Insurance as a service may be the answer…
It’s been a tough time for the insurance industry recently. With rapidly changing customer expectations combining with digital disruption in a heavily regulated industry, it’s no wonder that many organisations are starting to feel the heat.
One person who is ideally placed to understand the problems faced by insurers and help guide them is Scott Paton, financial services expert at PA, an innovation and transformation consultancy, and leader of their Global Insurance team, who works with all members of the insurance value chain. DISRUPTIONHUB sat down for a chat and some unique industry insights.
Insurance: the grudge purchase
Paton identifies various factors which have contributed to a difficult trading environment for insurers over the past few years. Price based competition, low levels of growth in both mature markets and discretionary lines, falling customer loyalty, changing customer demands and poor investment returns have destabilised the industry and left many parties uncertain of their next move.
Of these trends, changing customer demands and expectations are hitting the insurance industry particularly hard. Although this is a phenomenon now seen across all sectors, insurers don’t necessarily have the deepest and most enduring relationship with their customers to start with, making the issue a difficult one to address…
“Consumers find the insurance journeys impersonal, time consuming, transactional, complex, and costly,” says Paton. “Insurance is a bit of a grudge purchase and both consumers and insurers find there are not many touch points in the relationship they have with each other.”
“Often the experience that customers have isn’t aligned to their needs and their expectations, but more aligned to the limitations of the products the insurers are offering, and the poor customer experience that they provide. This could be around the purchasing of new products or the claims journey.”
Dealing with digital disruption
Along with a shift in the demands of their consumers, insurers also face changes to the makeup of the industry ecosystem. Digital disruption and innovation have led to the creation of insurance startups, who are able to offer completely different products in a completely different way.
“There’s been a tremendous investment in insurtech which has started to come through in terms of new capabilities, offerings and services to customers of traditional insurance providers,” notes Paton, “and that’s starting to cause disruption. Some specific examples might be peer to peer insurance models – such as Friendsurance – which support a pooling of risk and gainshare across peer groups for certain lines of business.”
“Another interesting example is more social based insurance models, such as those offered by the likes of Bought By Many. This consolidates the collective buying power of customers and from that opens up tailor made solutions from different insurers.”
In response to insurtech , traditional insurance companies are beginning to undertake their own digital initiatives. These are particularly evident around the use of data to streamline the customer experience, by – for example – aggregating existing data about the customer to streamline the journey when they make an application or claim.
“The other thing I think is interesting from this perspective,” says Paton, “is the different approaches that various companies are taking to try and respond to and create their own innovation and disruption. We’ve seen everything from insurance companies going out and acquiring innovative companies as a bolt-on acquisition, to trying to do it organically by implanting the skills and knowledge within their existing teams, to making significant investments in new startups as done by businesses such as LV=.”
Technology and regulatory scrutiny
Technology – as in all industries – has an important role to play in the transformation of insurance. New opportunities are being created by the likes of the IoT, telematics, advanced data analytics, and technologies which support consumption-based offerings and insurance for the sharing economy.
These technological advantages are particularly welcome in a sector which has faced increasing regulation. As Paton notes, many modern regulatory challenges began with the EU’s Solvency II Directive in 2009, and other decrees have followed.
“The big impact of Solvency II from an innovation perspective was that it diverted the insurer’s ability to invest in new areas,” he says. “It was followed by the Insurance Distribution Directive and a regulatory scrutiny on conduct in areas such as personal lines. So now with things like point of renewal, it’s necessary to make people aware of how much their insurance premium has gone up.”
“There will be more initiatives of this type,” Paton adds, “right through to changes in expectations around operational resilience, cybersecurity and third party supply management.”
Insurance as a service
Combine all the various different factors affecting the insurance industry today – customer expectations, technology based offerings, regulatory compliance – and there’s a need for insurers to make a serious step change to secure their future.
Fortunately, some of the factors disrupting the industry could also provide the means to transform it. How? In the new model of insurance as a service.
“Insurance as a service offers a platform of services that are tailor-made for each individual customer, and which can meet their needs at key life events,” says Paton. “For insurers, that means a pivot from thinking of customers in terms of how they engage with the insurer’s ecosystem and the insurer’s products, to one where the insurers put themselves in the customer’s ecosystem and think about the customers’ needs at different points in their lives.”
Dynamic offerings, dynamic needs
What this could mean in practice is a comprehensive package of services offered to the customer in line with their circumstances. And it need not be limited to insurance. If they go on holiday, for example, their search for travel insurance cover could also include advice on accommodation and transport options, as well as restaurant or excursion bookings on the ground. When they are away their insurance cover at home could also be automatically adjusted, to reflect the changing risk profile of their absence.
This model clearly chimes with customers’ changing demands – and especially their call for greater flexibility. It also involves the insurer playing a greater role in their lives. By providing tailored, integrated services to the consumer, insurers can make a positive transition from the transactional product that has characterised insurance in the past, to services which meet their needs in a holistic way.
However, in order for insurance as a service to be effective, insurers need to ask themselves a few key questions. How will they collaborate with partners to ensure they fulfil their customer’s diverse and dynamic needs? Will they develop their own platform, and retain ownership of the customer relationship, or will they participate in partners’ ecosystems? Or will they develop platforms in a joint venture with other parties?
Making the change
There’s no doubt that insurance as a service is a fantastic opportunity, but for a shift to this model to take place a few things need to happen. The first of these is the adoption of digital technologies such as the cloud, and the digitisation of the existing core processes and capabilities of insurers.
The second area is data analytics. Delivering an exceptional customer experience, anticipating the needs of customers, and minimising friction in their journey requires comprehensive insights from data. Many insurance companies are currently investing heavily in data science to deliver solutions in this space, with the MyAviva app being a prime example.
Lastly, for Paton, the final pillar that underpins insurance as a service is organisational agility.
“Organisational agility for us means breaking down the organisational silos that exist in traditional functions of an insurance company, and then optimising those structures so that everything is focused on customer value, and delivering that value as quickly as possible. We are starting to see some insurance companies look at this and seek to replicate some of the transformation that we’ve seen in other sectors – such as banking, FMCG, and retail.”
Where are we now?
In spite of the fantastic prospects offered by insurance as a service, the industry isn’t quite there yet. According to Paton, insurers across Europe are taking on some of the innovative aspects of the business model, but no one is doing it comprehensively.
“The more innovative insurance companies are starting to invest in some of the foundational capabilities such as cloud, advanced analytics and digitisation, but without necessarily thinking the play that they’re going for is a platform based business model. They’re just investing in them as enablers,” he says.
“It’s early days in insurance but there have definitely been some ripples of change across the market. For example, Zhong An is a really interesting digital insurer in China. Key to its success is how it came about – it’s a collaboration between Pingang, Tencent and Alibaba. All of these businesses have their own role in the ecosystems of their customers, and they’ve been able to leverage that with this new digital insurer. In the six years since its launch, Zhong An has captured a remarkable 460 million odd customers.”
If these figures aren’t enough, Paton offers some final reassurance that the transition to insurance asa service will be a positive one for the market.
“The move towards insurance becoming a platform based business model, it’s a win win,” he says. “On the one hand it brings peace of mind to the customer but also it creates a new relationship and a sense of trust between customers and insurers. The customer will feel they are getting the right type of service at the right time, and also in a way that provides them with the best value.”
Surely that’s a prospect too good for insurers to refuse?
If you’re interested in Insurance as a service, PA consulting are running a webinar on 6 September – details here.
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