10 Trends that Insurers Can Leverage to Gain Competitive Advantage
Do you want to have a bigger market share and get ahead of your competitors? Do you want to gain a competitive advantage and leverage the latest technology and insurance industry trends? If yes, keep reading to get to know the latest insurance trends from where you can gain a competitive advantage.
According to EY’s Global insurance trends analysis, 2018 insurers spent 2.3 billion USD on technology-enabled innovation by investing in InsureTech companies. This seems like a lot of money. Until it is compared to the 202 billion USD total IT Spending of the Insurance industry, as stated in a survey called “IT spending of insurance companies worldwide by region from 2013 to 2018 (in billion U.S. dollars)” published by statista.com.
A little over 1% on technological innovation seems unreasonably shy for a technology-intensive industry such as Insurance. And there is a good reason for this: insurers are pushed to constantly improve and reengineer their IT systems to be compliant, competitive or just to stay in the game.
“Compliance kills technological innovation in insurance.”
Metodi Amov | Marketing Director | ScaleFocus
Following are our top 10 trends, which we believe can help you gain a competitive advantage in Insurance.
1. Cyber Security
Insurance is a strictly-regulated data and risk-driven business. Insurers manage vast amounts of data and spend billions to protect it. At the same time, there is an increasing demand from clients to ensure the safety of their digital operations and data.
The cybersecurity insurance market is expected to reach $20.72 billion USD by 2024, registering a CAGR of 24.3%, during the forecast period from 2019 to 2024. The rise in cyber data breaches and increasing adoption of cloud-based services are a few factors driving the growth of cybersecurity insurance market.
Do you remember what happened in 2017? Ransom-ware attacks such as NotPetya and WannaCry shook the entire world! The global average cost of the data breach from those attacks back then was USD 3.6 million. Therefore, Insurance Companies may face the same risks as their clients very often.
System changes due to digitalization and tightening regulation increase the possible impact of a cyber-security incident on insurance operations to a scary magnitude, especially if the insurer has not found the right security implementation partner. But this also has a bright side. Today, insurers are in a position to capitalize on their advanced knowledge of cyber security in order to:
- properly define the cyber security risk they underwrite,
- advise their clients on risk-prevention measures that both improve their security and decrease their insurance premium,
- partner with providers of cyber security products and services for their own needs and the benefit of their clients.
“A robust cybersecurity insurance market could help reduce the number of successful cyber attacks by:
(1) promoting the adoption of preventative measures in return for more coverage; and
(2) encouraging the implementation of best practices by basing premiums on an insured’s level of self-protection.”
Adopting and Implementing the best cyber security practices, combined with a solid strategy and processes are only the beginning; a good starting point to protect your organization and your customers. Having these strong foundations will allow you to upgrade your legacy systems with modern Cloud-Based or another Hybrid solution safely. Make sure you plan upfront initiatives like Artificial Intelligence, IoT, Machine Learning and other Automations to beat your competitors.
2. Dynamic Coverage
As with every service, insurance companies’ clients are generally happier if they feel a personal touch. Proper segmentation is a proven way to attract good risks and deter unwanted ones.
Increasing competition has pushed insurers to be more inventive and add the dimension of time to segmentation equation. For example, some insurance companies offer on-demand insurance or a dynamic list of covered risks within the duration of the contract.
But why stop here? The most common answer is that the more dynamic contracts you issue, the harder it is for you to control the process and prevent fraud.
Some insurance companies mitigate the risk of dynamic coverage by having their clients agree to share real-time data. For example, some insurers are taking advantage of publicly-available (e.g. satellite) data. Generally public and personal data trends are on the rise. By 2025, the world will have 1.2 billion 5G connections, and 4G will reach 5 billion connections, according to the GSM Association, a global trade association of mobile telecommunication operators. Moreover, there are some current projections that claim that by 2020 connected devices across the Globe will rise from 7 billion today, up to 25 – 30 billion then.
As useful as these data measures are, they are only reactive. Real-time data-processing will enable you to identify new uninsured risks and protect your clients even further. Plus, to add new dimensions to the dynamics of the coverage once the data (and results from data-processing) allows it.
3. Operational Efficiency
How much does your insurance company invest in operational efficiency? In a recently completed survey by KPMG and ACORD, 94% by the respondents claim that they are actively working on improving operational efficiency, but 55% claim that they are way behind targets. In addition, most respondents reported only limited integration of their technology platforms across functions, including underwriting, distribution and product operations – functional areas to achieving operational efficiency.
Simplification, Usability, Business Intelligence, Robotic Process Automation, Machine Learning, Artificial Intelligence and even more. All these efforts and solutions are usually facing inwards, aiming to improve control or reduce headcount within the company. In some cases, they are also aimed at intermediaries and B2B partners.
But what about your clients?
In a report by EY, the global middle class will grow rapidly over the next 20 years. This means that it could easily constitute 50% of the world’s population by 2030. And to increase your market penetration you need to offer simple yet innovative product offerings. Your solutions need to be easily understood by customers easy for agents or intermediaries to sell and last but not least, to provide real value for your clients.
Here are more questions to think about:
- Are you reusing your investment to engage your clients on new levels? Tech-savvy clients are fascinated to have online access to information about their products and happily use self-service tools.
- Are you promoting your company as an efficient organization? And most importantly, do your clients feel like contributors to your operational efficiency? Digital engagement tools can help your company engage clients further and improve their loyalty.
4. Client Centricity & Customer Engagement
This is old, but with significant impact to any business including the customer-oriented insurance industry. Very few insurers have survived without it. Client centricity, customer obsession, customer engagement, call it what you like, but unless the number of your happy clients is close to the number of your employees, your insurance business needs to automate much of the processing of client data.
According to the article of Andrew Kucheriavy from Forbes, to determine whether you are changing the insurance industry for the better or you are from the wrong side of the equation, you need to ask yourself the following questions:
- Do you rely on data, research and analytics for a consistent, holistic view of your customers?
- Do you apply customer-centric design principles by putting customers first and getting customer feedback upfront?
- Do you make unbiased, objective decisions that are not influenced by your opinion or the opinions of stakeholders?
If your answer is “no” to any of these questions, you need to consider outside help. Technology is the key that can give you a competitive advantage and position your company as an industry disruptor.
How to get there?
Artificial Intelligence (AI), Robotic Process Automation, such as the use of Chatbots, and Big Data analytics can be used to better understand your customers and let them have what they want. Omnichannel outreach and the Internet of Things (IoT) are the next set of weapons in your arsenal. With this know-how and proven experts by your side, you can conquer and disrupt the industry. You just need to imply the customer-centric approach in your day to day business activities.
Do not forget data regulations and GDPR in particular
The GDPR created good momentum, awareness of personal data and its use was raised to higher levels in all insurers operating in the EU. From enhancing the customer experience to preventing fraud, insurance companies now have their hands full. But there are very good solutions for these challenges. Good data management is a common factor among insurers that are successful in taking on each new challenge. It is now significantly easier to implement tools to process your data for the purpose of improving customer experience.
Today, most insurers have CRMs that provide a (nearly) 360-degree view of the client. If you don’t put this on the top of your systems for implementation list. Some even manage to track all client interactions and analyze them. And there are those that go beyond, trying to predict the needs of their clients or creating new products based on client behavior. You just need to follow all compliance regulations and analyze your data and invest in a personalized, efficient and consistent customer experience to have a bigger impact on customer loyalty and brand value.
5. Loss Prevention & Monitoring
The insurance industry is moving from pure risk-distribution to a combination of risk-distribution and risk-prevention. This is a win-win situation, where both insurers and clients reduce their costs.
Processing data from connected devices and public sources has its application in risk-prevention as well. An estimation from the research and advisory company Gartner, assess that there will be an average of 500 smart devices in the average home by 2022. This data can be valuable for early warning, decreasing the total loss and accurate assessment of the damage. In other words, there will be almost endless opportunities for insurers to monitor and prevent loss.
According to EY, 266 million wearables were sold in 2016 and their number will grow to 500 million in 2021. They can be used not only to monitor clients’ health, but also to warn of health risks. Satellite data in combination with the geolocation of clients’ smartphones can be used to warn of approaching floods or forest fires. And speaking of clients’ smartphones, they can be the insurer’s eyes and ears on site during the event and when damages need to be assessed. It is clients that invest in smartphones, not insurers, and it would be very smart to use this opportunity to improve the services and reduce their cost.
6. Distributed Ledgers
Distributed ledgers can be a disruptor in the way interaction is validated. The concept was tried in many different areas with most maturity in the field of cryptocurrency. It is relatively inexpensive to invest in distributed-ledger technology and it has a positive effect on the image of any company because of the hype. Some tech companies offer white-label products to corporations who want to include blockchain in their services or product portfolio in any way.
If one goes any deeper than the public image, however, it becomes rather obvious that there is a little tangible benefit (if any) to the company. And it has nothing to do with how clever or innovative your solution is. It is all about popularity: the distributed ledgers don’t work well unless they are well distributed. As insurer you need a vast ecosystem of users – clients or intermediaries – who are stimulated to use a distributed-ledger, to really leverage the technology.
So, can you really gain a competitive advantage via distributed ledgers? Yes, when a solid ecosystem is created. The best you can do now is to keep an ear to the ground and not overinvest in image-boosting solutions.
7. Fraud Detection & Prevention
The volume of Insurance Fraud is unknown and hard to estimate, and this ambiguity has turned it into a scary concept. Insurance, however, is a business of tackling ambiguity, and insurers should not be easily scared.
Most insurance fraud-detection solutions process data and produce risk-ratings to specific cases. Some of the tools and methods are similar to what your actuarial team does on a daily basis. You may choose to develop your own fraud-detection solution(s) employing the IT and Actuarial teams or buy a solution from the big names in fraud-detection. The difference is the time to reach maturity and Return on Investment(ROI). What is most important, though is not the difference, but the similarity: the source data. Any actuary and any vendor of fraud-detection solutions will tell you that the more data your company is able to feed into the models, the better chance there is to detect real fraud.
According to the Insurance Information Institute, insurance companies lost over $34 billion in 2017 on fraudulent insurance claims, in the USA alone. To enable real-time fraud detection, over 60% of insurers utilize automated fraud detection software. To prevent fraud, you can implement the following 6 steps:
- IMPLEMENT A FOUNDATIONAL FRAMEWORK (Create a fraud-detection strategy)
- KNOW THE RELATIVE LEVEL OF FRAUD POTENTIAL (Know the relative level of fraud potential for every type of claim you receive)
- USE DATA ANALYTICS TO DETECT FRAUD (Use “Suspicion Score,” to evaluate the propensity of a fraud)
- REVIEW AND RESCORE CLAIMS CONSTANTLY (Claims should be continuously monitored for fraud potential)
- ADOPT A LAYERED APPROACH (Use the latest technologies and tools to detect frauds)
- REVISE BASED ON MARKET CONDITIONS (Keep your claims staff aware of the type of market conditions the policyholders are facing so the staff can be on the lookout for new and inventive fraud attempts that may be unknown to the software in place)
It is worth checking if your company stores electronically all processed data, e. g. the geolocation of events, the names of the employees and proprietors of your partners (both in sales and claims management), details of all parties in lawsuits, etc. If it does, congratulations! Your company has good grounds to implement fraud-detection models.
However, if only the “important” data (i. e. amounts) make it into the systems and all else remains on paper, even the most mature and efficient models will have limited effect.
8. Process Automation
ROI of process automation does not only come from direct PerEx-reduction. Indirect effects can have even greater return: prevention of human error and fraud, improvement of client service, process simplification, the ability to integrate with external partners, etc. Unless your company is a high-margin niche player, it has probably survived and thrived on the markets thanks to constant efforts to automate.
So, what is new? If insurers constantly automate and simplify and digitalize, what more can be done now? And the answer is, more of the same at a fraction of the cost.
The simplest and most obvious tool here is Robot Process Automation (RPA). It offers two great advantages:
- Little to no investment needed: running systems don’t have to be replaced, upgraded or further integrated,
- Speed: RPA can be deployed quickly, and it will produce value almost immediately after deployment.
RPA is great, but it is limited to repetitive tasks where human judgment is not needed. Data – that is a key component in almost every item in this article – can be used as input for scoring, complex analytics or quasi-AI functionalities to support and augment human judgment. Think of a Clinical decision support system based on your data, your process, and your unique know-how. Or – if you tweak it a bit – on the vision of the company you want to become.
9. InsureTech Models & Solutions
Startups are a major source of innovation in every industry. They take the risk of failure for the big fish, of course – at a premium. There are countless examples of InsureTech models and initiatives, some more successful than others. InsureTech models can be clustered around the following few major themes:
- Peer to Peer Insurance (p2p)
- Blockchain technologies
- Concierge Distribution
- Insurance on Demand
- Machine Learning, Artificial Intelligence, and Big Data
- Wholehearted Digitization
The two classic ways to collaborate are either to partner with a startup, sharing the risk of failure, or go for a more mature and proven solution, paying a higher premium. Look to your local business accelerators, angel-investment funds and the like for immature startups that you can support with industry knowledge.
If you are more in a hurry, check out the numerous InsureTech events where you can choose from more mature solutions. Or, if you feel big enough, you can create your own innovation environment and have them come to you.
The question is “Why would you?”. Why would you need unorthodox new ideas for a business that has been perfected in the course of millennia? The most relevant answer seems to be “To improve penetration”. According to EY’s report, mentioned at the beginning of this article, Insurance penetration worldwide is 6.3%. There are even more interesting statistics. For example, Global average Life Insurance penetration for 2016 was 3.5% and emerging markets remain under-penetrated. The global average Non-life insurance penetration for 2016 was 2.8% and the US remains the dominant market. More interesting statistics, find here.
Integrations with third party institutions like regulators and business partners already is a must. Google Maps and other Geolocation platforms, GPS Tracking, Payment Gateways, Billing Systems, and CRMs, are only a fraction from today’s endless integration modules. New opportunities come up every day and it wouldn’t be wise not to consider them.
Let’s split them into 3 groups:
a) Top-line boosters
The slogan “Location, Location, Location” is not a thing of the past. What’s relatively new is that most locations are now online. The more you collaborate and expand your network with sales-partners, the better the chance to increase your sales. And those may vary from the usual brokers and banks to retailers that package insurance into their offerings, to new startups that have a cool idea but need an actual insurer to carry the risk. An example of this is
b) Third Party Integrations
Servicing the portfolio can be a pleasant or frustrating experience for both sides, Clients and Insurers. Integrations with instant messaging platforms and payment providers is a good start. If you turn back to the previous 9 paragraphs, you can find even more ways to improve the customer experience with your insurance company by integrating with an external service in each of them.
c) Efficiency improvement
I doubt that it needs an explanation, but a well-integrated system landscape is a key to efficiency. Replacing legacy systems and solutions that cannot meet the latest industry standards and can’t be integrated well with third-party providers is a must. If you don’t act accordingly you risk losing your market share, and sooner or later go far behind your competitors. This is why efficiency improvement should be included in your daily tasks.
To keep your market share or to gain a competitive advantage you need to consider and implement some or all of the above-mentioned tools and technologies. Investing in Cyber Security, Third Party Integrations, IoT, Artificial Intelligence and Big Data is a must. This will put strong foundations to the Customer-Centric transformation of your Insurance Company and give you many opportunities to develop new disruptive marketing strategies to engage with your customers. Implementing Fraud Protection systems, Robotic Process Automation, and investing in new business models like P2P Insurance, Blockchain or Insurance on Demand, will also give you a competitive advantage.
And do not forget that the best time to start your InsureTech journey was yesterday. The next best moment to start is today! Therefore, you need to act as fast as possible. If you don’t have the expertise in-house or you are already late, but you want to complete your targets in time, you can give us a call or fill in the form below. We will be happy to get in touch and discuss the best solutions for your needs. Our experienced software engineers will assist you to meet your targets and create disruptive services and solutions.