The insurance business model of assessing risk, collecting premiums and paying claims hasn’t changed since ages. The thing that has changed and is posing a big challenge for insurance companies today is “Customer expectations”. The expectations have been shaped by their digital experiences and competitive product pricing offered by sophisticated companies in other sectors such as Amazon and Uber. Customers now expect their insurers to offer online, simple, cost-effective, transparent and flexible products/services. Firms need to leverage technologies such as analytics, social and cloud to make better decisions, strengthen customer relationships and pursue profitable innovation at a rapid development pace. Digitization can be used in insurance to achieve both business and environmental sustainability.
Business Sustainability
Assessing Risk – Insurers can leverage big-data analytics to understand customer preferences, improve segmentation and assess customer risk. Assessing risk is core to insurance business and involves the process of manually inputting, categorizing and analyzing multiple documents. This process is generally time-consuming and costly. Data and analytics can change the game by combining text-analytics, business-rules and predictive capabilities to analyze application information and attachment documents to quickly score an application. Insurance companies can also enhance risk quality by proactively detecting a probability of fraud during risk-selection. Social data analytics can be leveraged to scrutinize applicant’s identity by using widely available data in internet and investigate if applicant has been linked to any fraud in the past. Targeted coverage can be provided to consumers by running data analysis on various related factors, for eg. players in crop insurance industry are using insights on weather patterns, climate trends and soil characteristics to provide tailored coverage against damage from weather events.
Drones usage is another interesting method to immediately identify risks from natural disasters as they happen and notify customers to avoid visiting these areas thus avoiding undue risk.
Collecting Premium – Digital data generation, communication and analytics are powerful techniques to understand customer needs and behavior patterns, insurers can use this information to provide tailored products with reduced premium to make it affordable for consumers. for eg. by analyzing driving data and routes and incorporating them into insurance pricing is helping to reduce premiums for lower-risk drivers. Digital technology to offer insurance products or services is helping to take away face-to-face or pen-to-paper elements out of the insurance and bring down delivery costs and thus premiums.
Paying Claims – Claim assessment consumes a lot of time delaying claim payments and aggravating customer resentment. Drones are being used by some players in the industry to assess damage quickly, safely, and cheaply after catastrophes. Drone mapping gives insurance companies a fast, easy way of accurately documenting the scene, preserving key details while letting the process of clean-up and reconstruction begin quickly.
Analytics is hugely transforming claims processes and enabling insurers to cut loss-adjustment costs, eliminate human interactions and quickly process claims. Social media analytics has a huge potential to investigate and detect claims fraud. For eg., if a non-smoker applicant lights-up even occasionally and if his/her social pages has the traces of that information it can be detected via social network analysis tools. Insurers can also leverage Blockchain’s ability to provide a public ledger and encrypted personal data, many insurers are already exploring its application to reduce fraud and liability associated with immediate payments across borders. Reduced claims mean more affordable premiums and a better customer proposition.
Environmental sustainability
Traditionally insurance is a process and paper-oriented industry. Digitalization can help change the way insurance industry does business. The key is managing the process and the paper optimally to achieve the most effective results. Digital technologies can transform and simplify policy issuance by harnessing e-delivery to transmit all policy documentation, endorsements and disclosures. Reducing paper consumption lessens the worldwide environmental impact of the paper industry and keeps millions of tons of waste out of landfills.
The combination of rich customer data, telematics, and enhanced computing power is opening the door to usage and behavior based pricing. Car culture is one of the big obstacles in the transition to a lower carbon future, pay-as-you-drive insurance is a usage-based product designed to steer customer behavior and help reduce greenhouse gas emissions by reducing car usage.
Overall, new technologies will help consumers to get more choices, better service and lower price. Companies can also use this opportunity to reinvent the way they conduct business by leveraging digital technologies, piloting innovative micro-insurance products and providing affordable solutions to reach the populations traditionally un-reachable and un-protectable by insurance. This will not only help middle and lower income customers by providing a safety net to reduce economic setbacks but also contribute to eradicate poverty and boost shared prosperity. (771 words)
References
https://www.the-digital-insurer.com/wp-content/uploads/2013/12/53-insurance-fraud-detection.pdf
By Shobha Joshi
Interesting article! Insurance is being transformed by digitalisation. I like the point that new method of insurance pricing will lead to change in our behaviours, e.g. safer driving or healthier diet. These will have positive impact on our social environment.
Insurance is a great industry to examine. There is huge potential for the IoT to provide data to better inform insurers. I’m interested to see what the impact is on premiums and pricing in the coming years. One possibility, which would have an excellent social outcome, is that the extra data allows insurers to significantly improve their risk-pricing, translating into lower premiums for consumers and better financial performance by insurers. However a potential counter-force is the projected increasing liabilities for insurers as a result of climate change and extreme weather events.
Great article. Digging deeper, I think IoT technology could bring disruption or improvement to the insurance industry as well, such as making streamlining the claim process and most importantly, removing the subjective human element in the case of accidents for example.
The digital transformation of the insurance industry is one of the key challenges ahead – and certainly a big opportunity for the industry to renew. The digital space offers an ideal A/B test environment, providing the analytics ability to study customer behaviours and how they are triggered to act. It would be interesting to see whether the future of digital insurance sector is dominated by start-ups or digital giants.
Yay Shobha rocking the insurance industry! I agree with the opportunities created by digitization. On the other hand, from a consumer perspective, this poses strong threats to privacy! Using social media data to assess credit scoring etc. is already crazy, but using that data to assess potential fraud (like health insurance smoker fraud) is one step too much. Hope that regulation can catch up or prevent this from becoming reality.