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January 5, 2017

5 Cs of Transformation in Insurance

Summary:

"I’m sure my Amazon and Netflix recommendations are very different from yours. Yet, we treat insurance customers as nearly identical."

Photo Courtesy of Pexels

We are facing a world that has more potential to transform than ever before. By 2020, CIOs in a Gartner survey have forecast that 77% of their processes will be digital. Transformation is certain — and, if we are unable to keep up, VCs will be happy to fund companies that transform our industry for us. Insurtech is already attracting investor interest in record numbers (investments totaled $1.4 billion in insurtech firms in just the first three quarters of 2016).

Further, transformation will affect all areas of the insurance value chain, from underwriting to customer engagement. In this article, I outline a 5C framework to help executives formulate their transformation plan.

The 5Cs of transformation in insurance are – communication, customization, connection, cognition and consensus. Let’s look at each in turn:

Communication

At its core, insurance is a promise. Now, there isn’t much value in a promise if you can’t communicate it! The opportunity here is for creating interesting means of communication – think chatbots (SPIXII is a good example) and robo-advisers (Pi-sight) and those enabling the insurer to effectively use social media.

There is also an opportunity for creating content – how can I better educate my customers about the benefits of my product? How can I become a source of valued and used content for my customers? Finally, the largest near-term opportunity lies in creating communication tools for intermediaries (agents and brokers). Think Salesforce applied to the insurance workflow. How can you simplify the tool so that an agent uses it and you get valuable data?

See also: 4 Rules for Digital Transformation  

Customization

I’m sure my Amazon and Netflix recommendations are very different from yours. Yet, for insurance customers, the tools and recommendations we provide look remarkably similar, if not the same. And, when it comes to renewal, our prices will be roughly the same (assuming similar customer demographics for life insurance or post code for home insurance), regardless of the fact that one is a fitness enthusiast while the other binge drinks every day. As an industry, we have still not boarded the personalization bus.

I see two distinct opportunities in this pool:

  1. Building recommendation engines to customize risk coverage (like Knip or Clark) and
  2. Generating data sets that can be used to change the basis of underwriting.

The potential for 2. is large – connected devices, genomics and even social media analytics are all generating enormous data-sets. How can these be used to supplant traditional underwriting tables and bring about true customization in insurance? Tomorrow’s leading carriers will embrace “real-time underwriting” as customers produce more capture-able data. As an example, Digital Fineprint has made excellent progress in this regard.

Connection

The key challenge for companies today lies in getting noticed. To get noticed, you have to be part of your customers’ conversation. The challenge is to engage without interrupting. It’s a tall order and insurance companies are particularly bad at it – we average only 1.44 customer interactions per year. It is hardly surprising that most customers feel no sense of connection or loyalty to their insurer and that insurance ranks near the bottom for customer satisfaction scores.

The opportunity here lies in ancillary services. Potentially, digital solutions that increase the number of connections we can have with a customer along the following aspects:

  • Health, emotional health, affinity group, or financial goal setting
  • Social media analytics and other heuristics to identify key moments
  • Ideas that drive connectedness, helping us establish a deeper relationship with our policyholders

The top digital companies like Tencent and Facebook have shown that their chief assets are connections and community. Increasing customer interactions and loyalty is truly a billion dollar plus opportunity. Sureify is building a great tool-set to increase connections.

Cognition

I use cognition as shorthand for the wider Artificial Intelligence and Machine Learning opportunity. Strictly speaking, cognition runs across the earlier Cs (communication, customization and connection), but due to its impact, I feel it deserves its own section.

We are in the early stages of the artificial intelligence (AI) revolution. Learning algorithms, whose results improve with experience, will enable us to find patterns in large data sets and make predictions more effectively — about people, processes and entire systems. Ultimately, these technologies will completely transform the entire insurance organization.

In insurance, I see AI/ML tools being used for:

  • Fraud detection and monitoring
  • Claims automation
  • Marketing with customisation
  • Behavioural analysis for improved pricing
  • Preventive insurance using Genomic data sets

AI has to be part of your transformation toolkit.

Consensus

By consensus, I mean Blockchain(s) (consensus refers to the underlying algorithm that underpins their structure). For instance, a Life insurer is the epitome of the trusted intermediary – you expect it to honour its promises after your death. Needless to say, when you can encode this trust on to a blockchain in a DAO (decentralized autonomous organization), then the whole industry will look very different.

However, in the near term, Blockchains can have significant impact on administrative costs by making processes such as KYC (Know your customer), fraud and other verification services (policy issue, claim filing etc.) cheaper.

Ideally, the entire industry would collaborate on a Blockchain solution. However, that is challenging. So, you need to look at use cases that can transform areas of your business today.

See also: Pursue Innovation or Transformation?  

Collaborating with Start-ups

Transformation in insurance requires significant digital fluency. The smart bet is to partner with start-ups. What are you doing to make it easier for start-ups to find you and to strike commercial agreements? How can you improve this process-flow?

The insurer that can attract the right portfolio of start-ups will win the transformation race.

An earlier version of this article appeared on Let’s Talk Payments.

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About the Author

Shwetank Verma is the head of Collab – LumenLab’s Open Innovation Platform. Previously, he has been an entrepreneur and an early stage investor. As an entrepreneur, he built a chain of primary care clinics in India and led them to exit. As an investor, he has invested in healthcare, education and consumer internet businesses.

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