Guest Post by Ingo Weber, CEO and Founder of Amsterdam-based insurtech, Digital Insurance Group.
Technology is changing massively the way we live and interact. And we are just at the beginning. The convergence of technologies makes life increasingly automated, personalised and convenient. Why should this be different for insurance?
Tech trend 1: 6 letters changed the world and now customer experience is king
With the iPhone and Cloud computing we had a first paradigm shift only a decade ago. Apple`s iOS and Amazons AWS not only enabled new business models, but changed the customer experience and customer expectation. Fundamentally and forever.
Customers today expect smart, easy to use, one-click, mobile and personalized services. Always and everywhere. For insurance this is no different.
Some obvious examples:
Easy and fast: from one-click buying to immediate claims settlement
Insight: from digital folders to gap analysis (under- or overinsured)
Personal: personalised and contextual offers that give piece of mind
Control: Users want control of their decisions
A second paradigm shift has started recently and puts insurers into even bigger challenges: Data, Analytics, AI and Blockchain are exponentially increasing the pressure on incumbent insurers to rethink every element of their business model. The future is all about seamless and digital delivery powered by analytics. Adding new features that go beyond what they (nor we) can even imagine right now.
The dominance of major tech companies will further increase with the use of more data and AI. Advanced analytics and algorithms will allow the tech companies to further optimize their offerings and provide an even better customer experience.
Tech trend 2. Ecosystems: hype and reality for insurers
Technology has led to the emergence of major platforms and ecosystems. Some of them are about to gain world dominance: Google, Facebook, Amazon, Alibaba, Tencent, Apple belong to the most valuable companies in the world.
While platforms and ecosystems can mean the same or different things to different people, there are some important characteristics. It is all about customer centricity, using data and solving a problem for a customer in an end-to-end and ideally seamless customer journey.
A leading example is Tencent`s Wechat platform that is used by more than 1 billion users. It is one app for everything a user needs in life including chatting to friends, ordering food, booking a doctor’s appointment, as well as offering financial services and insurances. Facebook`s 1.3 billion messenger users can already do payments, Apple launched Apple Cash already in 2014 and Amazon is active in providing financing and simple insurance covers. Bold moves into insurances are on the horizon.
The future of all financial services is frictionless, and insurance products can be easily integrated into other products and services.
If they do nothing, incumbent insurers face the risk of being downgraded as a provider of a commodity product, while the customer interface and engagement is handled by the platform players.
Ping An, the largest global insurer by market cap started as a life insurance company in China and has since become active in a number of ecosystems. Through its “One Account”, more than 480 million users have access to a variety of services including Healthcare, Insurance, Banking, Housing, Auto and Entertainment.
Key to playing a leading role in those ecosystems, is the technical ability to integrate into existing systems via APIs and building new partnerships. Unfortunately, only a few players are ready for this new way of doing business. Furthermore, in order to become a so-called orchestrator, a core competence needed is offering a great user experience and customer engagement, a skill that is often lacking at insurers.
Tech trend 3. AI everywhere
AI and in particular machine learning and deep learning will have a radical impact on the whole value chain of the data-heavy insurance industry.
On the distribution side, using unsupervised machine learning and predictive algorithms can help building profiles and identifying the “next best offer”. The buying process can be faster and easier: the more data is available with IoT and contextual data, the less questions need to be answered. AI algorithms can create risk profiles and provide highly personalized insurance covers instantly. Using real-time data about the actual risk as well as insights into the aggregated riskpool, the insurers will also find more efficient ways for its reinsurance needs and risk transfer to the capital markets.
On the customer engagement side, we will see AI-enabled bots that take over the activities of customer support staff and insurance agents. Smart bots will also offer robo-advice and perform automatic switching services. On the claims side, the majority of claims will be handled automatically and paid within seconds or minutes. The process starts with sensors detecting a loss and notifying the insurer. In some cases, smart contracts can be used which lead to an immediate pay-out.
AI is also the core technology powering new business models like autonomous vehicles, which will create new risks or change existing ones. Apart from the direct impact on the size of the car insurance market which is predicted to fall by up to 40%, there are questions around liability shifting from the driver to the manufacturer or operator of the vehicle.
Tech trend 4. Connected world: the power of billions of sensors
The world is moving from having one or two computers to having 10 or more connected devices or sensors. This coupled with 5G offers a huge opportunity to use data for frictionless and better services including helping customers to mitigate risks.
This combined with the ecosystems allows insurers to move into different business models, that do not only offer new opportunities for revenue growth, but also allows them to add value to clients in protection or prevention. It even leads to new models like Neos that took security services as a starting point but engaged Hiscox to cover anything that might happen under the proposition of smart home insurance.
Telematic solutions are not new, but we observe a growing interest as no more black boxes or on-board-devices are needed anymore. The Apple iPhone has changed from being a cool gadget to becoming a health monitor. Insurers like John Hancock in the US have recently started to using this data to provide a new behavioral insurance product.
Location data allows for real-time data where clients are and contextual offers when they are travelling across borders. Making sure that clients have the right cover when needed. Ideally in a way that is easy to switch on and off.
Tech trend 5. Open APIs or Out of business
API’s (application programming interfaces) are not new. For decades they have been used across multiple industries and the rise of disruptive platforms such as Netflix, Amazon and Uber was only possible through the use of APIs. While we have seen a boom in “InsurTech” over the recent years, API’s are only now beginning to make inroads into insurance.
InsurTechs like Lemonade and innovative incumbents like Axa Asia have recently announced to using open APIs to allow their products to be seamlessly integrated into the customer journey on non-insurers’ websites, such as travel companies, financial advisors and estate agents. Given the rising importance of ecosystems, open APIs will be a crucial part of an insurer`s business and distribution strategy.
The banking industry shows the potential way forward regarding APIs. What is known as PSD2, the EU Payment Services Directive as well as the UK`s open banking initiative requires all banks to share customer data via open APIs in order to increase competition and ensure a better deal for customers. A similar approach regarding insurance products will further increase the competitive pressure on insurers and will ultimately benefit the consumer with more transparency and better services.
Given the other trends, insurers have no choice but to add API’s to their landscape. The challenge being that they need to make them “talk to” existing legacy systems.
Tech Trend 6. Blockchain in insurance
While still in its infancy, the Blockchain technology has some unique advantages, that can play a major role in insurance: There is no need for a central ledger or authority, it offers a clear authentication of individuals, transactions and assets, and there is no single point of failure in a distributed ledger. What are the blockchain applications in the insurance industry?
With insurances that execute on a fixed conditions, like a cancelled or delayed flight, the claim can be automatically handled and paid out.
Fraud detection and risk prevention:
By moving insurance claims onto an immutable ledger, blockchain can help eliminate common sources of fraud in the insurance industry and include real-time data in the pricing and risk assessment.
Through the blockchain, medical records can be cryptographically secured and shared between health providers, increasing interoperability in the health insurance ecosystem.
Decentralized validation allow for automatic clearing, the blockchain can simplify the flow of information and payments between insurers and reinsurers.