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Adapting to the Digitally Disrupted World of Insurance

Balazs Fejes

SVP, Banking & Financial Services, EPAM Switzerland
  • Insurance

The insurance industry is at an inflexion point as the impact of digital technologies transforms the way that insurers, reinsurers and insurance brokers go about their business. Changes in customer behavior, the emergence of new platforms that customers can use to assess and buy insurance products and the influence of social and media channels on buying decisions are forcing companies to rethink how they communicate with customers and meet market need.

Last year an Accenture survey of 6,000 consumers in 11 countries revealed that 67% of consumers would consider buying insurance from companies other than insurers, and almost a quarter (23%) would consider buying from large online service providers, such as Google and Amazon. This consumer trust in non-traditional insurance competitors has been built up over the past decade due to a relentless customer focus that has tapped into the digital needs of the customer.

This was backed up by a report from Forrester Research, Trends 2014: European Digital Insurance that exemplified how companies outside of the insurance sector posed a threat to those insurance companies in Europe who had failed to keep up with adoption of digital technology. Specifically mentioned in the report were companies in the manufacturing, utility and telecoms sectors as candidates who could take business away from traditional insurers.

Insurers are feeling the impact of digital disruption across their entire value chain, from initial customer engagement and product cross selling to underwriting, risk management and claims.

But why does digital disruption present such a threat for traditional insurance providers and the insurance industry as a whole?

First-and-foremost, the prerequisite for insurance is that it’s an optional product and this makes for a highly competitive marketplace. Car insurance, for example, differs from all other types of insurance because it is the only type of insurance where customers are legally required to make a purchase. Other types of insurance – life insurance, house insurance or health insurance – are sold on their individual attributes and benefits to the customer, but are all optional.

In such a competitive marketplace insurers must work hard to keep customers and the potential for customer churn is high. The recent Accenture research validates this point showing that loyalty in insurance is a key issue, with 40% of consumers likely to switch to another automobile or home insurance provider over the next 12 months. Customer loyalty for insurers is an obvious issue, however the insurance industry can look to other sectors where pro-active customer retention schemes have been successful. In the credit card industry, for example, loyalty point schemes and auto savings propositions have reduced customer attrition.

The rise of digital is not only changing the types of products and services that customers demand but also the way that they want those products and services to be supplied.

Second, years of slow growth, falling consumer trust in incumbent firms and increased regulation have weakened the traditional providers and opened the door for more agile, technologically savvy companies, such as start-ups, digital platforms, car manufacturers, utility companies and telcos to steal market share.

The rise of digital is not only changing the types of products and services that customers demand but also the way that they want those products and services to be supplied and insurers will have to offer more personalized services for each individual if they are going to remain competitive.

While many big insurers increasingly accept that they must offer a seamless digital service across different delivery channels executives are hamstrung in understanding how to proceed in making investments in digital, fostering innovation, or forming partnerships that addresses key areas where technology needs to be reengineered.

Some firms however are biting the bullet and investing in digital to future-proof their businesses. Aviva, for example, has invested tens of millions of pounds in its digital transformation strategy to pioneer their digital environment, make arranging insurance simpler and cheaper and become a “one-stop shop” for life, health and general insurance services.

Last year the firm kicked off a multi-faceted digital evolution which saw the launch of a new technology development centre at Silicon Roundabout in London to develop new digital tools for customers, as well as the appointment of Andrew Brem as its Chief Digital Officer to drive Aviva's group-wide digital transformation and deliver its digital first strategy.

As big data, mobile, location services and personal information are becoming more available insurance firms must look to harness this data to target customers with the right type of product more effectively.

What’s interesting about the creation of a Chief Digital Officer role at Aviva is that it reflects the need for insurers and intermediaries to transform their human capital and recruit and engage employees with the right skills and experience. Similar to other industries where digital is playing a disruptive role, cultural change within organisations is critical when it comes to digital transformation and ensuring that both a top-down and bottom-up approach is taken to innovation.

Additionally, as big data, mobile, location services and personal information becoming much more available insurance firms must look to harness this data to more effectively target customers with the right type of product, when they need it, at the right time in their life. Understanding the full context of the customer journey is key and it's often difficult for many insurers to rise to this challenge.

Carefully considered cross-selling need to be based on a solid understanding of a firm’s customer demographics and the life-stage requirements of specific customer segments or individual customers. Harnessing the power of customer data is key to this.

Today’s tech-savvy customers now expect a personalised and efficiently delivered set of products and services to be delivered by insurance providers – as well as by their banks and other financial institutions – and giving the customer a multitude of touch points through which they can interact with the organisation facilitates the best type of customer experience and builds brand loyalty.

If the insurance industry is going to adapt itself to an increasingly competitive and technologically driven environment then firms need to think about digital transformation through the prisms of internal cultural change, the application of big data to customer need and the adoption of omnichannel approaches that touch the customer at relevant points in their buying decision-making process.

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