Insurance isn’t a product you want – it’s a product you need. It helps you cover risks you don’t want to take, and it is low interest. Yet, what would it mean if sensors were to minimize the risk of you getting into a car accident? What about in your house, where sensors will protect you against fire and water damage? What if sensors in your smartphone and on your body could assess and control your wellness and vital signs on a permanent basis? This would certainly impact the amount of insurance you need, and premiums would be affected accordingly. Yet, this isn’t a story of the future. It’s in the works right now, and it will shake up the insurance industry.
People will be able to control their risks in a much better way, and this of course means less income for insurance companies. It also means that the actuarial science that determines the pricing of products will be revolutionized. Google’s self-driving car, the Nest thermostat and an array of wearables such as Fitbit and Scanadu Scout are already in the market. Insurance as we know it is going to change forever.
The challenges facing the insurance industry
Before the sensors (or better actionable insight retrieved from them) will have a permanent impact on how customers deal with their risks, and how products are priced, insurers have other challenges to deal with. These are:
Regulations – Management is preoccupied with regulatory initiatives who are geared towards greater transparency with customers, changes to distributor relationships and increased governance and oversight over products. Moreover, the Implementation of Solvency II absorbs too many resources who cannot work on digital transformation instead.
Markets development – In Europe, life insurance markets have dried up due to mis-selling and tighter regulations and fewer tax advantages. Investment products wrapped in life insurance have too high a cost structure compared with asset management products offered by banks. Life insurance companies have fewer new premium inflows in many countries and have become more dependent on their yield on investments (a problem in itself). Property and casualty (P&C) markets have become price-driven marketplaces with increasingly direct distribution, and are greatly influenced by the unpredictable behavior of Mother Nature in the form of El Niño et al.
Digital savvy customers – The mobile movement is ‘spoiling’ customers. Smartphones and tablets make it possible for customers to connect directly via self-service, and at a time and place convenient for them. Insurance companies need to respond accordingly to service their customers in this way. The demographic group of Millennials will be the driving force behind this, and will demand greater transparency and lower costs/higher returns regarding their insurance products.
Sales and distribution – The ongoing commoditization of products stresses the importance of choice and price, and therefore the role of the internet. Finance searches and financial transactions are happening more on mobile. Conversion rates are 58% higher on mobile than on desktops (according Google research). Furthermore, mobile searches for financial terms related to mortgages, credit cards, loans, and life insurance are growing 48% year on year. Comparison websites are becoming increasingly important in guiding people to the right product.
Service and systems – Many insurance companies don’t have the capability to have a 360-degree customer view. If you combine this with those rare moments when customers approach insurers (most of the time on stressful events such as a claim), the majority of insurers fail to deliver a pleasant customer experience due to their siloed systems and lack of contextual information. Moreover, too many insurers hide their phone number in a far corner of their website to avoid talking to customers because it’s deemed too expensive. Can you believe this?!
What does it mean for insurance companies?
In a previous blog, I wrote about how banks need to become responsive, and the same goes for insurers. Becoming ‘responsive’ means:
Design the customer experience seamlessly around its customers, providing them with the right product or service at the right time through the right channel, be it digital or physical.
The best in class regarding customer experience for many years is the insurance company USAA (US). Its focus is on delivering a consistent, compelling customer experience at ‘the moment of truth’; you need to know your customer at relevant events, proactively advising them on how to deal with their risks and handle their claims frictionless. Insurers need to find the right balance between the digital customer experience and digital operational excellence and fulfillment (it doesn’t make sense to make changes in your front office if those changes are not supported by the right workflow and supporting systems in your mid/back office).
What insurers should do
Your competition isn’t simply other insurance companies. The competition is actually time! Speed is the new currency to survive, and to become responsive. Here a few things insurance companies should do:
Innovate or die – Start your learning curve with sensors and the related area of big data, which will provide insights into your customers and their associated risks. Think like a startup, which always has compelling customer experiences as its foundation before launching a minimum viable product and testing it in the market. The agility of your employees makes innovation happen. You must make the crew agile by creating a sense of urgency for change, while at the same time removing fear of change. In a previous blog about agile innovation, I showed you what it means and what you should do. Harness technology to the max and look for relevant fintech ventures that can accelerate the pace of innovation. Insurers such as Allianz and Aegon are setting up different investment funds to stimulate innovation. Other insurers, such as Generali, appoint chief innovation officers (CIOs) to generate more speed.
Create moments of engagement – With mobile and tablet use growing exponentially, neglecting mobile is akin to turning one’s back on the future when it comes to products and services. Learn from the way we do business in social media, recognizing its value as a relatively inexpensive marketing tool and a means to engage with and influence skeptical, digitally savvy younger consumers. Build communities with 360-degree customer viewpoints and create an awesome, proactive customer experience at the moment of truth. This is like the Dutch comparison website Independer, which proactively offers customers better deals (if there are any) weeks before a policy expiration. Invest in partnership with banks, since they have more frequent ‘moments’ with customers.
Be obsessed about your customer – Insurance is all about knowing your customer and their risks. Retaining existing customers is an increasing necessity and success should be measured by any improvement in the customer experience, digitally enabled or otherwise. It is imperative that you should start unlocking big data and retrieve actionable insights
Invest in self-service and collaborative advice – Empowered customers like to do their small insurance tasks in a convenient time and place that you should facilitate via adequate self-service capabilities. It saves money, but more importantly it enhances the customer experience. If you work via brokers or agents, support them via tablets, just as Aegon is doing in Turkey, or the Israeli insurer Migdal with supporting its agents with smartphones.
Use standard technology – The only way to keep up with the pace of innovation is to embrace the cloud and standard off-the-shelf IT solution. Think mobile first, or even better think tablets, as they are useful as productivity tools in co-advice situations with the broker channel, as well as being effective with the end-user. Companies such as Salesforce can facilitate engaging insurance formulae based on one scalable platform in the cloud, and in record development time.
Insurance will remain a low interest product for your customers, but you need to adjust your company to the digital state and do it fast. If you know your customer well, it’s the best way to retain them by having meaningful engagements at their moment of need, assessing their risks properly. Good luck on this journey and let me know if you need some help, or what your thoughts are.