Digital Insurance: How to Compete in the New Digital Economy
Author: Brian Wallace
The traditional insurance company is set up to best serve a type of customer that, in the very near future, may no longer exist.
Demographic behavior has shifted and many consumers who are not digital natives are beginning to behave as if they were. Consumers of all ages are becoming more comfortable not only using tablets and smartphones but with electronic transactions in general. They seek out new apps, new ideas and new experiences that can help them make healthier life choices and work more effectively. And, in many ways, they're finding that for which they seek. New technologies involving big data, cloud computing, mobility, social networking and, most recently, the "Internet of Things" (IoT) have converged in incredible ways to enable a new digital economy that places increased value on the needs of these end consumers and the efficient delivery of goods and services.
In the not-so-distant future, the insurance marketplace will exist largely within this digital economy. Insurance companies, with their policy-centric approach and siloed operations, are ill suited to compete in this new reality. They need to embrace the concept of digital insurance and take action - or risk being marginalized. A digital insurer should offer a richer set of data-driven, customer-facing services, enabled by:
- A customer-centric approach to doing business
- An omnichannel-enabled buying journey that augments traditional channels with robust self-service options, direct purchasing and a single customer experience across online, mobile and now social channels
- The ability to leverage data and analytics across the entire value chain, including product innovation, marketing and sales, new business, servicing, claims, and operations
- Straight-through processing (STP) made possible through simplified products, automated underwriting for new business, first notice of loss (FNOL) automation and self-service options for claims
It can be dangerous, however, to think of digital insurance as a finite set of terms, values or technical capabilities. Instead, digital insurance should be viewed as a transformational journey that can ultimately lead the insurance industry to redefine its basic value proposition. In the digital age, insurance products cannot merely act as instruments of risk management. An insurer's relationship with its customer needs to be more holistic and experiential. Digital insurance is about moving the insurance industry's core value proposition from one of simple indemnification of loss to one of education, prevention and continuous value.
Data as the New Differentiator
The implications of this new digital reality are many, but perhaps none is more significant to the insurance industry than the increasing importance of data. That's because, in this new landscape, data will emerge as the digital insurer's primary competitive weapon.
Insurers have traditionally competed on product features, where the uniqueness of a given product sets it apart from the competition. In today's consumer-driven marketplace, however, an excessive feature set can be a detriment. A truly digital customer experience requires products that are easy to comprehend and simple enough to enable e-applications, automated underwriting and direct issuance - all to help deliver the type of instant gratification consumers expect in a digital economy.
Unable to differentiate solely on product uniqueness, a digital insurer will instead seek to differentiate based on experience or added value. Such a fundamental shift will require insurers to reconsider how they design and build new products, go to market, and interface with their agents and customers.
Data becomes increasingly important in this scenario because digital insurance is not about dictating an experience to customers, but about anticipating the customers' needs and providing them with the experience and value they want, when they want it. To maintain or increase relevance in the minds of consumers, insurers need to offer real value-added services. Those services are fueled by data and analytics.
This is crucial as digital insurers shift from an indemnification-based value proposition to one of continuous value. The concept of a core protection product has, for the most part, become commoditized, which has in turn lowered the barrier to entry for new competitors. These new entrants seek to steal share of mind from traditional insurers and, subsequently, share of wallet. Leveraged correctly, data enables insurers to provide customers with useful information, opportunities and solutions. This kind of consistent customer engagement goes a long way toward helping insurers maintain share of mind in the marketplace, warding off these competitive threats.
The skills that enable this - becoming more analytical and predictive, better leveraging big data - are priorities for many industries and, in some ways, the insurance vertical is better prepared than most. Insurers are already skilled at accessing and integrating external sources of data, and analyzing that data in sophisticated ways is integral to pricing risk.
Insurers, therefore, aren't starting from scratch when it comes to data and analytics sophistication. Instead, this is a matter of insurers equipping themselves with more data, better data and new tools to accept, manage and analyze it. It's about taking a core competency the insurance industry already has in one area and applying its principles to every element of the insurance value chain.
In many ways then, insurers' data challenge is about a change in mentality. They will need to rethink how they consume new types and new sources of data. After all, insurers only maintain a competitive advantage in the risk management game if they control, or at least have access to, the most insightful types of data. Previously, the best data was proxy data - where data about one thing (your credit score, your age, your gender) provides insight into another (your driving habits).
Slowly but surely, however, new sources of true behavioral data can get right to the heart of the matter. A car manufacturer, for example, might have telematics data that's more valuable to underwriting car insurance than whatever credit score and demographic data an insurer may have. Taken a step further, imagine the detailed underwriting data Google potentially has at its disposal - search and purchasing history, location services data on an Android device, etc.
Accepting the value of this kind of data conceptually is one thing. Accepting it technologically is another. Often delivered in real time, by the terabyte and in unstructured form, it's a significant departure from the more static, structured data insurers largely work with today. And as such, handling it requires an insurer to develop an entirely new set of digital skills.
Master Consumption, Understanding and Engagement
If an insurer comes to terms with this new digital environment and accepts that an even more advanced understanding of data is necessary to remain competitive, how can it prepare? To wield data as a competitive weapon, an insurer needs to master three core competencies. More than anything else, it's these three skills - mastering consumption, understanding and engagement - that will separate truly digital insurers from the rest.
Think of each as a muscle group that needs to be exercised and developed over time. Before a complex digital capability can be offered to customers - or indeed before such an offering could even be conceived - an insurer must develop sufficient "muscle memory" in these areas:
1. Master of Consumption. A master of consumption will have embraced the concept of the service-enabled enterprise and the API economy. This is about an enterprise getting better at both consuming and becoming more consumable. It culminates in the development of a true omnichannel experience for customers, agents, brokers and even internal stakeholders.
- Business: Focus on making the company easier to do business with. Envision a customer's buying journey that spans channels - education on the Web, specific questions asked through a call center, a Web chat, maybe a call to a broker at the end of the process.
- Technology: Move away from an in-house mentality and embrace external infrastructure, cloud computing, as-a-service options and mobility. Implement an IT-centric set of initiatives to make the enterprise more open and agile and thus more able to participate in the emerging digital economy.
2. Master of Understanding. Develop the capacity for meaningful data and analytics work by implementing a big data platform. Then, explore both what's possible and how business value might be generated as a result. In other words, improve data availability and then make that data actionable.
Put into practice, mastering understanding means thinking in terms of a lifetime customer relationship that begins with brand awareness and is nurtured through an ongoing set of positive brand experiences. Better data, from more sources, can lead to improved underwriting and pricing, yes, but it can also lead to analytical insights delivered back to customers, allowing them to make real decisions: How can I lead a healthier lifestyle? Where can I find the best car repair shop? What do I need to do to prepare for approaching weather conditions?
- Business: Determine how to effectively leverage various streams of data from systems of record, CRM systems and external sources. Determine a strategic path, narrow the focus of that strategy, then shift to action.
- Technology: Go beyond existing business intelligence data warehousing tools. Establish a consolidated and integrated view. Procure a Big Data platform and the related tools and technology. There are many choices here - managed services, in-house assembly, etc.
3. Master of Engagement. This final skill is about executing on the overall strategic vision of digital insurance. Set ambitions to move the basic value proposition from indemnification to continuous value, and then actually become more digital.
Currently, the relationship between an insurer and a customer lies dormant except during three basic interactions: new business acquisition; billing and payment of premium; and claims filing and adjudication. But what about the vast amounts of time before and after those traditional interactions? Previously, the "white space" surrounding these events simply represented a missed opportunity to connect with customers. In an increasingly digital environment though, the situation is more dire. If insurers do not attain better relevance in this white space, some other entity will. To master engagement, develop products and services aimed squarely at maintaining relevance in the white space between when a customer purchases a policy and makes a claim.
- Business: Determine how to continually engage with customers on a daily, weekly or even hourly basis.
- Technology: This level of engagement requires interactions between internal and external partners. IT must facilitate rapid and dynamic interactions within and across partner ecosystems, leveraging the API economy.
Both a technology and business issue, mastering engagement is the culmination of the work done to master consumption and understanding. It's about an insurer combining its newly developed analytical capabilities with its new-found ability to interact with customers across channels.
In the end, delivering continuous value and maintaining relevance with customers comes down to enabling a symbiotic relationship between insurer and insured. That's true engagement.
A usage-based auto insurance program, for example, leverages a single data set to both improve underwriting and provide the driver with useful information around his or her driving habits. A health insurer's wellness initiative coupled with leading wearable device technology, meanwhile, leads to fewer claims paid out by the company, reduced premiums and a healthier life for the customer.
The new data streams that support digital insurance have clear value to both parties. The same information that allows insurers to better price risk also allows customers to live safer, healthier, more productive lives. This data is too valuable not to be used by the customer one way or another. The question is whether insurers will put themselves in a position to provide this value to the consumer, or if someone else will take their place.