The insurance sector is facing significant waves of disruption. Pressure for insurers to change is opening up new ways of doing business and serving customers.
The insurance sector is facing significant waves of disruption. Important decisions about market positioning, ecosystem relationships, technology investment and skills requirements need to be taken.
Key drivers of change include the changing nature of risk. Many risks are now too complex to fit into the insurance industry’s traditional lines of business structure. It’s estimated that only about 10% of market risk is currently insured. Liabilities are also shifting – for example, from owners of vehicles or devices to manufacturers of autonomous vehicles. Insurers need to be able to provide long-term coverage that reflects this rapidly evolving world.
Pressure for insurers to change is heightened by advances in technology opening up new ways of doing business and serving customers. Digital connectivity across the ecosystem of insurers, brokers, reinsurers and clients – and the growth in data – is creating opportunities to improve efficiency and effectiveness. This is enabling organizations to look differently at their product sets and how they deliver them.
Disruption is also coming from changing customer expectations. People’s experiences of leading IT companies, social media networks and search engines have given them a taste for simple, intuitive and frictionless interactions. That’s increasingly what they now expect from their insurer too – when buying policies and making claims.
Technology holds the key
Technology is key to helping insurance companies not only respond, but also take forward-looking strategic decisions about their business models. Traditional transactional models can be replaced by more relationship-based approaches.
Insurers need to invest in technology – such as robotic process automation and digitization – to give personal lines customers the automated, straight-through, low-touch digital experience they seek. Customers want to be able to use the channel of their choice and to move seamlessly across them. The same applies in the SME end of commercial lines insurance. For more complex commercial lines, technology will be needed to support individual underwriting and global risk-transfer mechanisms.
The challenge all insurers face is how to create joined-up processes to enable seamless customer experiences when working with different legacy systems. The need for a modern platform is becoming increasingly obvious. Digitizing legacy doesn’t work. Rather than replicating the past, insurance firms need to adopt a “digital first” mindset – understanding what their customers demand and then designing a digital solution. The starting point is to define the desired customer experience, then flow that through into the redesigned processes that support the organization.
Specific technology in focus
Robotic process automation and digital assistance chatbots have been used by insurers for some years now, and the benefits are being felt. Cloud-based technologies or blockchain could bring new future benefits, and a number of use cases have been developed. At EY, we’ve invested in creating Insurwave – a blockchain platform which can be used to establish smart contracts. This can take out a number of frictional administration costs in the current insurance and reinsurance process environment.
Future developments could transform the insurance sector. If blockchain and other technologies provide real-time exposure data to all parties, the sector could move toward continuous contracts. This would represent a fundamental change to the annual cycle of today’s marketplace. Underwriters could use the availability of mass data to develop much more granular and bespoke underwriting capability. If the sector develops smart contracts with embedded controls and pricing, the need to refer to paper-based information or individually held data will evaporate – creating a more seamless experience for all parties. Effectiveness could rise, while costs could fall.
Individual journeys – with a claims focus
There is no one-size fits all solution for insurers when thinking about how to respond to the disruptive forces of today and tomorrow. With digitization too, no journey is the same. Organizations have different starting points, based on their products, market positioning and maturity.
However, for many insurers, focusing on the claims function offers significant benefits. The claims function is the insurer’s “shop window” – the quality of service delivered there will influence perceptions of the business and brand as a whole. For this reason, creating a “smart claims” function must be a priority. Insurers can use data and technology to re-imagine the claims process – to an extent where perhaps 60% of claims could be handled digitally. For other more complex claims, claims handlers could be supported by artificial intelligence and digital dashboards to make faster decisions on claims passed through to them.
Claims functions could also have a more preventative role than they do now, enabled by the use of leakbots or sensors in cars. In effect, insurers have the opportunity to work with customers to help prevent losses, rather than simply pay for them.
Investment and skills challenges
Digitization, developing new technology solutions and redesigning processes requires substantial resources. The need to invest is significant – but so is the need to generate profitable returns on that investment for shareholders. There is a tension here that insurers need to manage.
There are also challenges around the skills and capabilities that insurers will need in future as they develop new operating models and more automated processes. In claims functions, for example, some roles will require more highly-skilled individuals with stronger analytical ability as more routine tasks are automated.
Some skills will be in high demand. Insurers will need to consider how to obtain the new capabilities they require. It may be that not all skills need to be recruited in and then retained in-house. Some could perhaps be accessed through joint ventures or partnerships with other insurers or third parties. Insurers will need to think through the options most appropriate for their preferred operating models.
What does the future hold?
The future landscape will be shaped by further consolidation in the insurance sector. Looking ahead five or 10 years, we could see a more segmented insurance market made up of larger players. There could also be room for some highly bespoke firms focused on particular market segments.
We could also see the development of global ecosystems grouped around broad sectors such as retail, travel, mobility, health and wellbeing – where insurers work together with other entities and joint ventures to create more integrated services and products that bring them even closer to their customers. Individual insurers will need to decide where they want to position themselves. For example, they could choose to provide a platform within that ecosystem or provide products or services for it.
While insurers are experimenting with technology, data analytics and predictive analytics, so are regulators. They too could use similar tools to gain a more granular and insightful view of the marketplace, and potentially move towards a more preventative model around risk, rather than a retrospective one.
What’s clear is that change is coming. Insurers have the opportunity to build competitive advantage by anticipating future disruption and the opportunities that accompany it – using technology in combination with human capabilities to develop customer-focused, efficient and effective operations.
[Future blogs in this series will address how to tackle prevalent myths that impede the development of a smart claims function and valuable claims analytics capability. We’ll also consider what news skills and capabilities will be required in the smart claims function of the future.]