Insurance has been a pillar of society for centuries, providing individuals and businesses with the protection they need against life's uncertainties.
Whether it was the law in King Hammurabi’s code that said a debtor didn’t have to pay back debts if a personal life tragedy made it impossible, or an insurer in today’s world helping homeowners repair their roofs after a natural disaster, insurance has enabled society to take risks and make progress.
Right now, though, insurance is at a critical juncture.
Some risks are becoming too risky for insurers to cover, leaving individuals and insurers unsure what to do in the face of ever-worsening climate catastrophes and cybersecurity threats. Claims inflation means occurrences that remain covered in insurance policies are getting pricier for insurers to cover, and the whole industry is being pushed toward a tipping point, where they must embrace digital ecosystem enablement or become obsolete.
This article explores how the insurance industry has found itself in this situation, the change in mindset and business models that insurers need to make this enablement happen and how it’ll help the sector to return to its original thesis of supporting society to progress and the potential profits that will be their reward.
The Insurance Industry at Peak Risk
Insurers today are struggling.
One of the core drawbacks of insurance is that it’s incredibly admin- and data-intensive to orchestrate, and is burdensome to execute no matter how you look at it.
The original use of IT to industrialize insurance businesses has certainly helped insurers scale, but those same technologies are now holding them back. While other industries have continued to evolve their platforms and passed through the “experience economy” tipping point toward the AI economy, insurers are struggling to build similar experiences for their customers.
Property and casualty insurers, in particular, have been left to compete on price, which forces their products into being treated like commodities, even though they’re so much more than that. Further, because most insurance IT setups act as digital walls between an insurer and their end customers, individuals no longer have personal relationships with insurers, so price shopping becomes the norm, perpetuating this cycle.
When you pile that on top of the increasing costs of covering modern-day life and catastrophes, it’s no wonder insurers are having a hard time keeping themselves afloat. Inflation, claims inflation in particular, is making this problem exponentially worse.
This has forced insurers to a tipping point, where they must rethink their business models and adopt a new mindset to remain competitive and profitable.
The Need for Ecosystem Enablement: in Mindset and Business Models
I recently went through a motor insurance claim involving a car repair, and the best way I could describe my customer experience was, “It’s all gone absolutely pear-shaped.”
Getting the coverage I purchased felt like a struggle, and the digital administrative walls I couldn’t get past made me throw up my hands in frustration. Beyond a vanilla FNOL submission online, the process has involved zero status updates or communication. I often get random requests to engage from garages, who repeatedly ask for the same details submitted in the original claim. It’s been over a month with no resolution path in place -- but I am reliably told this is “normal.”
Insurers need to adapt to the digital age and embrace technological advancements to overcome these issues. They must move away from business-as-usual and adopt a new mindset that focuses on customer experience, digitalization and ecosystem thinking.
What would it look like if they shifted their focus from simply selling insurance products to creating an end-to-end experience that meets the needs of their customers?
With a modernized core system, leveraging technologies like AI, machine learning and the Internet of Things (IoT) not only becomes possible, but becomes the impetus to leapfrog the competition, changing insurance for good.
Most new cars today are capable of self-reporting a claim and can even speak to the customer through the car speakers after an accident. They record the seconds before and after a collision, self-diagnose the repair requirements and so on.
How Data Feeds Ecosystems to Make Insurance Operations More Efficient
AI and machine learning can automate administrative tasks, improve underwriting accuracy and streamline claims processing in ways manual, human labor just can’t. IoT can help insurers collect data on customer behavior, allowing them to personalize their offerings and provide more tailored coverage. Not to mention detecting and taking care of claims when issues first arise (like water damage) rather than unknowingly letting them evolve into something that’s 10x more costly because it takes longer for humans to notice problems than technology.
And while early notice of loss is fantastic, an ecosystem setup helps the cost-savings of claims. When insurers can digitally integrate with other services like roadside assistance, repair shops and home contracting businesses, a seamless, done-for-you customer experience keeps things moving and saves a substantial amount of money on every single claim.
When all the data is seamlessly shared, claims are updated in real time and no one is left wondering what’s happening or wasting precious time chasing down vendors to figure out what’s going on. There are even examples of insurance offerings with “zero claims” concepts.
Telematics has as much value in “make me a greener driver” as it does “make me a safer driver.” Building data has as much value in “make my experience better” as it does in “remove fire risks.” It’s fair to say that this next era will need to involve a lot of thinking beyond insurance, with a lot of new value potential out there.
Why Ecosystem Enablement Is a Must for Insurers
Embracing ecosystem enablement lets insurers return to their original thesis of supporting society to progress while also increasing their profitability. By focusing on customer experience, digitalization and ecosystem thinking, they can fully leverage the potential of partnerships and data to provide better coverage, reduce costs and increase their revenue streams.
The use of technology and data analytics is two-fold. One, it helps insurers better understand customer behavior, tailor their offerings to specific needs and improve the overall customer experience. Two, it streamlines the insurer’s operations and claims spending so everything is more efficient and affordable.
But it can only happen once data is allowed to flow freely around the entire insurance system.
The insurance industry is at a crossroads, and ecosystem enablement is no longer a choice but an imperative. Insurers must adopt new business models that leverage technology, data analytics and ecosystems to better serve their customers, reduce risks and improve profitability. By doing so, the sector can return to its original thesis of supporting society and spur progress in how we all live our lives.
