In many ways the insurance industry has led a sheltered existence. Regulation and the need for scale have created entry barriers to the industry while the key role of intermediaries in customer relationships and customers’ inertia can also be seen as “protective” characteristics. The net result is that, aside from asset management, insurance companies have been slow in adopting new technology, especially of a customer-facing nature for fear of upsetting agent networks.
As these barriers weaken insurers are paying a lot more attention to new technologies. Today the industry is abuzz with technology jargon like AI, InsurTech and RPA, reflecting the significant momentum that technology-driven trends have developed.
Just in the last 18 months we’ve seen insurers racing to leverage emerging technologies to deliver business innovation. Many have either established their own innovation labs in the region or allocated venture capital funds to invest in technology start-ups as a way to jump-start their own innovation agenda.
It is clear from this that the insurance industry is at a point of inflection, with new technologies and regulatory changes creating the conditions for market disruption and opportunities to leapfrog existing players. Three major industry trends are already manifesting themselves.
Historically, insurers have been wary about implementing any new customer-facing technology initiatives for fear of upsetting agents. Today, however, technology is the foundation of how agents interact with their prospects and clients. Most now use Facebook and messaging apps for marketing, selling and servicing tasks. As social media permeates every single aspect of our lives, and with millennials becoming a core target customer segment, technology will be front and center in customer engagement channels.
Insurance companies are notorious for paper-based manual processes and while automation has been on the agenda for several years, implementation has been modest at best. Legacy core systems and deep-rooted operational processes are main contributing factors to the slow pace of automation.
As rising customer expectations and the need to drive down costs increase demand for speed and digitization, however, insurers are exploring ways to accelerate their automation initiative.
Automation is a continuum that caters to organization at different level of maturity. In the insurance industry it typically starts with simple-to-medium rules-based processing of structured data and moves toward truly cognitive-based automation where artificial intelligence is applied to increasingly more complex tasks.
The sharing economy, IoT and advanced analytics present opportunities to develop new products and adopt new business models – for instance insurance on-demand (Airbnb and Trov), peer-to-peer insurance (Friendsurance) and end-to-end AI (Lemonade) – to name a few. Traditional insurers tend to invest in or create partnership with start-ups, as well as technology players, to get into new space as their existing structure present challenges to innovating organically.
On the other hand, there are also opportunities to evolve existing products to leverage new technology. For example, leveraging activity trackers is gaining popularity as it is a natural extension to health and vehicle insurance. Analysis of tracking data enable insurers to generate valuable insights into their customers over time, which helps in designing new products and service. Insurers should also be looking at other partnerships to expand service offerings and create stickiness – particularly with the millennials and eventually Generation Z – as these cohorts generally have lower loyalty than previous generations.
In the coming years the insurance industry will go through unprecedented changes, unlike anything we have seen before. Technology will underpin the pace of change.
Traditional insurers need to accelerate their transformation, leveraging technology to future-proof their business model. Those who do not adapt to changing times will lose business at an increasing rate to those who are successful in navigating the challenges of digital transformation.
Sharon Khor, Partner and Hong Kong Insurance Leader, IBM Global Business Service