As consumers, insurance is something we begrudgingly buy. We don’t trust insurers and we give them no loyalty. We only interact with them to perform the annual renewal dance or when something goes wrong. And when it does, only half of British consumers trust insurance companies to pay claims. Comparison websites make it easy to switch and drive us to choose from a growing number of providers almost entirely on price.
But now there are new breeds of insurance companies joining the market that do things a bit differently. They don’t tie you to inflexible year-long contracts; they use rich data to better assess risk and charge premiums; they adapt to the changing needs of today’s consumers, like when you let out your property on Airbnb or vehicle on Hiyacar.
Two-year-old insurer Lemonade, receives an 11% higher rating for digital maturity and effectiveness than the most innovative incumbent, Aviva.
Rewrite Digital’s True Digital Index measure of digital maturity and effectiveness for selected insurers. Click for a full breakdown
What does this mean for traditional players in the insurance sector? Do they rely on their long-standing history and the resilience of a complex and highly regulated market to deter new entrants, or do they risk disrupting themselves for a sustainable, even viable, future?
Digital, and its rising influence on all businesses, is starting to disrupt the centuries-old insurance industry, hot on the heels of rapid change we’ve already seen in consumer banking. A mere nod to digital is not enough. Even firms that are leading the way have more to do.
Soon after the Great Fire of London in 1666, there was a demand for and consequent supply of home insurance. The first Lloyd’s Coffee House, forerunner to the Lloyd’s market, opened around the same time to facilitate marine insurance as the value (and risk) of shipments grew. The model of underwriters calculating premiums in a way that exceeds the claims they must pay out hasn’t changed much since. Insurers have sought ways to minimise their risk, wisely invest premiums and refute as many claims as possible.
Regulation, underwriting expertise, proprietary data and the need for significant capital has traditionally made it difficult for new players to enter the industry.
But change is now happening. Almost $2bn was invested globally in InsurTech firms last year. Real-time data collected from Internet of Things (IoT) devices, social media and financial transactions is proving more valuable than historical data. Technology has made it easier to change insurance providers and consumers are choosing firms that best meet their ever-growing needs. Even 330-year-old Lloyd’s has launched its own innovation lab to respond to changing demands.
New entrants with digital at their core are shaking up the insurance industry. Here are a few to watch out for:
Cuvva – car insurance by the hour, day, week or month, created from the frustration of traditional insurance companies being too slow, painful and inflexible.
HomeLyfe – simplifying home insurance with just four questions instead of the usual dozens and everything managed through their mobile app. They’ve now launched a partner platform to enable insurance-as-a-service for third parties.
Honcho – the UK’s first reverse auction marketplace for financial services gets insurers to bid to acquire customers. It will beta in Q4 2018 with a full launch in Q1 2019.
Lemonade – from paperless policies and an API for retailers to their no-broker, chatbot-led approach, AI-powered claims and the promise that customers won’t face excess charges or premium increases when they make a claim, this heavily-invested insurer is changing all the rules.
Teambrella – peer-to-peer insurance model where ‘teammates’ cover each other, claims are democratically voted on and blockchain technology is used for secure and transparent payments.
Trov – an entirely mobile-enabled platform for insuring valuables wherever you take them, with instant quotes on a pence-per-day basis and a message-based claims process.
Some of the big traditional insurers are changing too. Aviva was one of the first to employ a Chief Digital Officer (CDO) in 2014. The Group’s CEO, Mark Wilson, remarked at the time:
“The insurance industry punches below its weight when it comes to digital. Coming from outside the insurance industry, Andrew Brem [the new CDO] will bring a fresh perspective. I am confident he will drive Aviva’s digital transformation.”
Brem launched and ran Hive, the smart home provider, before joining Aviva. Direct Line and RSA Group also employ CDOs, Admiral has a Head of Digital Transformation and LV= appointed a Director of Digital.
The extent to which these roles influence the entire business varies. Insurance CDOs tend to come from other industries, having previously taken on ecommerce positions. Some may be more technical, more commercial, data-oriented or customer-focused. Finding the right mix across all areas of digital is very challenging. There’s a danger you miss out on something or lean too much in one area. If digital is embedded more broadly throughout a business, rather than just being a department, this is less of a concern.
Aviva is doing a lot in its ambition to be ‘Digital First’. It is investing and partnering with dozens of startups and operates its Digital Garage in Shoreditch as a key business function. Aviva is keen to point out that, despite the name, the Digital Garage is not an innovation hub that sits on the sidelines. There’s a lot still to be done with Aviva’s long-entrenched processes, technology and personnel adding friction to change, and one of the lowest customer satisfaction ratings in the industry.
Traditional insurance providers get a poor rating by consumers. Breakdown cover gets a better score than most as the claims experience is usually very immediate, personal and supportive. New breeds of insurer such as Cuvva, HomeLyfe and Lemonade score highest of all.
Customer rating for selected insurance companies in the UK (0 is low, 10 is high). AA and RAC (1) include breakdown services as well as other types of insurance. Trustpilot is the source for all except for Lemonade (2) it’s SuperMoney and Cuvva (3) it’s Reviews.co.uk. All sources include a minimum of 100 customer reviews.
There is a huge opportunity for insurance companies to use digital to improve the customer experience and customer satisfaction, for example speeding up claims processing or providing real-time information on the status of claims. As digital first platforms continue to infiltrate the market, the expectation from consumers will grow. Insurers slow to adapt will see their satisfaction not only stall but decline.
Data is giving rise to new ways to do insurance.
Risks can be much better assessed with the vast volumes of data on consumers available to insurers today. Aviva’s Drive app, for example, tracks driver safety and records video evidence of collisions.
This same data can be used in risk prevention measures, reducing premiums and claims.
Claims are an inherently costly necessity for insurers, yet only 4% of UK insurers digitise the claims process. Audatex, embedded within the motor insurance industry since 1987, is playing a key role in digitising claims, but end-to-end digitisation is still far too uncommon.
You can imagine scenarios where insurers could even process claims automatically, for example when sensors share damaging weather conditions to crop insurance providers.
Industry commentators warn that global digital giants like Google, Apple, Facebook and Amazon are the real disruptors. They have the scale, capital, data and ambitions to compete with insurers. Amazon, for example, already provides finance and credit cards and Apple offers cyber insurance.
Machine learning will take the industry beyond just being digital to being ‘cognitive’. Cognitive systems will better assist insurers in keeping pace with digitisation, rising consumer expectations, more complex forms of risk and sophisticated fraud. The whole industry will evolve at a rate far exceeding what we see today. Insurers yet to begin their digital maturity journey will no longer be relevant.
Here are the steps every insurance provider must take to stay on top of digital:
Make digital central to business, resource it well and continue to invest in it.
Create products and services that align to changing consumer needs and stand out in the market.
Lower premiums and improve profitability by using data to assess risk more accurately, support risk prevention and automatically gather evidence for claims.
Improve customer satisfaction through automation, personalisation and transparency. Enable experiences that customers can interact with the way they want to. Test and learn, take on board what people say and do.
Know where you stand in the market now and reassess every quarter. Don’t be left following a strategy that’s not fit for the future.
The insurance industry is on the cusp of great change. Many new businesses will enter the market and some well-established ones will leave. Don’t be one of them!
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Originally posted here