Future of Insurance: Innovate, Adapt, and Thrive in the Changing Industry

Digital technology has revolutionized how products and services are delivered, so much so that even the traditionally resilient insurance business model is not immune to this trend. The evolving customer expectations drive insurance companies to reevaluate their business models to stay relevant. The technologically adept nature of new-gen customers has pushed insurance providers and industry participants to engage in a constantly evolving playing field, where they must compete in new and unfamiliar ways.

The rising demand for round-the-clock access, speedy delivery, transparent information on product features, pricing, and customized, innovative services for the digital era is becoming hard to ignore. Meeting these demands allows insurers to enhance their profits in their primary business. Furthermore, digitization brings improved services and faster processing times, which leads to higher customer satisfaction and retention, boosting profitability.

It is crucial to note that customers expect the same service level from all providers, including insurers. Technology advancements, including big data, machine learning, and artificial intelligence, have disrupted the traditional insurance business model, compelling insurers to adopt new digital strategies to remain relevant. Despite this, some insurers are reluctant to make changes to meet these expectations.

Insurers are expected to facilitate swift consumer onboarding, enhanced personalization, streamlined underwriting processes, and efficient purchase and repayment procedures. However, the need to satisfy the demand remains inevitable. The insurance industry is undergoing a significant transformation, driven by next-gen insurance technology that offers flexibility, hyper-personalization, and interoperability. These three fundamental features revolutionize how insurers interact with customers and operate their businesses.

How can insurers be more flexible?

Traditionally, insurance policies have been standardized, one-size-fits-all offerings sold to customers with little flexibility. However, next-gen insurance technology is changing this by introducing more flexible insurance policies. These policies are tailored to meet each customer’s unique needs, allowing them to choose the coverage they need and adjust it over time as their circumstances change. For instance, insurers can now offer flexible policies enabling customers to pay only for the days they use a particular item, such as a car or a bike. Insurance providers have successfully implemented AI-powered chatbots to meet the diverse requirements of both customers and distributors throughout the entire value chain. These chatbots offer various functionalities, including servicing, claims filing, policy information, etc.

An interesting use case worth mentioning is the availability of temporary car insurance in the UK, also known as ‘short-term car insurance.’ This type of insurance provides coverage for durations as short as a day, week, month, or even on an hourly basis. It offers the added benefit of a free breakdown cover and meets the same legal requirements as standard car insurance in the UK. The coverage period is designed to be shorter and more flexible, allowing customers to obtain insurance for specific time frames based on their needs. Instead of committing to an annual policy, customers can acquire insurance for just a few hours, days, weeks, or even months.

Teambrella is another peer-to-peer insurance platform enabling users to cover each other and vote on premiums and reimbursements. They use blockchain to handle payments securely and ease the burden and worry that exchanging money between peers may cause.

Furthermore, insurers have taken a step further by incorporating cutting-edge analytical models and harnessing big data to optimize operations across the value chain. This includes automating underwriting processes, mitigating early claims risk, and implementing facial recognition-based verification systems. This flexibility allows insurers to meet customers’ changing needs while improving their risk management strategies. Insurers can also leverage personalized policies to evaluate a customer’s risk profile accurately and set policy prices accordingly. A flexible, customized policy that meets an individual’s specific needs will likely attract many customers and enhance customer retention.

Looking ahead to hyper-personalization

Previously, the insurance sector enjoyed the luxury of numerous policyholders who remained loyal for extended periods, occasionally even becoming lifelong customers. Individuals would acquire policies via intermediaries, and direct interactions between insurers and consumers were infrequent. But today, the floodgates of consumer competition have been thrown open. Insurance companies are enticing customers to explore alternatives and switch their insurance providers. Although the abundance of advertising campaigns primarily focused on price competitiveness, the reality is that most insurance companies remain unaware of when a consumer will require their services, or which specific policies might pique their interest. This represents a significant missed opportunity. Insurance companies that possess the insight to recognize and provide suitable options when a consumer’s insurance needs arise have the potential to capture and retain market share, regardless of the allure of catchy slogans or mascots.

Insurers should strengthen their customer understanding by analyzing data and creating flexible insurance coverage options that can be accessed on-demand. By effectively utilizing account aggregators, telematics, and alternative data sources, insurers can create personalized offerings that cater to specific niche segments. It enables insurers to understand customers’ needs better, provide customized products and services, and provide a seamless customer experience. For instance, insurance companies can use data from wearable devices to offer personalized health insurance policies. These policies are tailored to the individual’s health and lifestyle, such as exercise habits, sleep patterns, and diet, providing a more accurate and personalized risk profile assessment.

Similarly, in the auto insurance industry, insurers can use telematics devices to collect data on how the customer drives. This data can create a personalized driving score, determining the policy’s price. The customer is rewarded for safe driving habits, which can help to improve driving behavior and reduce the number of accidents on the road.

Hyper-personalization involves utilizing large-scale real-time data and predictive analysis to gather more accurate information and improve products and services. This approach also aids insurance providers in identifying and mitigating fraud risk in advance and implementing corrective measures in real-time. By adopting a hyper-personalized approach, insurance companies can offer policies based on real and predictable changes, benefiting both the customer and the insurer. Insurers can configure policies that are feasible and likely to sell, resulting in increased profitability.

A fascinating use case is that of North American life insurer John Hancock, which has been the first life insurance of its kind that rewards our customers for their healthy choices and motivates them to live their best lives, replacing their traditional offering with interactive life insurance altogether. In this pattern, the customer is provided with wearables and telematics that monitor customer behavior throughout the day. When customers take steps to live a longer, healthier life, they can save money on their life insurance.

Another case is that of Beam, a more innovative dental benefits company offering a fundamentally unique approach to dental coverage by incorporating dental hygiene behavior into policy pricing. Beam uses IoT technology to provide dental insurance. Customers receive a ‘smart’ toothbrush that tracks how well customers take care of their teeth and provides personalized insurance plans based on this teeth-brushing data. In doing so, the firm claims they can offer rates up to 25% cheaper than competitors – a deal welcomed by many customers.

There are several methods available to formalize and enhance customer knowledge and foster strong relationships. These approaches reveal prospects for tailored interactions, such as notifying customers about price increases, renewals, or product up-sell/cross-sell opportunities. Furthermore, insurance companies can keep track of individual customer preferences and develop personas to align with the distinct requirements of specific customers.

The importance of being Interoperable

Interoperability is crucial in unlocking the insurance industry’s various systems and data repositories. Although the industry has invested heavily in modernizing legacy systems in recent years, the next stage of digital transformation should prioritize integration. Efficiency is a top priority in insurance markets, and advancements in data capture, processing, storage, and sharing facilitate this goal.

The utilization of digital innovation and data-sharing strategies facilitates cost reduction, promotes the development of innovative products and services, and establishes new distribution channels across the insurance value chain. Collaborative systems provide timely market insights, decrease manual labor, minimize errors, empower decision-making, and enhance customer experience. Insurance companies can employ interfaces to connect their systems with external platforms like social media, wearables, and mobile apps. This integration enables insurers to access data from these platforms, improving risk assessment capabilities and enhancing customer engagement.

In addition, interoperability enables insurers to provide a more seamless customer experience. For instance, customers can use a mobile app to report a claim, which is automatically routed to the relevant department within the insurance company. This reduces the time taken to process claims, improves efficiency, and provides a better customer experience. Insurance providers are gearing up to provide customers with an omnichannel sales experience by optimizing their utilization of data and analytics-driven algorithms. The significance of a multi-channel distribution network is increasing in prominence. Strategic alliances with affinity partners, Insurtech companies, e-commerce platforms, and other entities are being leveraged to enhance customer access and value.

Conclusion

As technology continues to evolve, there is bound to be further innovation in the insurance industry. Insurers must embrace changes and adapt their business models to remain relevant and competitive. In the digital economy, there will be a growing demand for usage-based, on-demand, and all-in-one insurance products that align with customers’ lifestyles. Personalized insurance coverage tailored to individual needs will supersede the current one-size-fits-all approach.

Customers will look forward to and demand micro-insurance, flexible coverage options, micro-insurance, and peer-to-peer insurance. Apps will revolutionize the interaction between insurers and customers, while application programming interfaces will enable the creation of data-driven offerings by integrating information from multiple sources. This more profound understanding of customer behavior will facilitate more accurate risk assessments, personalized premiums, and sustainable value, resulting in an enhanced customer experience, improved brand loyalty, and reduced fraudulent claims.

However, it is essential to address potential risks associated with next-gen insurance technology, such as data privacy and cybersecurity concerns. Insurers must prioritize the security and protection of customer data, ensuring their systems are resilient against cyber-attacks. Next-gen insurance technology presents an exciting opportunity for the industry to innovate, transform, and deliver superior customer service. By embracing new technologies, insurers can enhance risk management, improve operational efficiency, and create a more personalized and tailored customer experience.