Insurance companies are not immune to the transformations that new technologies and the widespread use of the Internet have brought to our society. Seeing what is happening in the financial sector, which is already being agitated by the so-called Fintech startups, companies are redesigning the traditional business models and are competing directly with banks in different vertical (loans and credits, payments, foreign exchange, etc.); it is more than likely that sooner or later, the insurance sector also has to deal with new digital competitors.
What should insurance companies do to survive in this new scenario? They must adapt today (or they will die tomorrow). To adapt means carrying out a thorough digital transformation.
In one of our latest posts we have talked about the characteristics of the most efficient digital companies, and these are also applicable to insurance companies. In this new post we would like to talk about the major areas of innovation for insurance companies. They must commit to these areas if they want to remain competitive in the new context:
This post is also available in Spanish.
In which areas must insurers innovate?
1. DATA ANALYSIS
Big Data is a field that is sounding all types of businesses quite recently, but it is beating louder every day. In our digital society the amount of data and information available has increased exponentially. Nowadays, any individual produces lots of information, and leaves a digital trail when interacting through social networks, when communicating on a mobile app or when making a payment by credit card.
The power of big data does not rely on the data itself, but on the analysis of this data and on the ability to draw conclusions from it. The conclusions or, in other words, the knowledge that can currently be drawn from the data, through very powerful and predictive analysis tools, is allowing companies to make informed decisions on any matters to be addressed. In short, big data banishes intuition and leads us to a more rational world.
The use of Big Data in the insurance sector becomes particularly relevant because traditionally, the information from insurers about policyholders was asymmetric. The latter always had more information in its possession than the former. Thanks to Big Data, insurance companies can not only draw on its own internal information to learn more about their customers, but now they also have external sources of unstructured information: social networks, emails, public data repositories, etc. From this information invaluable knowledge can be gleaned about each client.
And therefore, three main advantages for insurers emerge:
- Improved risk analysis of each customer and pricing premiums. This will better determine the risk profile of each policyholder and everyone will then pay according to it and their needs.
- Risk of fraud drops down, since the power of current data analysis systems makes investigating claims much easier and faster.
- Improved analysis of the interactions of policyholders with the insurance company through social networks. This results in a positive communication between the insurer and its customers.
Given this opportunity, there are also challenges that insurers must overcome:
- To hire big data and data analysis experts.
The data scientist professional profile is almost a must for any company in the sector. The main problem is that this profile is not easy to find, since data science is a relatively new discipline.
- The risk of the legislation on data protection.
The current European directive dates back to 1995. Now the European Commission is already working on a reform of the legislation on data protection for the EU1.
The advent and widespread use of smartphones has allowed any online transactions to be made from the mobile phone, this means at any time and anywhere. More and more people are incorporating the use of mobile devices in a natural and seamless way into their day to day.
Nowadays people not only search for addresses on Google Maps through their smartphone. Today, they also use their mobile phones to do a bank transfer, shop online, buy airline tickets or make an appointment with a doctor.
For insurance companies, the mobility of its customers means facing new demands:
- Getting a consistent omni-channel presence: when and where the client needs to communicate with the company, it should be able to do so smoothly and without delay. Existing and potential customers expect shopping experiences to be optimal and highly personalized. They want to have the information and tools they need to manage their policies, regardless of where they are or the channel they choose to use to communicate with the company.
- Deploy apps with self-service functions: in relation to the previous point, it is essential that insurance companies implement mobile applications that allow policyholders to hire and manage their policies, report a loss, apply for the necessary services to solve a problem and/or send data to the company via mobile phone. Nowadays, it should be possible to complete the sale of an insurance policy from any smartphone.
- Facilitate digital tools to their agents: besides offering mobile apps to policyholders, to facilitate the processing and management of their policies at any time and place, it is important that insurance agents have mobile devices that enable them to inform potential customers, trade policies, get contracts signed, report claims, take pictures of an incident, etc., directly from the customer's home.
3. INTERNET OF THINGS
The Internet of Things concept is relatively new for most of the population. But given the speed at which changes occur in our digital age, their conversion to mainstream is a matter of (short) time. It is estimated that by 2020 the number of connected objects (connected to the Internet and to each other) will reach 50 billion2.
Currently, the main application areas of IoT are three: car, home and health. Thanks to connected devices - refrigerators, heaters, garage doors, wearables measuring our health, etc. - insurers will have valuable information to adjust the price of their policies, and to offer new products to policyholders, more personalized depending on their needs.
The use of connected devices, which are becoming more and more popular, implies however new challenges for insurers:
Product diversification: the possibility to monitor our health with wearables and the ability to track what happens in our homes or while driving, means that insurance companies will have to adapt the types of insurances they offer for health, homes and cars.
For the connected car example, some insurers have already launched new products based on the use of cars (Usage-Based Insurances or UBI), with the insurance versions PAYD (pay as you drive) or PHYD (pay how you drive).
Ad-hoc insurance products designed to cover all new use cases, taking into account all the information connected devices allow insurers to know, is one of the main challenges that these companies are already facing.
- Privacy and cybersecurity: for many of the connected devices to perform their functions properly, it is necessary that customers share with them (and therefore with the companies that produce them) private information. How far are we willing to give so much data? How can we have sufficient guarantees that the insurers are able to keep our personal information safe, without risking being revealed due to a cyber attack? And without the risk of insurers using our information for other purposes for which they have not been authorized?
- The trust of policyholders: in relation to the above, those who accept to share personal information with insurance companies, how can they know that their information is not being used against them to raise the price of the insurance products? How far can they trust that the prices of such products are reasonable and fair?
Innovation in these three areas is a task that insurers should be addressing from a global perspective. Hence, the importance of conducting a profound digital transformation, reformulating strategy, operations and business organization.
In this context, the electronic signature is a very useful tool in our digital and increasingly mobile society. Without eSignatures, no insurer will be able to complete the digitization of trading processes and signing policies.
If you want to take a major step towards digitizing your company, do not hesitate to try Signaturit's eSignature solution for free. For more information, please download the whitepaper below.
This post is also available in Spanish.
- The digitization of an insurance policy buying process.
- Why banks and insurers must improve the digital experience
- Interview with Jordi Rivera, CEO of DAS Spain