The “digital banking” conversation is alive and kicking within the fintech world, focused on discussing the merits, definitions and initiatives around what it means for a bank to become digital across its entire technology and business stacks. I have yet to find the same level of discourse and vibrancy within the insurance world – a simple reason might be that I am not yet plugged in to the right people in insurance.
First off, let’s frame the discussion by attempting to define the evolution of the insurance model from Old to Current and Future or “Digital”:
Old Insurance Model: Mostly paper based with an application collected from the customer by the agent and sent to the Carrier. The agent quote is not binding and may indeed change once the Carrier has reviewed the application. I would qualify this old model as Carrier centric. The Carrier does all the heavy lifting with data verification and underwriting with little stimuli from external data feeds in real time. The agent serves merely as a conduit. As result underwriting and closing a policy may take several days, even several weeks. Once the policy is underwritten, think of claims management and customer service as being as cumbersome and Carrier centric. Arguably this delivers poor service in today’s age of instantaneous expectations. Not only is the old model Carrier centric, I would also venture it is Product centric - in the same way the old banking model was/is product centric. A slow moving world, with easy use cases and simple customer needs made it relatively frictionless to deliver on product centricity. The implications from a technology point of view are the same as in the banking world, thin front end, shaky middleware, and a back end that is silo driven and difficult to handle in order to optimize underwriting or claims.
Current Insurance Model: The current model, still in use with many insurance carriers I believe, optimized the old model and transitioned from Carrier to Agent centric. Less paper based, more electronic, more process pushed onto the agent to be closer to the customer. In this model the Agent is empowered to issue policies under certain limits and risk frameworks – the Carrier is not the gating factor and central node anymore. Instead of batch processing policies at the Carrier level, the system moved to exception processing at the Carrier level – when concerned with nonstandard data and policies – thereby leveraging the Agent. The result is faster quotes, faster signed polices, from days and weeks to hours or a day. Customer service goes the same route. Claims management still remains the central concern of the Carrier though.
Digital Insurance Model: The way of the future. Neither Carrier nor Agent centric and certainly not product centric anymore. Truly Customer centric and Data centric – very similar to what we witness in digital banking and with digital banks. The Carrier reaches out to the customer in an omnichannel way. Third party data sources are readily available, technology to process and digest said data is extremely effective and delivers fast and furiously. Machine Learning allows for near instantaneous underwriting at carrier or agent level, any time, anywhere. The customer can now get a policy in minutes, down from hours. Post policy-signing processes follow a similar transformative route. The technology implications are material. New core systems of record, less silo, more integration, massive investments in data warehouses, in products and services that act as layers of connectivity between data repository centers, core systems, claims management platforms, underwriting platforms and omnichannel platforms. Picture the Carrier effectively plugged in to the external world via data sources, plugged to the customer in myriad of ways that were not possible in the past, plugged in to third party providers, all of this in real or near real time. No more old linear prosecution of the main insurance processes – customer acquisition, underwriting, claims management. Further, with a fast changing world and much more complex customer needs, delivering product is not the winning formula anymore. Understand the customer via data in a contextual manner is.
To be fair, insurance carriers have nearly completed massive upgrades to their database architecture and can all claim the latest in data warehouse technology. Some carrier have engaged on the path of renovating their channels and going all out digital. Others are refining ways to engage new customers. Most are thinking of going mobile. Still much remains to be done. Exciting times.
Boiling down to the essence of what a Digital Insurance model means, we can easily see the similarities with Digital Banking: transparent, fast, ubiquitous, data focused, customer is key not product.
Once you digest this new model, it is easier to sift through the key trends that are and will reshape the industry. I am listing here a few which we follow at R66. By no means is this an exhaustive list nor is it ordered by priority, impact or size of opportunity:
1) Distribution Channel disruption: Three sub trends here, a) consolidation of brokers and/or agents, b) channels going all out digital and disrupting brick & mortar, c) carriers continuing to go direct and competing with brokers.
2) Insuring the sharing/renting economy: Think Uber, Airbnb and the many other startups that are building the sharing economy. All of them need or are creating different types of coverage through their own ecosystems. Carriers that focus on the specific risks, navigate the use cases, gather the right data and are forward thinking, will win big. James River Corporation is an insurance carrier that comes to mind in this space.
3) Connected Data Analysis: I do not use the term Big Data anymore. Real time connected data analysis is it. Think integration of a series of hardware devices, think of n+1 data sources. Powerful, mind blowing, and will impact the trifecta of insurance profits => underwriting, claims management, customer acquisition.
4) Technology Stack upgrades: Middleware to complement data warehouse investments, new systems of record, software platforms for underwriting, or claims management, API galore. Same story as with banking, different insurance flavor.
5) Technology externalities: GPS, Telematics, AI, Machine Learning, Drones, IoT, Wearables, Smart Sensors, Visualization and next generation risk analysis tools. You name it, these will help insurance companies get better at what they do, if they adopt and understand.
6) Mobile delivery: How could I not list mobile delivery. Whether it is to improve customer acquisition, policies or claims management, customer service, we are going mobile baby.
7) A la carte coverage: Newer generations are approaching ownership of things in different ways. As a result, a one size fits all insurance policy is no panacea anymore. We are already witnessing a la carte insurance based on car usage, homes or commercial real estate connected via sensors or IoT
8) Speciality insurance products: We live in a digital world baby => cyber security, fraud, identity theft
It should be noted the above describes changes in the P&C industry and that one can use Carriers and Reinsurers interchangeably. Further, I have not focused on health insurance – I know next to nothing and will not presume otherwise.
Any insurance expert is welcome to reach out and educate me. Anyone as clueless as I am is welcomed to add their thoughts too!