The Transformation Of Insurance
With the entire value chain being redefined ground up, this technology enabled change is in the true sense a transformation of a lifetime
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Insurance as a sector is undergoing a significant transformation that will lead to the industry - in the next decade or so - looking very different from what it does today. The very nature of insurance necessitates a business model built for long term stability rather than short term nimbleness. The significance of the change that the industry is going through has to be viewed in this overall context.
There are fundamental socio-economic changes driving this transformation. Our society itself is going Digital - and Digital is not just technology, but a way of life. It is how people today live, work and interact.
Life expectancy is increasing, shared asset ownership/use is going mainstream, careers are becoming longer, retirement for many is becoming redundant… At the same time, the customer is far more informed, demanding and powerful. She has little or no patience, is far more willing to switch brands, and demands extreme personalisation. The millennials are increasingly running and managing their life from their mobile devices - what used to be a work aid, is now an integral part of one's life.
This has led to much disruption - a large proportion of which has come from InsurTech firms willing and able to capitalise on new opportunities and upend traditional models. These firms come with a range of offerings - online comparisons, the mutual model (akin to the concept of a shared economy), peer to peer insurance, event or transaction specific cover (for example on demand car insurance or one time cover for sport), wearables and gamification to enhance customer engagement and drive better lifestyle choices, onboard devices in cars to reward safer driving, coverage of social risks (such as divorce or cancellation of a wedding), IoT based device linkages to provide real-time data, and, machine learning based process automation. These are all good examples of disrupters who have used a mix of technology and customer insight to challenge status quo.
The realisation that FinTech startups are indeed making a dent is fast changing the strategy and approach that large established players are taking. Disrupting decades old models is not easy, and technology is today being leveraged not just as an enabler but also a catalyst for this transformation.
The front office is being revolutionised with apps and portals that allow brokers and agents easier information access and the ability to customise their offerings. Artificial Intelligence based chat-bots are helping customers not just buy better, but also stay connected through the insurance life-cycle to better manage their policies, and file and track claims.
Mobile apps are helping enhance customer engagement and providing specific insights to create real stickiness. These apps are also being linked to data from wearables, on-board devices and commercial equipment (Telematics / Internet of Things) to provide a personalised experience and value added services.
The back office is seeing a significant technology enabled leap too. Automated claims processing - leveraging Machine Learning and increasingly complex rules engines - is becoming more and more the standard. Intelligent Automation is not just reducing costs and streamlining operations, it is increasingly being linked to front-end customer facing portals and apps to leapfrog service experience.
There is also a big change at the core of large insurance firms - in product development, risk assessment / management and underwriting. Technology is enabling niche new offerings to be developed and offered to targeted customer segments. Genomics, new medical tests and data from connected devices is significantly changing risk assessment and underwriting. Fraud detection and prevention through big data analysis (including unstructured data from social networks) is transforming risk models from being largely reactive to becoming preventative. We are even beginning to see the actuarial function being impacted - classical statistical analysis using static models are changing to tech enabled predictive analytics with dynamic and non-linear models. And, there is so much more on the anvil. Blockchain is being deliberated, but at some stage distributed ledgers - given their potential to bring in significant efficiencies - are bound to come in.
With the entire value chain being redefined ground up, this technology enabled change is in the true sense a transformation of a lifetime. Lindy's law - broadly stating that the longer something has been in existence, the longer its life is likely to be going forward - will inevitably prevail. Insurance is here to stay for a very long time, but will look very different from how we've traditionally seen it.
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