October 9, 2018

9 Emerging Trends That Will Transform the Insurance Industry Until 2020

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The competition in the insurance industry is intensifying as markets evolve, existing players strive to innovate, and new ones enter the market, including ones that distribute only online or through non-traditional channels.  As a result, cost optimization and customer retention are becoming critical.  In addition, consumers are becoming more discerning, expecting an insurance customer experience on par with the consumer experience from leading online companies such as Amazon, Netflix and Airbnb.

This blog post will introduce you to 9 emerging trends, which are expected to engulf the insurance industry and help those who follow them stay on top of the competition and satisfy both their and their customers’ needs.

1) The evolution of automobiles – a disruptor of the auto insurance business model

3D rendering robots in automotive industry to illustrate the evolution of automobiles.

There are a few key emerging insurance industry trends driving major changes in automobile insurance, which is the top consumer product for most retail insurance companies.  Ride sharing (fewer people owning cars), semi-autonomous cars in the short term/autonomous cars in the long term, are transforming the whole landscape for the insurance industry, eroding premiums and in some cases reducing the size of the market.

Ridesharing Revolution

One of the biggest insurance industry trends is the recently emerged ride-sharing service. Companies, which employ a gig economy, have exploded in the last few years or so would be an understatement. Businesses such as Lyft and Uber could have a big and lasting impact on the insurance industry because of the emerging requirements for ride-sharing insurance.

At the moment not too many freelance drivers have a ride-share insurance. The results from a recent study show that only about 20% of them are insured, however more than half of the interviewed drivers have stated that they plan on getting additional coverage at some point in time. Uber alone has an estimated 400,000 drivers around the globe, which means there are several hundred thousand Uber drivers who are not insured.

Getting the insurance however is not as easy for the drivers as it may sound. Since rideshare drivers are considered independent contractors. Their vehicles are used both for personal driving and for business. That makes insuring them in a somewhat of a gray area since personal insurance offers no protection for the driver if he uses his vehicle for business, and a commercial insurance plan is only for vehicles used strictly for business.

The conclusion for insurance companies is that ridesharing is a new, previously unexplored market. Insurance agents should research rideshare policies, so they can bridge the gaps in their policies and adjust SAID policies, since insurance varies from country to country.

Rise of the Autonomous Vehicles

More and more car manufacturers incorporate self-driving systems in their vehicles. In case of an accident in which the human driver was not involved, the fault seems to fall onto the manufacturer.

In cases where the car’s self-driving system was the reason for the crash companies like Google, Volvo and Mercedes-Benz have already accepted liability. Meanwhile, with great confidence in their own product, Tesla extends an insurance plan to all owners of their newer vehicles.

The whole process of standardizing insurance for autonomous cars, however, is certainly going to take some time. Vehicles would need at the least a way of detecting whether the fault lies with the driver or with the systems itself.

2) Machine learning and automation will drive towards higher efficiency

In the context of a fast-changing competitive landscape, insurance companies are focusing on marketing, distributing and issuing policies more efficiently. They also need to provide high-quality multi-channel customer service at maximally optimized cost.  Insurers are exploring and investing in machine learning and automation during the whole product lifecycle: from marketing, through underwriting and customer service to claims processing, fraud management and reimbursement.

While automation and machine learning have been present in the insurance industry for years, only simple processes that require low decision-making skills such as data entry, compliance checks, standard customer communications, and managing rule-based decisions, used to be a subject of automation. Thanks to the capabilities of the intelligent systems, the insurance industry is beginning to explore the automation perspectives of much more complex processes such as property assessment, receiving customer insights, personalized customer interactions, fraud detection, and claims verification and processing. Some insurers have even started employing drones for automated property and claims assessment.

3) Cyber Security

Cyber insurance illustrated by a binary circuit board and digital security sign.

Another major emerging trend in the insurance industry is cyber security. It is an issue that insurers should look at from both the perspectives of a security provider and a client, since it affects them just as much, if not more, as their clients.

While risk management is something that insurers deal with daily, they seem to be a bit behind in terms of cyber precautions, when compared to other financial sectors. Insurance agencies haven’t been the targets of hackers all that much, however, as other targets become more secure and inaccessible, attackers are moving on to more unprepared targets. Since insurance companies hold enormous amounts of sensitive personal information such as personal properties, health, etc.

The other way cyber security could influence the insurance industry is through its inclusion in various policies. Because of the time and age we live in, many businesses and individuals alike are under the risk of their virtual information being breached and the expectation for coverage arises.

Whether it is included as an entirely standalone service or as an endorsement to an existing policy, companies would look to their current provider and definitely won’t be happy with those who refuse.

General liability providers offer cyber risk coverage because of two specific reasons. First, general liability is a large, profitable business for many insurers. If clients are not satisfied with the coverage provided by their current insurer, they can test the markets. Second, cyber risk is and emerging trend and line of business that keeps growing, with potential to generate future revenue increases.

4) Evolution of Insurance Distribution Channels

Insurance companies are starting to leverage multiple parallel channels, often working hard to minimize channel conflicts.  Some of the fastest growing channels are bancassurance, affinity and retail partners.  Online and mobile channels are also growing in importance, although in most countries mostly for comparison shopping / information gathering.

In Europe, insurance products are starting to get bundled and sold with banking products. Pure-play insurance companies in Europe are at a disadvantage from a distribution perspective. In addition, direct-to-consumer online channels are also becoming more important as the internet pervades the daily lives of most consumers.

5) Blockchain – the key to secured transactions and fast data processing

Blockchain technology agreement handshake between insurance partners.

Yes! One of the most powerful technology trends to revolutionize the insurance industry in the next couple of years. Even if Bitcoin, Ethereum and Ripple don’t become the standard currencies of the future, the groundbreaking technology behind them is what the focus is on for the insurance companies. They have already started employing blockchain in their existing workflow to avoid huge losses because of false claims and scams that happen daily in the industry.

The first area in the insurance industry, which the blockchain technology could have a lasting effect on, is underwriting. Since this is the department responsible for whether a claim is trustworthy or not and how much of it can be covered, it could use a trust worthy repository of data. Exactly that central repository of truth is what blockchain offers to be. By using it, data from external sources can be sourced by the underwriters to automate some aspects of their jobs.

Another aspect of the insurance industry that can be positively affected by the blockchain technology is the processing of claims. Considering the number of data points that need to be verified and the manual effort required, it’s no surprise that the users find the process too long and tedious. By using blockchain all the necessary information needed for claims verification can quickly be processed. Insurers can track the usage of an asset by using the data available in the blockchain without tampering any information.

6) High Personalization of Insurance Premiums

Higher personalization levels in premiums is an emerging trend that is scheduled for a long stay in the insurance industry. Because of all the products customers are exposed to, they are used to a certain level of customization. It doesn’t matter if it regards the insurance industry or not, they expect to be treated as individuals with their own needs and to be communicated to accordingly. More than 80% of insurance consumers look for some form of personalization, be it an offer, pricing, recommendation or a message from their provider.

To be able to supply their customers with the personalization they want, insurers would need a foundation of solid data insights. In addition to this data they would also need behavioral insight to develop a deeper view of their customers. According to a study made by Accenture 77% of insurance customers are willing to provide data about their usage and behavior in exchange for insurance coverage recommendations, quicker claims settlement or lower premiums. 20% of all customers say their insurance provider have no customer tailored experience whatsoever.

7) Automated, self-service and quick to pay customer experience in claims settlement

When handling a claim, a large amount of the customer’s premium is spent on the process itself. This is due to many reasons such as everything being manual, the carrier wanting to double-check the claim and customers not always telling the truth. The solution is to have the customer manage the claims process. While taking a self-service approach may sound counter-intuitive, the customer provides video and images at First Notice of Loss (FNOL) and is in control of the claims process. When a good portion of the minor cases are handled and reviewed autonomously instant payouts can easily be achieved and only in a matter of hours the customer can have his money. By cutting the time needed for a reply, customer satisfaction should also rise. Only after someone fails an autonomous review would human interference be needed.

8) The All-in-One insurance policy is here for customer’s sake

The All-In-One form of insurance is steadily turning itself in an emerging trend. From a customer’s point of view, it makes perfect sense and provides great convenience to something that is usually a hassle. By using such policies, consumers have one relationship with their insurer and let them cover “everything” at once. When insurers have all details about their customers (cars, home, health, travel, pets, and possessions, they are able to provide a single overarching policy, a fair price and a flexible adjustment of the cover as needed. By employing a membership model, the platform can provide safeguards and advise. Since for the most part this is AI territory it would be fairly easy to be automated.

9) Automation to dethrone human effort across the insurance industry’s value chain

Robot typing on computer keyboard to illustrate automation in insurance industry.

While the emerging trend of automation is not unique to the insurance industry, it will certainly have lasting effects on it, because much of it still operates via pre-Internet methods, which are wildly outdated in today’s world. Another reason is the fact that many personal lines are being automated. Small parcels of insurance protection cannot be packaged and sold using only human effort and remain cost-effective.  The customer demand for automated solutions is a considerable factor in favor of the decision. They want a purely digital experience that does not require human contact for the sake of effectiveness and simplicity.

Conclusion

As all the other members of the financial sector, the insurance industry is ever-changing and because of the plethora of competitors who offer similar services, one needs to follow the emerging trends in order to stay on top. One hand, you have trends such as automation and blockchain, that drive your company towards higher efficiency, and on the other hand, you have trends such as the demand for more personalized premiums and cyber security policies, which can lead to the loss of both current and potential clients.

Author: Ivaylo GuenovManager North America Operations

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