Insurtech can be difficult to think about strategically. That’s largely because the term covers so much ground—multiple technologies from big data and artificial intelligence to blockchain and the Internet of Things, all of which are finding applications across the whole spectrum on insurance company functions, from distribution to operations to underwriting.
As result, the question of how you are supposed to apply technology in your business is a big, messy one. It might seem appealing—even logical—to approach it technology by technology (“How are we going to use blockchain?”) or function by function (“How can we best apply technology in our underwriting?”). But we’ve found that the issues, opportunities, and challenges become much clearer if we think in terms of three separate outcomes of new technology:
Improved operations. This area includes all the ways you can use technology to improve the way your company functions without necessarily changing your traditional propositions. You don’t need customer involvement—and, indeed, many customers may not notice any change. There are many potential target for improved performance. Back office operations can be automated: The company of the not-distant future may use artificial intelligence to process incoming customer mail and calls quickly and cheaply. Yield management software is helping companies get the best value from third-party brokers and price-comparison tools, while dynamic pricing tools will let them respond quickly to competitors in an ever-faster-moving marketplace. Meanwhile, new analytics are helping companies stop fraud, identify trends, and improve the speed and accuracy of underwriting.
Behind-the-scenes improvements like these can have great impact. For instance, in the UK auto insurance sector, digital leaders Admiral and Hastings have used approaches like this to generate combined ratios significantly lower than the industry average.
Upgraded products. This area involves changes to insurance products that alter the insurance proposition and have an impact on the customer experience. These upgraded products and services allow an extended value proposition or value-added services.
Perhaps the most striking examples of this approach are telematics-enabled insurance products that let customers pay premiums based not on average drivers but on how much and—in some cases—how well they drive. But there are many other applications: Some Insurance companies are trying to increase their range of service offerings to generate unique selling points, for instance, by advising customers on how to lower their risks or integrating an alarm system with a household insurance policy.
At their best, these innovations provide radically new customer experience while simultaneously streamlining operations and reducing costs for the company. One good example is TKTKT’s program that lets customers manage the auto damage claims process by submitting cellphone photos of their cars after accidents.
Business model innovations. In this most advanced (and still mostly unexplored) area, companies will come up with ways to leverage assets such as data and client-access points to create products and services that may not look much like traditional insurance, while often fulfilling the same customer needs. Some insurers will insert themselves into digital ecosystems that provide one-stop access to some integrated set of customer needs—for example, “everything I need to lead a healthy lifestyle.” In this example, the insurance company could leverage its health data and knowledge and partner with nutritionists, makers of fitness-tracking devices, and fitness centers. Others will create a level of personalization in coverage that has long been available to corporations but has always been too time consuming for the individual market. And already some companies are looking forward to insurance that adjusts itself automatically to changing customer needs—or detects accidents or other losses and processes claims without the customer needing to do anything.
All of these areas are important for insurers, but some will be more urgent—or more cost-effective, or more profitable—for particular companies in particular situations. We think the value of looking at the future through our three areas of technological change is that it makes it easier to make actionable, fact-based decisions about where to move next in adopting some of the most powerful, expensive, frustrating, and confusing tools the insurance industry has ever had at its disposal.