The insurance industry is one of the oldest there is, dating back to Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC respectively, with merchants paying lenders a premium to guarantee to cancel a load in the event of a lost or stolen shipment.
The principle of distributing the risk among many players is unchanged but the surrounding wrapper of services is changing rapidly. The internet first brought new ways to search and research insurance policies, and now technology is transforming how consumers are able to manage and pool risk, as well as their expectations of processes and the overall experience.
The industry is facing many challenges right now and here, Clare Seekins shares her insights into where the insurance market is going and how technology is disrupting it.
There are five major themes that are at the leading edge of industry transformation:
1. Think customer, not product
Digital functionality has proven to be a major catalyst for total customer-centricity across all industries. A corporate’s digital face is now the essence of customer relationships, and excellent experiences are required for customer retention. This means that understanding customers and their needs is necessary for all businesses.
Customers increasingly want comprehensive coverage, not ad hoc product selection. Pushing products onto customers doesn’t work anymore. Designing products and services around customers is the way to win.
2. Get smart with data
More analytics are critical to digital success. The growth of Internet connected devices and sensors is projected to reach 50 billion by 2020[ii]. This will have a significant impact on the availability of real-time information – a trend often referred to as ‘big data’. Insurers who can exploit this information for better pricing, underwriting and loss control will have a distinct competitive advantage over their peers.
3. If you’re not mobile you’re nothing
An essential component of a consumer-centric experience is full integration with the devices and platforms customers use the most. However, mobile has to be just one part of a seamless, omni-channel experience. It doesn’t replace other channels, it enhances them – consumers may start the search on the bus or in the waiting room, but then complete the transaction from the laptop on the kitchen table.
If insurers are dedicated to investing in integrated mobile functionality and delivery channels, they will likely see costs go down as a result. For example, quicker registration and automated interactions will drive down administration costs (as well as offering a less bureaucratic customer experience). Well executed mobile and social media experiences can also reduce the cost to acquire and retain customers.
4: Take part in the sharing economy
Peer to peer business models are popping up around the world. The central thesis relies on the power of community and belonging and the trust this breeds. That is, when you share risk with people you know (even if just virtually), the incidents of fraud decrease, as do the number of claims. Fewer claims means lower premiums for the insured and lower administration costs for the insurer, and social network dependencies means lower acquisition and retention costs. Additionally, peer to peer models often incur lower acquisition costs.
5: Welcome to the age of customisation
Across industries digital capabilities allow companies to collect massive amounts of data and reorganise in terms of micro-experiences. The more data collected, the more insurers can tailor policies (and therefore prices) to individual risk profiles.
This includes an expansion of typical insurance products, with a focus on experiences – often called ‘insurable moments’. These types of micro-insurance remain relatively unexplored, posing a direct challenge to the traditional sales and distribution models of insurance. They will continue to evolve, as the impact of larger trends – such as work preferences (freelance, customised) and the shared economy – continues to unfold.
The insurance industry is certainly ripe for innovation. Many of the institutional stalwarts are over 100 years old, and have demonstrated minimal capacity for innovation over their lifetime – and are currently unprepared to adapt to these impending realities. And these leading trends are only the beginning of the potential rapid transformation of the insurance industry as it figures out how to offer a more empathetic and integrated service.
Clare Seekins is a consultant at Market Gravity.
Further reading on small business insurance
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