Technology-led disruptive business models are already here and changing the game
By Will Andrews, Director, Trianz and Satya Madakshira, Director, Trianz
By simplifying processes and designing around the consumer experience with technologies like machine learning and artificial intelligence, insurtech has propelled upstarts who now threaten to disrupt the insurance industry. Legacy players will need to hustle to catch up with key innovations, but they still can, as described later in this article.
First, it’s important to understand what the insurtech model is built upon and why it is succeeding. Like fintech, insurtech simply means combining technology with an industry – insurance in this case – for the purposes of comprehensive competitive disruption.
New businesses leading the insurtech charge (themselves called ‘insurtechs’) are agile, technology-led, and hyper-reactive to new opportunities on the market. They come from the digital-native generation, and juxtaposed to veteran industry incumbents, its their quickness to adapt to market needs that poses a significant threat. In every industry, COVID-19 has only accelerated the pace of automation and digitalization, heightening the urgency for incumbents to respond.
Conceptually, insurtechs took their cue from innovators like Uber, building their business models upon a tech-enabled customer experience. Powered by machine learning and artificial intelligence, insurtechs are trying to redefine consumer expectations with self-service options, mobile enablement, unique customer experiences, and products fashioned on the “sharing economy” concept.
This is all meeting the younger demographic right where they live. Millennials have become accustomed to a high degree of autonomy and influence in the market. Their preference for customer-oriented experiences – as well as their growing numbers as insurance consumers – has had a measurable impact on the industry.
Turning to Face a Digitally Transformed Reality
In general terms, companies that have moved quickly toward tech-enabled simplicity, convenience, and customer focus are already champions of digital transformation. There are indeed some digital champions among insurance industry incumbents.
However, many legacy players in insurance have yet to fully embrace these transformations. It is not uncommon to see companies still using 15- to 20-year-old platforms to support their services. Pivoting to face the new digital reality is a complex and difficult undertaking. Regionality, customer segments, and changing products tend to protract the transformation process.
To address the shift towards direct interaction with consumers of personal insurance products, as well as products for small and medium businesses, legacy players should move away from relying on traditional distribution channels. Even for commercial and specialty products, large carriers should consider digital and mobile connectivity that meet the customer where they are.
Another improvement is the speed with which insurtechs can process customer transactions, such as by automating operational processes so they don’t require human touch. New insurance products are being developed that can be sold as “pass-throughs,” meaning they don’t require manual review to be sold. One example of this is travel insurance available at the point of sale for airfare or hospitality, which is designed so that it cannot go outside the bounds of profitability.
There will likely always be insurance products that require manual review, such as for artwork or remodeled cars. But the philosophy of operational efficiency – claim processing time being the most obvious one – is nonetheless key to driving speed and responsiveness to reduce cycle time for the customer.
Such innovations have the added benefit of creating opportunities for new revenue streams, cross-selling, and up-selling.
Staying Relevant, Playing to Strengths
Global insurance powerhouses still hold significant advantages of expertise, brand recognition, capital, economies of scale, and a firmly established customer base. Reputation and seasoning still matter a great deal in this marketplace, as do solvency and reliability.
The truth may lie somewhere in between bedrock stability and bright-and-shiny. Some legacy insurance firms will streamline their processes and adopt digital technologies to obtain the nimble operations ethos and technical insights of the insurtechs.
If they are taking a page from digital champions industry-wide, they should:
- Focus on R&D and product management, looking to agile cloud native development for rich new features.
- Prioritize speed in accommodating regulatory requirements, new services, claims processing, and deal closures.
- Complete user experience design workshops to understand the generational use patterns.
- Solve for combining in-store and omni-channel sales and customer service.
- Bundle products with digital partners and new industry entrants, and design new distribution channels with travel, property and retail vendors.
- Leverage innovations to streamline operations, be it blockchain for contractual matters and customer ID, or AI visual recognition for instant claim evaluation.
- New business models such as pay-per-use or open-market resourcing options that could reduce OpEx and CapEx.
The core tenets of this hallowed industry remain the same: customer acquisition and growth, value delivery and operations, and value enablement functions. New upstarts would be wise to consider hybrid approaches that leverage the core values of insurance institutions, or even consider partnering with them for added reach and capital.
Both old and new entities have plenty to gain from advances in technology and new marketplaces – just as long as the customer remains central to their evolutions.
Read more about Digital Transformation in Insurance on Trianz.com.
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