This article was originally published by David Clamp in Actuarial Post, on February 1, 2018.
The insurance industry needs to evolve along with the new digital technologies and policies that are transforming insurance today. Namely, the competitive edge that is afforded through digital transformation while making sure that they adhere to the new General Data Protection Regulation which will come into force in May 2018. As such, senior insurance leaders are currently debating the future of digital insurance, how innovative life insurance products can be applied, and the role of InsurTechs.
Many companies are using digital technology to make insurance more accessible. One great example is the company MicroEnsure. MicroEnsure is developing a life insurance product designed for emerging third world countries that have access to insurance but face a higher level of risk. MicroEnsure offers life insurance in collaboration with mobile phone providers for the 5 billion people across Africa/Asia who live on less than $4 a day. It now has 60 million registered customers of whom 85% would previously have been uninsured. Its system is simple and low cost with customer interaction centred around calls, SMS and mobile applications. Agents in the field facilitate enrolment and claims for customers who often have limited access to mobiles. This has expanded the availability of life cover and now new forms of protection are being introduced including micro-health, political violence, crop and mobile insurance.
Another great example is Horizn who are offering a digital knowledge platform which uses enterprise SaaS technology to accelerate market adoption of its latest products and mobile applications. This is a real-time aid for employees when supporting customers and is currently used by over 400,000 employees, who are supporting 23+ million bank customers in 50 countries and 15 languages. Gamified with points, employees can log on and watch videos, demos and simulators on mobile and desk top versions. Learning and understanding is harnessed in bite size chunks. This has helped employees truly understand the solution, breaking down barriers and increasing fluency and confidence when supporting customers and accelerating sales.
Working with InsurTechs
These new and innovative solutions naturally lead me on to talk about InsurTechs who are identifying industry pain points and finding new solutions. For example, by accelerating underwriting decisions, reducing incidents of loss, delivering continuous customer education and providing cover for uninsurable risks.
Here is another great example LAKA is about to launch a new business model which is challenging the traditional model of paying premiums upfront. It has built a model which pays out upfront when the customer suffers a loss, and only at the end of the month asks customers for a share of the actual cost of the claims to recover expenses. Customers never pay more than they would with a traditional competitor, but jointly benefit through lower payments if there are fewer claims than expected. LAKA derives revenue by adding a fee on top of settled claims and only makes money when they pay out.
It is vital that Insurers find better ways to collaborate with InsurTechs. I personally feel that the way start-ups work and the power of a culture of innovation needs to be replicated within large Insurers. Likewise, InsurTechs often face barriers to entry due to capital and regulatory challenges and access to distribution channels. This is where there could be huge benefit for both parties. InsurTech startups can be true enablers for Insurers, not disruptors! Likewise, no InsurTech can exist without partnerships and often they do not have an insurance background, which is a big barrier to success.
GDPR and Cloud Adoption
GDPR is fast approaching, and the majority of Insurers are concerned that they will not be 100% compliant by 25th May. One of the biggest challenges is in obtaining clear, affirmative action to verify data subject consent. This includes customers ticking a box when visiting an Internet website.
Understanding the hurdles to adopting cloud based services is another challenge facing Insurers. At the top of the list is the resistance from internal IT teams to embracing this new way of working. Despite the clear business drivers for change (flexibility, agility, resilience, automation, cost effectiveness) and clear demand from senior business stakeholders, IT teams are still resistant.
The passing of responsibilities over to a third party was seen as insecure, as often data would be leaving the building, leading to more complex governance. Approaches for successful cloud adoption included: an agreed definition of what cloud is/is not; a clear and compelling business case; focusing on the new business capabilities that are needed in the future; trialling with lower priority applications; proof of concepts leading to pilots, not a lift and shift approach; and, importantly, carefully bringing the IT team along on the journey.
The Future of Claims
There is clearly a need to be operationally agile and nimble and to optimise efficiency gains such as process automation and machine learning within the claims process. Smart phones have already started to automate claims data submission to speed up acceptance of claims and customers can upload photographs of damage when it occurs and send to Insurers. AI could further enhance efficiency, and this idea is supported by an example of an insurance company in Japan where more than 30 employees have been replaced with an AI system that can calculate payouts to policyholders. It is also supported by the fact that drones are now being used for risk assessment, evaluation and validation of claims and it is estimated that by 2020 we will have 30,000 unmanned aircrafts in our skies.
Overall, the key pinch points within the Insurance Industry are speed, agility and adoption. Low-code development platform provider OutSystems has a long history of working with Insurers and helping to develop new operating models that are flexible and modular with micro-service architectures that can provide speed of execution. This will help Insurers to create an IT capability that is ready for innovation and digital transformation. Now is the time for Insurers to fully grasp the opportunities that new technology will bring and to innovate in exciting ways.