Digital Insurance: How to Compete in the New Digital Economy
The traditional insurance company is set up to best serve a type of customer that, in the very near future, may no longer exist.
Demographic behavior has shifted, and many consumers who are not digital natives are beginning to behave as if they were. Consumers of all ages are becoming more comfortable not only with tablets and smartphones, but with electronic transactions in general. They seek out new apps, new ideas and new experiences that can help them make healthier choices and work more effectively. And, in many ways, they’re finding what they’re looking for. Big data, cloud computing, mobility, social networking and the “Internet of Things” (IoT) have converged to enable a new digital economy that places greater value on the needs of these consumers.
by Brian Wallace
In the not-so-distant future, the insurance marketplace will exist largely within this digital economy. Insurance companies, with their policy-centric approach and siloed operations, are ill suited to compete in this new reality. They need to embrace the concept of digital insurance and take action, or risk being marginalized. A digital insurer should offer a richer set of data-driven, customer-facing services, enabled by:
- A customer-centric approach to doing business
- An omnichannel buying journey that augments traditional channels with robust self-service options, direct purchasing and a single customer experience across online, mobile and social channels
- The ability to leverage data and analytics across the value chain, including product innovation, marketing and sales, new business, servicing, claims and operations
- Straight-through processing (STP) made possible through simplified products, automated underwriting for new business, first notice of loss (FNOL) automation and self-service options for claims
Data as the new differentiator
Perhaps the most significant implication of this new digital reality is the increasing importance of data. In this new landscape, data will emerge as the digital insurer’s primary competitive weapon.
Insurers have traditionally competed on product features, where uniqueness sets a product apart. In today’s consumer-driven marketplace, however, an excessive feature set can be a detriment. A truly digital customer experience requires products that are easy to comprehend and simple enough to enable e-applications, automated underwriting and direct issuance — all to deliver the instant gratification consumers now expect.
Unable to differentiate solely on uniqueness, a digital insurer will instead seek to differentiate based on added value. Such a shift will require insurers to reconsider how they design new products, go to market, and interface with agents and customers.
Data becomes increasingly important because digital insurance is not about dictating an experience to customers, but about anticipating the customers’ needs and providing them with the experience and value they want, when they want it. To increase relevance, insurers need to offer real value-added services that are fueled by data and analytics.
This is crucial as digital insurers shift from an indemnification-based value proposition to one of continuous value. The concept of a core protection product has largely become commoditized, which has in turn lowered the barrier to entry for new competitors. Leveraged correctly, new sources of data will enable insurers to provide customers with useful information, opportunities and solutions. This kind of consistent customer engagement goes a long way toward warding off competitive threats.
Use more data, better data, new tools
Insurers aren’t starting from scratch when it comes to data and analytics sophistication. Instead, this is a matter of insurers equipping themselves with more data, better data and new tools to accept, manage and analyze it. It’s about taking a core competency the insurance industry already has and applying it to every element of the insurance value chain.
Insurers maintain a competitive advantage in the risk management game only if they control, or at least have access to, the most insightful types of data. Previously, the best data was proxy data — where data about one thing (your credit score, your age, your gender) provides insight into another (your driving habits). Now, however, new sources of true behavioral data can get right to the heart of the matter. A car manufacturer, for example, might have telematics data that’s more valuable than credit scores to underwriting car insurance.
Accepting the value of this kind of data conceptually is one thing. Accepting it technologically is another. Often delivered in real time, by the terabyte and in unstructured form, it’s a significant departure from the more static, structured data insurers largely work with today. Handling it requires an insurer to develop an entirely new set of digital skills.
Become a master of consumption, understanding and engagement
To wield data as a competitive weapon, an insurer needs to master three core competencies — consumption, understanding and engagement. Mastering these skills will separate truly digital insurers from the rest.
Master of consumption. A master of consumption embraces the service-enabled enterprise and the API economy. This is about an enterprise getting better at both consuming and becoming more consumable, developing a true omnichannel experience for customers, agents, brokers and even internal stakeholders.
- Business: Focus on making the company easier to do business with. Envision a customer’s buying journey that spans channels — education on the Web, specific questions asked through a call center, a Web chat or maybe a call to a broker.
- Technology: Move away from an in-house mentality and embrace external infrastructure, cloud computing, as-a-service options and mobility. Implement an IT-centric set of initiatives to make the enterprise more open and agile.
Master of understanding. Develop the capacity for meaningful data and analytics work by implementing a big data platform. Then, explore both what’s possible and how business value might be generated. In other words, improve data availability and then make that data actionable.
Think in terms of a lifetime customer relationship that begins with brand awareness and is nurtured through an ongoing set of positive brand experiences. Better data, from more sources, can lead to improved underwriting and pricing, but it can also lead to insights delivered back to customers, allowing them to make real decisions: How can I lead a healthier lifestyle? Where can I find the best car repair shop? How should I prepare for approaching weather?
- Business: Determine how to effectively leverage various streams of data from systems of record, CRM systems and external sources.
- Technology: Go beyond existing business intelligence data warehousing tools. Establish a consolidated and integrated view. Procure a big data platform and the related tools and technology. There are many choices — managed services, in-house assembly and so forth.
Master of engagement. This final skill is about executing on the overall strategic vision of digital insurance. Set ambitions to move the basic value proposition from indemnification to continuous value, and then actually become more digital.
Currently, the relationship between an insurer and a customer lies dormant except during three basic interactions: new business acquisition; billing and payment of premium; and claims filing and adjudication. But what about the vast amounts of time before and after those traditional interactions? If insurers do not attain better relevance in this white space, some other entity will.
- Business: Determine how to continually engage with customers on a daily, weekly or even hourly basis.
- Technology: Sustain this level of engagement by facilitating rapid and dynamic interactions across partner ecosystems, leveraging the API economy.
- Both a technology and business issue, mastering engagement is about an insurer combining its newly developed analytical capabilities with its newfound ability to interact with customers across channels.
In the end, delivering continuous value and maintaining relevance with customers comes down to enabling a symbiotic relationship between insurer and insured. That’s true engagement.
A usage-based auto insurance program, for example, leverages a single data set to both improve underwriting and provide the driver with useful information about his or her driving habits. A health insurer’s wellness initiative, coupled with wearable device technology, meanwhile, leads to fewer claims paid, reduced premiums and a healthier life for the customer.
The same information that allows insurers to better price risk also allows customers to live safer, healthier, more productive lives. This data is too valuable not to be used by the customer in some way. The question is whether insurers will put themselves in a position to provide this value to the consumer — or whether someone else will take their place.
BRIAN WALLACE is global technologist, insurance, at CSC.