Not just another distribution channel: Truly engaging with the digital consumer
The consumer is changing. They are on their tablets, on their smart phones, ordering taxis, booking holidays, buying their weekly shopping. They want to buy their insurance in the same way.
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Is the insurance industry ready for this change? This was the question posed at the Next Generation Insurance Customer event in Zurich, Switzerland, 6-7 July. The insurance industry has much to do – but it has made some first significant steps.
See event clip "The technological evolution has started..."
Digital market and change
"Should we be worried about what digital is going to do to our industry? Yes. Should we be excited about the opportunity it brings? Definitely yes."
Thierry Léger, Swiss Re
As outlined by Thierry Léger, Swiss Re, the insurance industry is not commonly associated with being at the cutting edge of digital innovation. This is a product of legacy systems, of regulatory requirements, and of products that do not lend themselves to simple soundbites. Yet digital disruption is the new normal; and it is a huge opportunity. It provides insurers with a new means of reaching customers, it simplifies processes and it provides huge amounts of new data that can be embedded into the underwriting process. Digitalisation also presents threats, newcomers and market disruptors. However, a number of insurers are beginning to exploit the potential of digital, such as the project between Swiss Re and New China Life to provide life agents with a powerful digital point of sales underwriting tool.
In some ways we are only at the beginning of the age of disruption, suggested Sandra Emme, Google. Currently only 40% of the world's population are connected to the internet. Propelled primarily by mobile technology, this figure will rise to near 100% over the course of this decade. The effects of digital disruption have already been profound, on companies from Netflix to Kodak.
Internet connections are putting consumers in centre stage. Progressive insurers are no longer selling products, they are forming interactive partnerships with consumers, personalised to their needs and open to their feedback. Even for products such as life insurance, where agents still play a major role, consumers are informing themselves on products and prices on the internet before contacting the agent or making a purchase.
Marc Tyson, of Blazingchilli, underlined the importance of mobile technology. Mobile is not simply another distribution channel, it is the means for consumers to direct their own behaviour. The technology is pervasive and ubiquitous; consumers increasingly spend more time on their smart phones than watching TV. Mobile consumption is a game changer. It changes cost structures; it changes product expectations and construction; it changes risk management data; and it demands that insurers change their models and processes. There will be a heavy price to pay for insurers who do not get it right; and the change in mobile expectations may be much more sudden than many expect.
The breakout sessions to the first speakers studied the implementation of digital distribution strategies and products developed for digital consumers in individual European markets. These included both established industry players, as well as new insurance entrants, such as Gaggel in the UK, or Community Life in Germany.
Understanding consumer behaviour
The first session of the second day addressed how to best understand customer behaviour. Bruce Hodkinson, Swiss Re, reminded the audience of need for protection products. A perfect storm of rising health care costs and increased longevity is combining with falling state social support and low fertility rates. The protection gap across Europe is growing and many consumers are aware of it, but are not buying the many products that could help bridge this gap.
It is important for insurers to bring to the market varying new structures and flexibility of existing products sold at different ages, and incentivising and encouraging consumers to buy these products. These measures may help tackle the main barrier to bridging the protection gap, consumer inaction.
One source insurers may be able to draw on is the work of Dominic King, Imperial College, London. Dominic leads a unit researching how mobile technology and social media can be employed to nudge individuals – in the case of Imperial College, patients – into good behaviours and to do so at scale. SMS is a valuable technology for one-off nudges, such as reminding about an appointment. All results are measured to assess the maximum effectiveness of the message. Apps are effective in long term engagement, such as managing disease pathways.
The work of nudgers and behavioural economists is being taken on in insurance, as emphasised by Will Trump and Marina Oberholzer of Swiss Re. Customers do not always behave as utility maximisers would expect. This can be because of context; because of taking short cuts; or because of predictable irrationality. Using tested insights, it has proved possible to show beneficial improvements in completing forms honestly; improving doctor turn-around times in claims; using personalisation in renewals; and picking up sales leads.
One insurer putting many of the insights into customer behaviour into action is VitalityLife, presented by Deepak Jobanputra. The VitalityLife mission is to 'make people healthier and enhance and protect their lives'. It does this by establishing rewards for healthy eating, avoiding bad habits and exercising. Customers can graduate from bronze to platinum programmes; by doing so they not only earn entitlements such as discounted cinema tickets, but also graduate to reduced insurance premiums.
The morning breakout sessions focused on the Swiss Re studies into the health protection gap in France, Germany, Poland and the UK. For more information on these ground-breaking studies, click here.
Innovating the health protection market
Having established the need to innovate in health protection, the insurance market needs to respond. Questioning the audience, Paul Hately, Swiss Re, discovered that a little over half the audience believed the insurance industry was to some measure behind the digital consumer.
Insurers are in the foothills of e-business, many in Europe accepting some form of electronic submissions; but few have made the transition to a full digital platform. There has been a limited implementation of using data to allow pre-approved policies; but social media streams, health sensor data or other digital sources are not widely used in underwriting.
The first company to establish a full digital platform in all insurance processes, and abandon paper correspondence, has been the Dutch InShared P&C insurer, as presented by Irene van den Brink. It has allowed them to take a 10% market share in the Netherlands on the back of 32 staff.
Mobile has been key to InShared's success, particularly the use of tablets among key customer groups in older age brackets. Volume is key in gaining economies of scale from a digital platform, which can be shared by a number of other brands. InShared believe in selling without selling, building trust among a consumer base, willing to share experiences and recommendations, and refunding of surplus profits to its customers.
The final set of breakouts focused on innovations in the insurance processes. These can be the use of new data sources in the underwriting; developing new products in line with expectations of longer lives; establishing products that can cope with the rise in health care costs that accompany older age; and how insurers can most effectively distribute products over a digital platform.
At the end of the day, Bruce Hodkinson, Swiss Re, emphasised the challenge digital disruptors bring to the insurance game. It is not a challenge the companies can hide from; but one which can revitalise the insurance industry and make it increasingly relevant for the modern age.
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