Industry Insights

Can insurers compete with the best customer engagers?

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Let’s do a thought experiment. I often have discussions with insurance executives about what keeps them up at night. One of the answers I most often hear is the fear of Amazon or Google entering the insurance industry. In our experiment, let’s take one step further. What if a digital giant partnered with or bought a Tier 1 insurer? Putting aside potential regulatory issues, what would that mean?

The insurer would bring a deep insurance knowledge, an existing (offline) distribution network and a strong brand built around traditional insurance metrics, and hopefully customer trust. The digital giant, on the other hand, adds customer knowledge that the industry can only dream of, their own flexible (online) distribution technology with an ecosystem of technology partners, and a brand built around innovation, speed and access. Last but not least, LOTS of capital.

This merger would immediately create a potent, customer-centric digital insurer who is used to working with large amounts of data – and with Big Data – something industry incumbents have been aspiring to for some time with mixed success. Can traditional insurers hope to compete?

I think they do. It will require a serious rethinking of insurance products, business models and even culture, though. The majority of traditional insurers look to the past, assessing risks from historical data and offering coverage and restitution after something happens. But what do customers actually want and expect from insurers? The best accident is one that never happens, making coverage unnecessary. Customers don’t want insurers to be a claims adjuster or, worse, a product seller, but rather a life companion. They want their providers to engage them, understand them and work for them.

Those three tenets translate to very specific qualities customers want and that insurers need to cover:

  • Convenience (engage me). Consumers are connected and getting used to having 24/7 access and quick response times. For insurers, that does not necessarily mean everything has to be online – especially in the more complex matters of risk and security, many people prefer to interact with humans. Those humans – which can be the traditional intermediary – do have to be easily accessible and highly competent. On the one hand, this means seamlessly integrated customer facing access points. On the other, AI-based digital assistants can augment intermediary knowledge to solve customer issues to a high standard of satisfaction.
  • Individualization (understand me). In the past, insurers built mass products that they threw at very broad target groups in the hope that enough stuck to be profitable. In the age of information asymmetry, it mostly was, but nowadays customers are expecting more. The data is there, but insurers need to utilize unstructured knowledge better. This includes internal conversations via call centers, the customer knowledge of intermediaries, and the petabytes of data that are out there on social media and the internet at large. Combing all of these using advanced analytics and AI will translate data into usable information, which should ultimately lead to products that serve customer needs better – especially in cases when customers don’t want to buy gadget and insurance separately, but instead prefer an integrated experience that seamlessly includes risk coverage.
  • Simplicity (work for me). When you buy insurance, you send in an “application”. Nothing illustrates the lack of customer centricity in insurance thinking better than this term – as if insurers are doing customers a favor! Insurers need to be easy to do business with. Similar to convenience, this means seamless integration, not only of access points, i.e. systems of engagement, but also of systems of record (e.g. admin systems) and systems of insight (analytics). Moving to cloud-bases systems and/or platforms can assist here.

Only if insurers get all three right can they hope to compete with our hypothetical new digital giant insurer. Many are going in the right direction, experimenting with innovation, acquiring or partnering with insurtechs to become a life companion in the truest sense, one that customers feel they can trust. A study by my colleagues at the IBM Institute for Business Value (IBV), “Innovating insurance,” shows some examples and highlights what innovators do right – tailoring organization, culture and process to support successful innovation. I am deeply convinced that the key differentiating factor for all insurers, regional and global, will be to be trusted as life companion. The need to be perceived as being serious about data privacy and of leveraging Big Data for their customers’ benefit.

How likely is the scenario – the giant digital insurer – to happen? Google’s first foray into insurance with Google Compare had limited success, but are now investing into various insurtechs. Amazon has been hiring insurance skills in Europe and set to apply for an insurance license in India. So, something is definitely afoot, and insurers would do best to prepare.

For further reading on the subject of the insurance future, I recommend another study by the IBV, “Insurance 2025”. It develops further future scenarios and the implications for insurance, recommending pathways to deal with all potential futures.

Explore IBM Insurance solutions.

Vice President Insurance Solutions & ISBD Europe

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