The global insurance market is undergoing a fundamental transformation. Advances in technology and access to vast amounts of data sources have had an impact on customer expectations, brought new entrants into the market, and radically altered the nature and boundaries of the industry.
While the nuts and bolts of insurance remain the same – a transaction between two parties where payment to and by each party is proportionate to risk – today’s customers expect information at their fingertips wherever they are and at any time.
The insurance industry has not always been quick to deliver these types of services. Now, however, insurance companies are starting to emulate retail and other industries with digital offerings. Today, 60% of insurance companies offer mobile self-service capabilities. And many are using existing data to generate a more complete picture of customers to retain them and to offer more services. The Asian market has been quicker to embrace the digital transformation than many developed, industrialised markets, in part due to the fact they are young, growing markets and in part due to the size of population.
Nevertheless, there is still a lot of catching up to do for traditional insurers, some of which are behind insurtechs when it comes to more transformational capabilities. In fact, fewer than 30% of insurance companies are investing in robotics and machine learning, and just 10% use sensors, blockchain or wearables.
These transformational technologies cannot be ignored. According to Juniper Research, the market for wearables alone is expected to reach 350m devices by 2020. Asia represents one of the largest markets for wearables, and in China alone wearables shipments reached 14.5m in the third quarter of 2018, according to International Data Corporation.
The changing nature of risk
A fundamental advantage of transformational digital technologies combined with real-time data is the ability to more easily price and transfer a customer’s risk across the participants in the value chain. In addition, data from sensors and social media makes real-time pre-rating of policyholders possible.
However, risk itself is becoming less predictable. For example, increasing global wealth is leading to greater insurance demands as the number and value of insured risks rise, thereby escalating market penetration for property and casualty insurance. This rise in wealth is being driven largely by the economic recovery after the far-reaching 2008 U.S. financial crash and the rapid growth of the middle class, especially in nations that are transitioning to industrialised, urban economies, as is the case across most of Asia-Pacific.
We’re also seeing the emergence of new types of risks such as cyber insurance and the move to new technologies such as autonomous cars, which will further shift the nature of risk for insurers. Additionally, terrorism and the impact of global warming add to the complexity.
Natural disasters and market uncertainty have taken a heavy toll on the industry. According to Munich Re, hurricanes Michael and Florence in the Atlantic, and typhoons Jebi, Mangkhut and Trami in Asia contributed to heavy losses in 2018, with overall losses from tropical cyclones amounting to $57bn, of which $29bn was insured. While North America contributed the largest percentage of insured losses, 68%, Asia was second at 23%.
The good news is, insurance penetration is lower in most Asian markets than in markets such as the United States, creating opportunities for growth for more progressive companies.
Eye on the consumer
While risk management is key, the priority for insurers must be customer engagement, and this is where digitisation is most beneficial.
One way to improve customer interaction is to use big data to develop accurate predictors of risk and reduce the number of questions posed to consumers. Insurers must also build more comprehensive offerings for policyholders such as risk advice and mitigation, as well as contract management after a claim. Other options enabled by digital transformation include extending core offerings into related markets, such as the global travel market, and working with industry peers to develop compelling ecosystems on broad-based industry platforms.
For many insurers there is increased focus on data for underwriting at an individual level, and some are seeking to drive trust and engagement by pursuing insurance pooling or social insurance. For example, Friendsurance, which launched in Germany and has now expanded into Australia, has developed a simple yet revolutionary concept where a group of friends with the same type of insurance can join a mini-pool. A portion of the premiums is paid into a cash-back pool, and if no claims are submitted by any member, each person gets a refund of up to 40 per cent of his or her premium. If claims are made, they are paid first from the pool and then as part of the standard insurance claims process.
This not only incentivises policyholders to minimise claims but also creates a stronger relationship between the insurer and customer, making it more likely that those customers will be willing to buy other products from the insurer.
The industry as a whole is investing heavily in re-designing the customer experience, and insurers need to adopt clear, transparent products and processes, which increasingly will be driven by artificial intelligence (AI), especially in customer servicing. It is predicted that 50% of talk time will be handled by automated systems within the next 5 years, and machine learning and predictive analytics are expected to drive a 70% reduction in back-end application incidents over the same period.
These and other disruptions demonstrate how vital it is for insurers to build deep partnerships to stay relevant and grow market share. Partners must be truly integrated, able to consume services seamlessly or offer their services seamlessly back to insurers.
Many of the most progressive insurance companies have partnered with insurtechs, which have brought together technology and insurance to generate new revenue streams.
Platform-based services are set to become more dominant in the insurance industry and open the door to limitless combinations of services to improve the customer experience and extend revenue opportunities beyond the core indemnification of risk. Platforms, enabled with seamless API integration, will increasingly become more common, and insurers will need to connect more broadly than ever before.
This level of change necessitates new partnerships and will require breaking away from the old business model, which was typified by limited customer interaction, short-term buying cycles for life policies, and the deployment of outdated, poorly integrated technology.
An example of an insurance platform play is China’s Zhong An, an online property and casualty insurance venture among Ping An, Alibaba and Tencent, which focuses on selling shipping return insurance to Alibaba’s customers and flight delay insurance more broadly – all available from consumers’ mobile phones. The companies offer more than 300 insurance products and have written 7.6bn policies for more than 535m customers.
Success in this environment requires a different mind-set: one committed to true win-win relationships and a willingness to collaborate, be open to new trends, and discover new opportunities. Progressive players will embrace an environment in which insurance is distributed through ecosystems, enabling customers to actively purchase relevant, tailored policies where and when they are required. A
Phil Ratcliff is vice president and general manager, Insurance, at DXC Technology. He is responsible for defining and implementing insurance go-to-market strategies and plans, managing the global industry P&L, and leading the development and commercialisation of DXC’s portfolio of insurance offerings.