anyone who uses a computer or smartphone can post information to the Internet. Identifying legitimate posts and inquiries and providing necessary information can help preserve a company’s reputation.
Because the social media landscape is dynamic, companies shouldn’t limit themselves to just one outlet, but rather those that are most appropriate for the business, the audience and the geographic region. If an incident occurs abroad, companies should use the
social media outlet most appropriate for that region. With their massive user base, Facebook, Twitter and YouTube are obvious choices for domestic and international audiences. Others such as Instagram, Snapchat and Tumblr, should be considered. Companies active in Europe and Russia should consider the social networking site VK.
Prepare the Response
While it may not be possible to prepare material for every potential catastrophe, companies can still organize information ahead of time that can be released as soon as something happens. Information can be prepared for a “dark page” for the corporate website that can be published in the event of an emergency; however, companies should be careful not to publish a “dark page” until a crisis actually occurs.
The site can include background information about the company and its specific businesses as well as the corporate philosophy during times of crisis. Other information might be media contacts and toll-free phone numbers for claims intake. Preparing the information ahead of time makes it possible to have it reviewed by a company’s legal department, public relations, and senior management. Once the page is live, it should be monitored and updated so that it always provides the most current information.
Whether information is prepared ahead of time or developed in response to a particular incident, it should be presented in a way that is accessible for the audience. Written material should be understandable by a wide range of people. Companies should avoid industry jargon and acronyms, which may be unclear or even misunderstood by the general public.
Monitor and Test
When not in crisis mode, it is helpful for companies to monitor social media. Viewing the social media environment in the normal course of business can help companies ascertain how their brand, products and services are viewed by the public. Companies can purchase monitoring services or build these capabilities in-house.
While monitoring social media is an important part of regular business, it becomes essential after a catastrophe to identify issues that need immediate attention. This helps to ensure that the traditional and social media messages the company is sending are having the desired impact. If the same questions continue to be asked on social media, it’s a clear sign that the message is not getting across.
As part of their overall catastrophe preparation, companies should test their communication response plan to assess their procedures as well as their staff. Testing can help ensure that everyone understands their roles and responsibilities and is able to react quickly. Drills assist in identifying blockages and help address uncertainties in the process. After the test or following an actual event, the company should conduct a thorough reevaluation and debriefing to identify the areas that worked well and those that need improvement.
Preserve the Corporate Reputation
Today, a story about a disaster can be trending on social media even before the company involved is aware of the loss. Organizations that wait too long to respond can cause lasting damage to their reputation. A company that is perceived as avoiding or failing to address a story may soon realize that its lack of response becomes the subject of that story. Undoing the damage caused by a tardy or ill-conceived response can be very difficult.
Many people realize that companies may make mistakes, but how these companies react and the decisions they make when faced with a disaster can potentially lessen confidence among customers and the wider public. Knowing how and when to respond helps project an image of competence and concern. Social media is the fastest way to reach people, project the company’s message and protect its reputation.
To become better prepared, companies have to identify their most likely risks and develop plans to mitigate those exposures, whether they are health, safety or environmental. Companies need to know how best to respond on social media if a disaster were to affect their business. To do so, companies may want to work with consultants that can provide risk analysis and mitigation services and help to prepare a crisis response. In addition, to help plan how they will respond to a crisis on social and traditional media, companies should also consider insurance that can defray the costs of hiring expert help when a disaster strikes. No one knows when a catastrophe may occur, but being prepared can help lessen the damage. Customers will look to these companies for information– companies that can provide that information are more likely to weather a crisis with their reputation unscathed.
Humans have amazing capabilities and, even more, they can be amplified by the power of technology. When both are working in harmony, what was once impossible becomes possible. Technology is now the “X” factor that can help you become more efficient while more effectively serving your base. When it is intentionally aligned with human effort, technology acts a weapon you can wield to strengthen your organization, increase the ability of your team and delight your customers or members. Discovering this human/technology balance is a process we often walk our clients through; many of these clients are in the financial services space, which is an industry being transformed by technology as much as any. There will be winners and losers in the financial space and the defining variable will be how well you can learn to integrate humans and technology to deliver your business model. We call this integration Humalogy.
What is Humalogy?
Humalogy is the integration of technology and human effort to improve processes and offer a positive and meaningful impact on an organization. That’s only when Humalogy is properly balanced. Understanding the Humalogy balance is critical because if left unbalanced it can be expensive to an organization, highly infuriating to customers or both. The balance you find will enable you to do some magical things. Here are just a few examples:
Increase your individual, team and organizational effectiveness and capacity through lean processes and efficiency
Increase the quantity of potential and current customers that you are able to effectively reach with your messaging
Create an environment of profit amplification by both reducing costs through automation while shaping a better customer experience through the use of digital tools
Implement customer service enhancements through technology-enabled convenience such as self-service
Enable people in your organization to be more productive and satisfied in their role, because technology has freed their time to accomplish tasks that humans do well while avoiding mundane, automated assignments. Simply, they’re able to focus on the satisfying, cerebral aspects of their careers.
The Humalogy Scale
We have developed the Humalogy scale to measure the balance of human and technology effort. We use this scale with our clients, many in the risk insurance space. Some processes lean heavily on humans (H5 on the Humalogy scale), and others primarily rely on technology (T5). Zero is an equal balance of effort from both humans and technology. What is important to recognize is that there is no “universally correct” balance. The proper balance for any space is the balance that yields you the highest level of efficiency combined with the best possible customer or member experience.
For example, H5 would be an insurance agent traveling to an accident and manually filling out a claim. Moving across the scale, we find a claimant snapping a picture of the accident using a smartphone and then filing a claim using a mobile app and receiving payment through direct deposit. This requires much less human effort and so is high on the T-side of the scale.
By defining where these processes are on the Humalogy Scale, it becomes easier to determine where to apply technology to drive efficiency, scalability or repetition. At the same time, in our technology-augmented world, we need to be conscious that some processes can be improved by adding the human elements that supply empathy, innovation and build trust.
Tasks more suited for human work involve rational processing of information, deep thinking, social and emotional intelligence and those tasks that require creativity, intuition and improvisation. Meanwhile, tasks more suited for computers are those that execute rules or processes, involve repetition or mechanization, require big data analysis or are too dangerous or too large or small for a human to accomplish.
Finding Humalogy Balance
Humalogy is important because when you apply this process to your business, it becomes a lens that can help you improve customer service while creating a lean organization that lowers costs.
Have you taken inventory of the technology expectations of your members? No industry is exempt from the evolving expectations of constituents who want access to services easily and instantly. Self-service is how industries are meeting the customer where they are — customers are now equipped to complete tasks that once required a service representative, often from their personal tablet or smartphone. Defining which processes you can automate and provide self-service using technology will help satisfy your customers and endear them to you.
On the other hand, the wrong Humalogy balance can result in poor customer service and a loss of loyalty. If your approach to Humalogy is not planned, often what may have been calculated for good can result in catastrophe. How many times have you felt alienated as a customer because a service provider tipped its Humalogy scale and traded personal touch for an automated call center? If someone wants to speak to a human representative, it is important to offer the opportunity.
Humalogy is a tool that can be considered in a number of functional areas. The two primary ways we apply Humalogy in the risk insurance space is through lean and relationship journey mapping.
Humalogy-Based Lean to Strengthen Process Efficiency
Humalogy-based lean is designed to help organizations improve their back office processes so that they’re more efficient. Some companies follow Lean Six Sigma practices that have emerged from years of optimizing physical and manufacturing processes. These methods are powerful and effective but can be very narrowly focused on the process. At other times, this approach may improve the human parts of the process but fall short when it comes to implementing technology. On the other end of the spectrum, aggressive automation efforts driven by technologists may miss important nuances that may be better handled by humans. In the worst case, a technology-centric approach can result in automating broken processes.
How do you get, and stay, on the right path so that you both improve your processes and automate appropriately? We recommend applying a Humalogy lens that lets you examine a process from some distinct angles:
It lets us decide if a process involves a greater emphasis on human effort or technology effort. This helps us understand which processes are too heavily human and in need of automation.
It helps determine which processes we should immediately devote attention to improving. We are able to prioritize more effectively.
It acts as a reminder that a solution isn’t always a technology solution. Often with processes, a greater human involvement is necessary to help a process run more effectively.
When we analyze processes, we are forced to diagram those processes to understand what is happening at each step. This gives deeper insight into how technology may be used to transform a process.
While Humalogy-based lean can help you improve back-office processes, studying Humalogy from the perspective of your customers will help improve their experience. This is accomplished by mapping the relationship journey.
Humalogy to Improve Customer Experience
Relationship journey mapping involves walking alongside your customers as they engage with your organization. We develop a subset of very targeted groups based on individual personas. In this process, we analyze together each critical stage of your customer or member journey and evaluate the touch points where you have the opportunity to engage directly with these personas. The goal of journey mapping is to maximize each opportunity and design the best possible experience for each customer.
The consideration of Humalogy is an important component of our journey mapping process. As you consider each of the personas who interact with your organization, you will also consider their proclivity to use technology at each stage. Would he want you to deliver all correspondence electronically? Would she be more willing to read a print newsletter you’ve sent her in the mail, or would an email with the information that you wish to present her suffice. Is he more likely to use a desktop computer or a smartphone? Would she be interested in a mobile application or online portal? Journey mapping allows you to consider the needs of each individual and then discover ways to satisfy those needs.
Developing and using proper journey maps allow you to create a one-to-one experience for each of your customers. You will understand how to provide positive engagements that they will likely choose to discuss with their networks. In short, you can increase your value to your customers, and that’s really what it’s all about.
Technology is already transforming your life and your industry. Technology can also, in an incredible way, transform your organization, everything from your day-to-day operations to the way you engage your customers.
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.