Simplicity can be a gold mine for insurers. Conditioned by excellent customer experiences in more forward-thinking verticals, consumers want insurance products they can easily understand, buy and use.
Disruptive insurtechs and innovative incumbents that can harness the technology required to satisfy this demand are raking in huge revenues, and will continue to do so in the coming years.
Insurance is overdue for digital transformation — now is the time to innovate.
Globally, insurtech revenue hit $5.48 billion in 2019, and experts predict it will rise to $10.14 billion by 2025. To capture a share of all this value from their tech-led competitors, smart insurers have chief innovation officers leading their digital transformation initiatives. The savviest of the bunch also have in-house or external teams that can develop, distribute and iterate solutions that deliver the first-rate experience customers demand.
“Disruption” has become a shopworn term across multiple industries — but insurance is not one of them. Not only are most incumbent insurers lacking innovation, regulators make it hard for them to experiment. Under these constraints, it seems as though major insurance companies can only digitize their existing businesses for short-term value creation, which is like bringing a penknife to a gunfight — insurers that don’t use digital tech effectively aren’t going to last long.
There’s a lot to unpack when it comes to all the opportunities today’s leading tech trends are making available to your company. We could write a book on digital transformation in insurance, but for now, we’d like to give you a rundown on innovation in this industry — why your company needs it; what the top technological trends are; and how you can innovate efficiently, cost-effectively and profitably.
Why Insurers Need Digital Transformation
Everything starts at the end — the end-customer, that is. Therefore, to ensure a fast, sizable return on your company’s innovation spend, you need to deliver a great customer experience across every touchpoint. The technology that will give you the opportunity to compete with new insurtech entrants and fast-moving incumbents is readily available to your company.
As great as this sounds, trending tech is only as good as the solutions your company can build with it. Insurers with resources that can develop, launch, iterate and scale insurance innovations may have a bit of a head start. If your company lacks such resources, you have options that will enable you to catch up with, or overtake, those that have them. This means doing more than process optimization. Instead, you must innovate your business on a large scale and offer digital products built according to quantitative and qualitative market analysis.
A 2020 Deloitte survey indicates that American consumers are interested in “capability upgrades empowering them to adjust price and coverage, reflecting changing needs and usage. In addition, a significant proportion appeared open to far less traditional coverage concepts.” Younger generations are looking for virtual engagement with insurers, along with DIY apps and “alternative coverage models.
Digital transformation benefits the entire insurance value chain.
Insurers that are currently offering digital products are seeing benefits across the insurance value chain. For example, these companies can now collect richer, more actionable data than ever, providing them with more precise insights into emerging risks like cybercrime and macro risks like climate change. Their innovations are ramping up the speed and efficiency of several stages of the customer journey, including distribution, underwriting, policy administration and claims handling.
Fast, user-friendly insurance products are not only giving customers what they want, they’re also enabling insurers to become more nimble and consumer-centric.
One of the hottest new products on the insurance market, parametric insurance, is delivering benefits to insurers and the insured alike. Using flood damage as an example, customers receive payouts once the water level hits an agreed-upon threshold, even if there was no actual damage. This enables the insurer to predict losses and set corresponding rates more easily; at the same time, insurers pay less for coverage and receive faster payouts.
Parametric insurance products also enable insurers to:
Protect themselves against economic losses and provide liquidity through pre-defined payouts.
Create offers for scenarios that limit or don’t allow for traditional coverage (such as flight delay insurance).
Eliminate pricing risk based on customer assets — nobody buys products that are too high for the market, such as traditional flood insurance in high-risk regions
Assist recovery through fast payouts following a natural catastrophe, unlike expensive claims-based insurance that is slow to pay and typically includes a high deductible.
Ignoring innovation is a serious risk to insurers.
Tech-savvy players from inside and outside the insurance vertical are the greatest threat to insurers that can’t digitize their businesses effectively. The customer experiences in industries such as retail and finance have shaped market expectations in such a way that insurers that can’t satisfy or surpass them will eventually lose market share to their more nimble and customer-centric competitors.
Bearing this risk in mind, investing in transformative technology and resources should be a no-brainer for any insurance company. A recent Gartner study indicates otherwise — 48% of surveyed insurers state that while “customer experience (CX) technologies play a key role in their recovery, only 26% are deploying or increasing their CX technologies investments post-COVID-19.”
Your company now has the opportunity to outpace the 74% that are willing to risk taking a customer satisfaction hit, which has a double negative impact — increased customer churn and lost recurring revenue. The right CIO, tech and innovation team can build products that enable your company to provide an omnichannel experience so simple and swift it not only eliminates the risk of lost revenues, it also has the potential to leave your slower-moving competitors in the dust.
Jan Beránek is chief executive officer and founder for U+, a leading global digital innovation company, specializing in corporate research and development, building and launching corporate and startup innovations. He may be contacted at [email protected].