The insurance industry has been under pressure in the past couple of years. Given the success and increasing ubiquity of technology, companies are compelled to revamp their strategy to keep up with the challenges lying ahead.
Introduction
The insurance industry has been under pressure in the past couple of years. Given the success and increasing ubiquity of technology, companies are compelled to revamp their strategy to keep up with the challenges lying ahead. Compliance, regulatory, and legal functions are pushing the insurance industry to do more with less, without compromising on value. On a global level, regulators are mostly concerned with ensuring data privacy protection because it is the only way to mitigate the risks associated with incorrect data collection, storage, use, and handling, but on the other side give back control over personal data to consumers.
As for the actual challenges, the main one has to do with InsurTechs seeking to disrupt current regulatory frameworks. Rather than compete with digital natives or blocking them from their own ecosystem, a better option would be to collaborate with them; to partner up and benefit from the digital opportunities they can provide in sectors such as sales, underwriting, operations or claims management.
Technology has proven its ability to completely reframe insurance as we know it. Access to massive data amounts from telematics, wearables, and additional smart devices are widely used to alter business decisions. Change is inevitable, and for insurers to grow their customer base, collaborating with FinTechs and InsurTechs will enable them to preserve a competitive advantage. With 96% of insurers convinced that digital ecosystems are impacting the industry, legacy business models face the risk of being uncompetitive due to the rise of new services and connected technologies.
Insurance 2.0: InsurTechs to the rescue
Insurance companies are well-aware that the FinTech revolution is here to stay. According to a PwC study, 74% of insurers acknowledge that innovation is challenging their business. While 43% claim they’ve already implemented at least one form of FinTech solution into their corporate strategy, only 28% have sealed partnerships with a FinTech company.
The end goal of an InsurTech is not to compete with traditional insurers but to collaborate, offering them innovative digital solutions to help preserve a competitive advantage. InsurTechs alone, can’t get new customers in a world dominated by strict rules and regulations, as well as big industry players like Allianz, AXA, ING, MetLife, and others. As digital transformation picks up speed, insurers are realizing that digitalization cannot be overlooked. Allianz’s Digital Accelerator and Digital Labs are living proof that InsurTech is the answer to revamping a product-led industry.
Throughout the years, insurance has proven to be fairly resistant to change. With the advent of technology, a growing number of tech startups attracted an estimated $1.7 billion in investment. Unlike traditional companies, InsurTechs abide by the laws of service customizations, speed, and efficiency to meet the digital needs of the modern customer. For instance, to get deeper data insights, Tractable uses AI to disrupt the way car insurers handle accident claims and disaster recovery. The startup assesses real-time photos to predict repair costs and assess the damage, and the whole process takes minutes not days.
In Germany, Friendsurance has a monopoly over the InsurTech landscape; a P2P digital insurance platform that realized in 2017 it couldn’t compete with legacy companies. As a consequence, Friendsurance pioneered an additional business segment; digital bancassurance, whose purpose is to digitize insurance services belonging to banks and insurance companies in Germany like Deutsche Bank and R+V Versicherung.
Key takeaway: Thus far, Insurtechs haven’t managed to develop stand-alone business models. Their strategy is not to assume capital-intensive and heavily regulated risk or underwriting ownership responsibilities, but to provide value-added services that could benefit traditional insurers open to digital transformation, customer-centricity, retention and monetization of customer relationships. There are exceptions, though. US-based Lemonade seeks to become a global disruptor with its value proposition of using AI, machine learning, and bots to replace bureaucracy and brokers.
Untangling the digitalization journey
Online claims management and online insurance distribution - two of the most important milestones in the history of insurance - came to the rescue in the hopes of digitizing processes and streamlining operations. However, online insurance distributors act as intermediaries. They don’t own the customer, they merely bridge the gap between claim handling and a customer’s connection with the insurance company.
How tech giants can disrupt insurance
Rather than fear that InsurTechs will become more regulated and replace corporations like ING, Generali, or Allianz, the focus should be on the big tech players: Amazon, Google, and Alibaba. Amazon, for example, has the upper hand because of its distribution expertise. It can afford to onboard traditional insurance companies and charge them a huge fee in exchange for new customers.
Global insurer Liberty Mutual closed a partnership with smart lock manufacturer August Home to provide customers a value-added service in the form of $100 discounts on August Home locks along with a 5% discount on home insurance. Amazon could just as easily leverage its position as an e-commerce retailer to become a major insurance distributor. Prime customers seeking a convenient insurance offering for their products purchased on Amazon would find the offering highly attractive.
Customer-centricity: the key to becoming a “life coach” for the insured
Big insurance companies don't have an income issue; they have a cost issue. They could make much more money should they choose to pay closer attention to the needs of their customers. Just like in banking, their focus used to be on the product and the risk and not on the customer. As a consequence, they developed a product-led technology whose purpose was to act as an “emergency manager” when something happened.
A notable paradigm shift started when big data analytics and AI entered the scene to put pressure on incumbent insurance companies, compelling them to rework every aspect of their business model. The future of insurance is inevitably linked to digital, seamless delivery ruled by powerful analytics. Rather than be useful in emergency situations, InsurTechs are more like eye-openers for insurers eager to digitize and become customer-centric.
Key takeaway: Increasingly more insurance companies no longer wish to act as a low-touch “emergency” manager but as a “life partner” to their end-customers. They no longer want to connect when something happens. They want to be there to prevent things from happening to reduce risk costs. And the way they do it: by becoming an ally via value-added services.
Value-added services: It’s time to build long lasting relationships
Value-added services are mainly triggered by changes in supply and demand. On the demand side, insurers need to become more customer-centric with their products and services. Customers are now more demanding than ever; they’re the ones defining the value. Due to digitalization, they have expectations and companies are compelled to interact more, meet them fast and at the most competitive rates.
On the supply side, advanced analytics and connected technologies make it possible for insurers to drive accurate insights and build a long lasting relationship with customers. Via wearables, home sensors, fitness bands, or opportunities arising from open banking they can gather data in real-time on risk exposure. This way, insurers can provide value-added services throughout the customer lifecycle and not only when the customer has an emergency.
The risk of changing insurers because of a lower price package will eventually decrease. If an insurer is capable of providing added value and hence build more touchpoints, customers will look beyond cost. This is where ETVAS comes in.
ETVAS for insurance
Today, every single insurer must go through the same process to offer end-customers value-added services. The time an insurance company must spend today on search, legal contract negotiation and integration of extra-services is often up to 18 months. With our digital marketplace for Value-Added Services, there is only the choice of the right services and a go-live is done 10x faster. The outcome of using the ETVAS marketplace:
- Easy transition from emergency manager to life coach for better customer acquisition and retention. Activate online in minutes relevant services for your end customers from our service catalog. Enhance your offer every week as new services and providers become available.
- Revenue and margins up! Offering extra-services at the right time, place and price helps you monetize your customer base.
- Costs down! In a fragmented market, sourcing value-added services take time and money. Technically, integration is challenging & expensive. ETVAS is an umbrella marketplace where all services are readily available in one place. Get started in days, instead of months or years.
- Customer experience for the end-user is greatly simplified with a single login and one payment for all service providers. Either by using the white-labeled mobile-first portal or our APIs and SDKs to give your end customers access to a world of services via your online members area with just a few clicks.
Final thoughts
Most insurance packages offered by the top market players are comparable. In general, customers go with the cheapest offering because there’s no one to convince them otherwise. They choose, they pay, and they wait for something urgent to happen to file a claim. The lack of service personalization and customization in insurance has led to a competition on price with downward price spiral, expected to speed up with Digital Giants entering the scene. While InsurTechs can’t work alone (due to the strict regulations), legacy insurers can’t afford to ignore them (because they hold the tech to help them thrive).