The insurance industry has come a long way in embracing technology and adapting to a new set of demands. Its customers now want fit-for-purpose, cost-effective products delivered on the go and from the cloud, and future insurers need to make sure they grasp that innovation.
The economy is at last moving on from a very challenging recessionary period. However, this new growth environment has its own challenges for insurers. Market pressures in the form of low premiums, steep competition, high costs and burdensome regulation are very much in evidence. Many of the larger players face a legacy challenge that has dogged the industry for some time.
According to KPMG’s 2014 report, ‘Transforming Insurance: Securing competitive advantage’, there has been a 108 percent increase in respondents planning to use technology to enter new markets compared to the last three years. A huge 82 percent envisage using digital technology to improve customer relationships over the next three years.
There is clearly a will to move on from an approach that uses new technology merely to solve issues with old technology. The insurer of the future will be data-driven and will use digital marketing, data analytics and technologies such as telematics, to bring to market highly personalised products. Insurers are looking to discern patterns within the huge data sets that now exist to pre-empt customer needs and tailor products and prices.
A stand-out in technology is the use of sentiment analysis by retail insurers. This is capable of tracking consumer opinion, identifying trends as they happen, anticipating customer needs and translating them into products that can be launched rapidly. The approach puts insurers in a position where they can be highly responsive and can launch products that meet a particular need into a very specific market.
For instance, a US-based health insurer might want to launch a product in a particular state to take advantage of imminent changes in legislation. To do that, it might monitor a range of channels – radio networks, newspaper feeds, other public domain data and comment – over the course of a week to monitor public feeling and needs. It can then use digital channels to join the debate and promote new products.
This example has three advantages. It demonstrates real innovation and enables the player to stay ahead of the curve. It ensures that products are completely fit for purpose and allows the insurer to be proactive on pricing.
In the UK, we are already seeing innovative use of in-car technology or telematics. In fact, mobile technology combined with telematics allows customers to download apps that effectively transform their mobiles into a black box, which means even greater data capture on driver behaviour. Other insurers are even introducing gaming into those apps, engaging customers in competitions to seek out the safest driver. By doing that they ensure broader appeal and engage with Generation Y, opening up discourse with a very demanding population sector.
Clever deployment of cutting edge technology has wide implications in terms of remodelling insurance operations. Insurance needs a skilled workforce for some central and very important interactions – receiving the premiums, recording and processing claims and paying out on them. Underpinning those interactions is the insurer’s data capability. The capture and handling of data has to be solid and has to meet regulatory requirements and customer expectations around efficiency and privacy. But the question of where and how that data is held is an open one. Insurers no longer need a cumbersome mainframe with all the back up that requires. Data can be in the cloud. That represents a huge opportunity for insurers to realign their costs with new technology. It will help insurers reconsider where their data will be held and how it will be used.
There are workforce implications, too. Insurers have long been significant employers. But ten years from now, a large section of the insurance value chain may be held on virtual platforms and peopled by a truly global, flexible workforce.
So who are the flag bearers within this evolution? Interestingly, insurers are not so much looking at each other to pinpoint a benchmark. Many are very willing to look outside their own industry for guidance on patterns of consumer interaction, channels to market and digital delivery. For instance, aviation has provided a model for aggregation, with insurers looking to South West Airlines in the US for how pricing could be handled.
The insurer of the future will look across all industries to find best-in-class interactions with consumers, data use and deployment of digital technology. Shareholders and customers all stand to benefit. But the time to innovate is now, because today’s consumers need a fast, cost-effective service with a personalised approach.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.