28 Nov Insurers are left behind in the insurtech digital innovation race: distribution and affilate partners are ahead of game
We turn to Digital Innovation – with a focus on the digital, mobile and cross-platform strategies being pursued by insurers as well as by other ecosystem players.
The following stats and perspectives are drawn from the extensive survey we conducted as part of our Global Trend Map; a full breakdown of our respondents, and details of our methodology, are available as part of the full Trend Map, which you can download for free at any time.
We saw earlier on, in our carrier priority tables (Insurance Nexus Global Trend Map #3: Insurer Priorities), how Digital Innovation came out on top both globally and regionally in North America, Europe and Asia-Pacific; this also represented the service area in which investment from Insurers & Reinsurers was increasing the most. The way carriers approach digital and/or mobile has far-reaching implications not just for marketing and distribution but also for customer experience more broadly (claims, renewals and complaints are 3 obvious areas that spring to mind) and, ultimately, the whole business.
"Digital Innovation is not only about technologies and channels, Multi- or Omni-channel. Digital Innovation means you have to develop your insurance company to an open and digitally enabled platform which can interface with everybody every time in real time - from customers to brokers, to other insurers, but also to Fintechs and Insurtechs."
Oliver Lauer, Head of Architecture / Head of IT Innovation at Zurich
In general, we see companies’ digital, mobile and cross-platform focus increasing the closer they find themselves to end-consumers within the overall value chain, from Insurers up above to Distribution/Affiliate Partners on the ground. The overriding trend we encounter – and which we will encounter also in our future posts – is of insurers trying to get closer to their customers, moving from the back room to the front.
The rise of digital channels and experiences has transformed many an industry already (just think retail), and insurance is not going to be an exception. Lacking a formal digital strategy is not the same as lacking digital capabilities, but it would appear a prerequisite for any company wanting to do more than just react to industry changes.
As we see from the graph above, digital strategies are evenly prevalent across much of the ecosystem, with 78% of Insurers, 81% of Brokers & Agents and 82% of Technology Partners indicating that they have a strategy. Every respondent in the Distribution/Affiliate Partner category, which we include here owing to the strong trend of which it forms a part, indicated that they have a digital strategy.
Most industries had barely begun to adapt to the strictures and opportunities of a desktop future, when the shift to mobile announced itself with a bang. We see this triumph of mobile reflected in many different measures, for example:
eMarketer recently announced that the majority of Google’s ad revenue in the USA now comes through mobile, not desktop.
While this new change has given rise to many mobile-specific functions within organisations, it is true that many have subsumed ‘mobile’ within ‘digital’ so as to avoid unnecessary silos in personnel and strategy.
As we can see, formal mobile strategies are for the most part less well established than formal digital strategies. Their prevalence is fairly even across much of the ecosystem, whereby 58% of Insurers, 59% of Brokers & Agents and 69% of Technology Partners acknowledge having a mobile strategy. Once again, every Distribution/Affiliate Partner respondent answered affirmatively, likely a consequence of their proximity to the mobile-touting end consumer.
"Whenever you switch on a device or use an app, huge amounts of data are generated about your behaviour and lifestyle. These insights are critical because they can drive the overall business strategy and help companies design products to better meet the needs of our customers."
Dennis Nilsson, Assistant Vice President, Head of Advanced Analytics, Insurance, at TD Insurance
As we mentioned, organisations can approach desktop and mobile either with dedicated teams and strategies or under one broad ‘digital’ umbrella, and neither approach necessarily reveals much about that all-important factor: how well these digital channels are coordinated on the ground.
"Whether it’s filing a claim through an app on their phone or receiving a claim payment electronically to an app or to their bank account, or even just exchanging information like adding another vehicle to an Auto policy, today’s consumers don’t want to have to make phone calls and they don’t want to send emails. They basically just want to exchange digital information as quickly and efficiently as possible."
Stephen Applebaum, Managing Partner at Insurance Solutions Group
Whichever strategy they have chosen (‘digital’ and ‘mobile’ separate or combined), companies will live or die in today’s multi-device world by their cross-platform capabilities. The world’s best digital experience optimised for desktop stands to be wrong-footed by the on-going swing towards mobile; yet, at the same time, there are consumer segments and lines where ‘digital’ genuinely still means desktop. The optimal approach, we believe, involves catering for both, led ideally by market segmentation.
Cross-platform strategies appear similarly prevalent to mobile strategies, with no clear trends across the ecosystem: 54% of Insurers, 59% of Brokers & Agents and 64% of Technology Providers acknowledged having a strategy (and 67% of Distribution/Affiliate Partners). This solid result is certainly encouraging for traditional industry players.
While ‘digital’, ‘mobile’ and ‘cross-platform’ are useful concepts, they are too crude to capture the full spectrum of digital strategy, which is spilling out into every operational nook and cranny (albeit at different rates) as insurers look to transform the way they do business. So while, as we pointed out, digital strategies are currently more prevalent at the front end of the value chain (affiliate partners) than at the back (carriers), ‘digital’ will ultimately touch or subsume all aspects of the business.
"Both public and commercial consumers are increasingly digital, with many living their entire lives in cyberspace (commercial examples: Air BnB and Uber). Failing to address this with an equally agile proposition will result in the insurance sector's client base seeking alternative ways to transfer their risk. The market simply cannot live by the cliché 'it's worked this way for over 300 years...' if it hopes to retain relevance."
Gareth Eggle, Head of Insurance at Flint Hyde
In the past, the back end (the product) largely constrained the front end, but now that situation is reversed, with the digital needs of the front (the customer) driving transformation all the way through to the back. The distinction between front and back is therefore becoming increasingly superfluous (and often outright unhelpful) for insurers. Or, in other terms: if you treat your front-end digital, mobile or cross-platform strategy as somehow separate from your back-end systems and processes, then you are heading for disaster.
In order to explore the broader ramifications of ‘digital’ for carriers, we spoke to Denise Garth, SVP of Strategic Marketing, Industry Relations and Innovation at Majesco. Garth points out the many facets of the insurance business that must feed, and be fed by, the overarching digital strategy – and believes that the future of insurance is not ‘digital’ or ‘mobile’ per se but ultimately an all-encompassing ‘Amazon-like’ experience:
‘Today’s digital shift for insurance is moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line-of-business silos to customer-centricity and customer experience for all products across all lines; and from siloed solutions focused on transactions to a platform portfolio that bridges together real-time interaction for all products and services for a customer, giving them an Amazon-like experience.
To create this new customer experience, insurers’ digital strategy must be more than a digital front-end, website or portal. First, it must be customer-driven. Second, it must be influenced from outside insurance.’
What is clear is that digital strategy is about much more than just channels, necessitating back-end transformation as well as a fundamental changes to company mind-set. To explore this further, we identified seven qualitative categories of digital strategy: ‘consumer’,‘efficiencies’, ‘re-platforming’, ‘product’, ‘customer journeys’, ‘agent integration’ and ‘innovation’, each one with a slightly different emphasis and different implications for the business as a whole. In the table below, we look at which flavours are currently finding favour with carriers, as well as with the industry more broadly.
"The value you hope to extract out of data will be stalled if you don’t have infrastructure. Many of us struggle because it’s hard to attach ROI to core infrastructure. You need a compelling vision for the future and some examples of current success to have the leadership fortitude to invest."
Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance
We asked carriers around the world to say which out of our seven qualitative statements best applied to their digital strategies; this allows us to see where the industry is currently focusing, as well as how this may evolve going forwards.
The two stand-out flavours we see here are Consumer (first place) and Agent Integration (second place). Efficiencies, Product, Customer Journeys and Innovation all find themselves in a similar range, with Re-Platforming lagging behind.
"We think it’s very important for insurers to exist in three timelines at the same time. They have to mitigate the limitations of their legacy systems, they have to address current business needs – short-term, tactical business needs – and then they have to keep an eye on the future in terms of how technology is going to change their business tomorrow."
Matthew Josefowicz, CEO at Novarica
We have categorised the present disruption of the insurance industry as being fundamentally consumer-led, so it's no surprise at all to see the overwhelming majority of carriers emphasizing the consumer. This is totally in keeping with the overall priority allocated to Customer Centricity (2nd place on our carrier priorities table), the volume of third-party services being sought in the area of Customer Centricity and the prominence of the Chief Customer Officer role, all of which we saw in our earlier installments on Global Trends (Insurance Nexus Global Trend Map #3: Insurer Priorities; Insurance Nexus Global Trend Map #4: Services, Investments & Job Roles).
More unexpected perhaps is the second highest-ranked digital flavour, Agent Integration. What this tells us is that brokered channels are an integral part of being customer-centric and that, at least for now, customer-centricity is not all about the direct-to-customer channel. Many consumers in both personal and business lines continue to value indirect channels as part of their overall buying process – whether that be for researching the product, receiving expert advice or for sealing the deal.
The insurer who wins out will be the insurer who is able to adapt their channel blend to their market – not the other way round – and here we are talking not just about mobile versus desktop but the full range of physical channels as well. Encouragingly in this regard, we can see that the whole industry is broadly aligned in terms of the tilt it is giving to digital strategy, with the same flavours being favoured by the Rest of the Industry as by carriers.
"Sometimes we benefit from a ‘burning platform’ scenario, whereby a specific business problem accelerates the need for us to invest in technology. But normally, we find ourselves challenged in moving our data capabilities forward when the infrastructure costs are large and the benefits are uncertain or longer-term. It helps if you have a good strategy, and a good organisational culture around innovation."
Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance
Another point of interest is the relatively small focus on Re-platforming. When the subject of digital transformation comes up, it is easy to think about mega-projects and wholesale system replacements. In reality though, these are more often than not prohibitively expensive and high-risk, and carriers must proceed to a large extent via increments: there is plenty of low-hanging fruit to be had from rendering existing systems and processes more efficient and customer-centric...
Internet of Things
In our earlier post on Analytics and AI, we pointed to the growing volume and exploitation of (big) data at every point in the insurance value chain. But where is all of this data coming from? The old data sources and data-gathering methods have not gone away, but they cannot on their own explain the on-going boom in the data-analytics industry. The critical factor is the recent mass-proliferation of sensors in the real world, capturing data on millions of connected objects, from toothbrushes to oil tankers. The Internet of Things (IoT) has arrived, and insurers are taking notice.
The possibilities of the IoT for insurance are boundless, from turbocharging underwriting models and using sensor data for preventative messaging to usage-based products and dynamic pricing. In this installment, we explore:
Our stats and perspectives derive from the extensive survey we conducted as part of our Global Trend Map; a full breakdown of our respondents, and details of our methodology, are available as part of the full Trend Map, which you can download for free at any time.
"There is a big shift from today’s protection to tomorrow’s prevention. New technologies using sensors and devices are becoming more widespread and can prevent incidents from happening. Broadly speaking from an industry perspective, it has potential for better risk understanding and creates happier customers."
Dennis Nilsson, Assistant Vice President, Head of Advanced Analytics, Insurance, at TD Insurance
While other technological advances often represent the optimisation of an established insurer capability (as with many applications of analytics, for instance), IoT in theory enables insurers to rewrite the rules of the game by moving from risk protection to risk prevention. For many use cases this remains hypothetical, and many questions around business/monetisation models, as well as the precise role of insurers in the nascent IoT ecosystem, remain unanswered. However, IoT is, in one form or another, increasingly part of carriers' strategic horizons.
54% of All Respondents had an IoT strategy, and we see that this is fairly uniform across the ecosystem, Insurers and Brokers & Agents scoring 49% apiece, and Technology Partners 65%. This solid showing by Technology Partners is not surprising – in many cases, insurers’ IoT platforms are being developed by third-party service providers. Given the upwards trend in platform implementation (which we touch on later in this post), we expect that the proportion of insurers with formal IoT strategies will sharply rise in this time-frame as well.
IoT is such an open-ended technology that we further asked our respondents to specify those areas of insurance they thought would benefit the most. The areas that come out on top were Analytics (81%), Customer-Centricity (68%), Pricing (64%), Digital (61%), Claims (60%) and Underwriting (59%).
The clear lead for Analytics is understandable given the symbiosis in which these two technologies stand. No IoT means limited data for analytical models; no analytics substantially weakens the business case for IoT.
"Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming."
Stephen Applebaum, Managing Partner at Insurance Solutions Group
Before checking out the impact of IoT on different insurance lines, let's now explore some of these key IoT beneficiaries in a bit more depth and observe how they mesh together as part of today’s emerging Usage-Based Insurance (UBI) model: Analytics, Customer-Centricity, Pricing, Digital, Claims and Underwriting.
IoT does not affect all these areas separately; rather they are all co-beneficiaries of the paradigm IoT enables, in which the underwriting and claims components of the insurance lifecycle are increasingly fused together.
On the one hand, the massive volume of data being generated by connected devices is feeding analytics and algorithmic models, increasing carriers’ understanding of risk and the accuracy of underwriting models. On the other, this data is not a static mountain, it is accessible in real time. This means that underwriting models can be continuously updated by way of dynamic pricing.
This new model, often called Usage-Based Insurance (UBI), means that policyholders can be judged on their actual behaviour – which they can feel motivated to change – instead of being subjected to the Tyranny of Averages. So instead of charging high premiums for bad risk and then being hit with the claims bill, insurers can incentivise less risky behaviour on the part of their policyholders through the prospect of lower premium prices (or benefits in kind) and thereby reduce their claims burden. This model is established in the Auto line – with help from in-car telematics – as pay-how-you-drive, and we have also seen similar innovations in Health, in particular Discovery Health's Vitality Programme.
"Technology used well can change the current customer proposition. The traditional insurance model has the opportunity to move from post-loss reactive reimbursement to proactively managing down customers' risks. The latter model is significantly more valuable to the customer and can change insurance from the grudge transaction that many view it as today into an ongoing value-enhancing relationship. Incumbents working with Insurtech start-ups can accelerate this evolution"
Nick Martin, Fund Manager at Polar Capital Global Insurance Fund
IoT does not just enable insurers to tailor policies to actual behaviour, it also allows Insurance-as-a-Service, with flexible policy spans. So rather than taking out an annual policy, which may overshoot the mark, customers can take out insurance in real time on a case-by-case basis, precisely when they need it the most. In the auto world, this has crystallized as pay-as-you-drive but the applications are potentially much broader than this, for example insuring your car against theft for the duration of a trip into town or your airport luggage against loss at the point of check-in.
In the longer term, this ability to sustainably offer lower premiums – which relies on reducing claims costs or premium spans – opens up to carriers segments of the customer base that were hitherto under- or un-insured, expanding the scale at which they can operate.
As we have indicated, IoT innovation can be particularly significant for claims departments, and this is not just by reducing pay-outs but also by allowing insurers to work out exactly what has happened when a claim event does occur (for instance with car crashes). To further investigate the impact of IoT on claims, we spoke to Minh Q Tran, General Partner at AXA Strategic Ventures:
‘IoT could have a huge impact on claims by preventing accidents from happening or warning so that the damage doesn’t get worse,’ explains Tran.
‘In the car industry, the development of connected and autonomous cars should prevent accidents and decrease dramatically linked damages, changing at the same time insurance intervention. Car insurance start-ups are using auto-tracking devices to teach newer drivers how to stay safe (Marmalade Insurance) and help locate cars if they are stolen (Insure The Box).
Many InsurTechs are being created to more accurately analyse drivers’ attitudes and data, so that insurers can adapt their offer to customers and new ways of driving.’
Stay tuned for our dedicated post on Claims, in which we explore further the impact of IoT on claims departments. Or, if you'd prefer to read on immediately and access all 11 Key Themes, simply download the full Trend Map free of charge here.
However, if it is to be successful, Insurance IoT requires more than just devices and back-end analytics: insurers also need to radically re-evaluate the relationship with the customer. In the past, policies were renewed infrequently (in many cases as rarely as once a year); the behavioural science inherent in IoT-empowered models requires more frequent interactions and a larger number of (digital) touchpoints.
Insurance needs to change its perception in the eyes of consumers if it is going to gain firstly their trust and secondly their data, by becoming fundamentally more customer-centric and making its value proposition clearer (we go into these themes in more detail in our later installments on Marketing and Customer-Centricity and Distribution – read ahead here). We can see then that IoT is not, and cannot be, a siloed technology for the new-age insurer; it directly impacts, and is impacted by, all work being done in analytics, customer-centricity, pricing, digital, underwriting and claims.
We didn’t just ask respondents to indicate which aspects of insurance they saw benefiting the most but also which insurance lines. Auto, Home and Health came out on top, while P&C/General, Commercial and Life were relatively behind.
"Technology is having an impact. In the P&C space we are seeing a real focus on IoT and how devices can give better information and be part of an insurance programme. Wearables are going to make even more inroads into health and wellness products."
Cindy Forbes, EVP & Chief Analytics Officer, Manulife Financial
The new UBI model enabled by IoT has clear implications for our three leading lines (and for personal lines in general). In Health, we can point to connected wearables to monitor an individual’s health and to price accordingly; in Auto, to in-car telematics that monitor driving behaviour; and in Home, to smart security devices. We see a whole host of commercialised solutions in these areas already.
We asked Sam Evans, Managing Director at Eos Venture Partners, for some more detail on the impact of IoT in Home insurance:
‘There are a multitude of applications ranging across motor, home and health. One key application where we have seen significant progress in insurance is combining smart home technology with a traditional home insurance policy.
There are multiple benefits for both the insurer and the policyholder. The technology, including smart cameras, motion sensors and water-leak devices has the potential to significantly reduce claims experience by providing early warning and notification. As an example: in the UK, where the largest cause of damage is water leakage, a device that allows the water to be shut off when a leak is detected will therefore significantly reduce claims costs and ensure a happy homeowner.
One of the leaders in this area is a UK InsurTech called Neos, which is pioneering the move to preventative home insurance leveraging the latest IoT devices.’
As we see in the graph above, there is a substantial gap between our leaders, Auto (80%), Home (71%) and Health (64%), and our stragglers, P&C/General (44%), Commercial (33%) and Life (29%). However, the current primacy of the personal lines should in no way blind us to the potential of IoT for commercial lines, which, despite not attracting quite the same media attention to date, remains huge.
IoT can transform the insurance proposition attaching to any kind of valuable commercial asset – provided that it can be monitored. For example, opening up data streams from industrial equipment for algorithmic modelling enables preventative maintenance, reducing the burden of failure for both equipment owners and insurers alike, and the same applies to sensitive cargoes in transit. As with UBI for the personal lines, the carrier is transformed from insurer to assurer:
"Connected insurance is a big opportunity in commercial insurance but it won’t come overnight. It’s the less mature use case today because it’s more difficult to figure out the commercial or industrial process, how to put sensors on that process and how to get at the data. But the opportunity to change the product’s structure, the paradigm you are using to insure that kind of risk is really large, it’s impressive."
Matteo Carbone, Founder & Director at Connected Insurance Observatory
Our stats on implementation (which we examine below) show that Commercial & P&C/General currently exhibit a lower level of platform implementation than our other lines. However, in line with the strong all-round potential we have indicated here, we find minimal difference between our different lines when we look forward to anticipated levels of implementation in the near future.
It is one thing to establish in which lines and areas of insurance the potential impact of IoT is greatest – but where are we on the adoption curve?
22% of all concerned parties have already implemented IoT platforms; within 12 months this is set to rise to 47%; and within 24 months we will be at 72% implementation. What this tells us is that we are in the midst of an IoT ‘rush’, which will see it become a majority-practical phenomenon within 2 years for those players today still predominantly at the theoretical stage.
Regionally, we detected a relative lead in implementation for Europe versus the rest of the world, with 30% of respondents having already implemented. However, the scores for these two groups quickly align, as we can see above. You can read more about our notion of Europe as an ‘early adopter’ in our dedicated Regional Profile, by downloading the full Trend Map below here.
Stay tuned for our next post, in which we look at that all-important field, especially for the success of IoT products: Marketing & Customer-Centricity. And remember, if you'd like to read the whole thing straight away, you can download the full Trend Map whenever you like.
For any inquiries relating to the Insurance Nexus Global Trend Map, this on-going content series or next year's edition, please contact:
Alexander Cherry, Head of Research & Content at Insurance Nexus (email@example.com)