Insurance in the digital age: protect, save and invest differently!
As part of Maltem Consulting Group's Business Months, I did a presentation on what insurance is and the current and future challenges of the digital age we are living in.
I shared my knowledge of the insurance industry, my beliefs and views on this market and the challenges that its players face and are likely to face in the future.
What are the current issues and future challenges for this sector in the era of digital transformation?
I am a Business Analyst and PMO Consultant at Maltem Consulting Luxembourg, mainly in insurance but also in banking for a few years.
My areas of expertise and activities are :
- Organisational consulting: Operational excellence, business process optimisation, change management and project management.
- Information System Consulting: Digital Transformation, IT Projects, agility, automation and process optimisation of operational applications.
I am passionate about insurance and the financial sector in general but also about new technologies and the impact they have and will have in the future.
First of all, let's remember what insurance is!
Insurance allows us to protect ourselves against the financial hazards of an event which, if it occurs, may cause damage or loss.
Financial contingency results from the quantification of damage or loss, which may be caused by a third party, oneself or something else.
Insurance is useful in both private and professional life.
Insurance is defined in more technical terms as "a service that provides a benefit upon the occurrence of an uncertain and random event often referred to as risk. The benefit, usually financial, may be provided to an individual, an association or a company, in exchange for the collection of a contribution or premium.
The insurance contract is the basis for the rights and obligations of each party. It sets out the conditions under which the service will be provided. It generally mentions :
- The premium that the policyholder undertakes to pay ;
- The benefit that the insurer will provide ;
- The uncertain event (the risk) ;
- Theinsurance interest (expressed negatively): the insured or the beneficiary must have no interest in the occurrence of the risk (for death insurance, the death of the insured is certain but the insurance interest is that it does not occur during the life of the contract).
There are two main categories of insurance: those that cover risks related to an individual and those that cover risks related to property.
It is also possible to take out so-called "multi-support" policies covering several types of risk.
Insurance of persons: Insurance related to the life of a person
The purpose of personal insurance is to cover risks relating to individuals such as personal injury, illness, death or disability.
A distinction is made between :
- Insurance: loan guarantee, daily allowances, education allowance, etc.
- Health careBasiccoverage: divided into two distinct categories: basic coverage (social security) and supplementary coverage (mutual insurance companies, insurers, etc.).
- Savings: Pension savings, branch 21 life insurance (guaranteed rate), Universal Life, branch 23 life insurance (linked to investment funds), branch 26 life insurance (short/medium term savings), group insurance and dedicated funds.
Personal insurance can be taken out either on an individual or a group basis. Some contracts allow the constitution and payment of savings in the form of capital or annuities. This is particularly the case with life insurance.
Property and casualty insurance (fire, accident and miscellaneous risks)
Damage insurance provides compensation in the event of a claim.
It covers both liability (civil liability, family liability or professional liability) and property (damage caused, protection of movable or immovable property).
Property protection is subdivided into small risks (glass breakage, water damage, house fire, etc.) and large risks (construction site, business building, factories, regional natural disasters) covering damage and losses.
There are also concepts of co-insurance and reinsurance, but these will not be discussed in this framework. In a few lines, co-insurance allows the sharing of the risks of a contract with other insurers, while in reinsurance, the insurer of a risk cedes all or part of the risk to a reinsurer who may also cede part of it to another reinsurer.
The insurance company is the company that designs and markets insurance products and manages the life of the contracts from their subscription to their "liquidation" or termination.
These products can be marketed through several distribution channels:
- Brokerage: Non-exclusive insurance networks
- Classic brokerage: independent brokers who market products from several insurance companies
- Mega-brokers: marketing of contracts by large international brokerage firms
- Assurfinance: brokers or agents linked to the exclusive marketing of an insurer's products.
- Exclusive non-banking insurance networks
- Exclusive insurance agents who sell products from one company (usually one company for one type of insurance)
- Insurance agents linked to an insurance company
- Bancassurance: exclusive insurance networks with banking activities
- Insurance products marketed through bank branches.
- Direct: without intermediaries
- Direct sales (business to business)
- Direct marketing (business to consumer)
- E-commerce without intermediaries: online sales and subscriptions
- Other direct
- Affinity groups: supermarket sales, associations, sports clubs etc.
- Captive insurers: a subsidiary of a commercial company (holding company) that acts as an insurer for the risks incurred by the company that owns it or the group.
The distribution of certain products is the result of specific distribution channels: in Europe, non-life insurance (Property & Casualty) is mainly sold through agents and brokers, on average 69% according to Assuralia data.
For life insurance, distribution is shared between bancassurance and agents and brokers, while group insurance products are most often sold directly.
The "new" distribution trends are via websites or applications providing product information. Either the customer contacts the insurance company for underwriting or he/she underwrites directly via the digital tool if he/she has the possibility to do so.
The challenge of the sector: digital transformation
The digital era has turned all types of markets upside down since its advent in the year 2000, and for two decades now all sectors, or almost all, have been affected by what is known as "Digital Transformation" in English, but in good French, "transformation numérique".
Many sectors have taken a giant step forward and are ahead of the digitisation concepts, such as biotech, healthtech, scientific research, pharmaceutical, automotive, telecommunication and many others.
The banking and insurance industries are still lagging behind but are trying to catch up and keep up with the times.
Why digital transformation in insurance?
Firstly, after the Internet, the technological invasion with WEB 2.0 has created a break with the world of before thanks to the advent of more and more technologies that change the daily life of everyone, telecommunication objects (Smartphones, tablets, Laptop) more and more powerful and accessible to many, the connectivity and access to the Internet network, the capacity of emission, storage and access of data as well as the traces left by its data on the Web (Cookies, historical data, bank details, social networks, etc.)
The insurance sector benefits all the more from this phenomenon, as the wealth and relevance of the available data and the tools make it possible to exploit them to the full.
Innovation on a large scale, the players who can distinguish themselves through essentially digital innovation at the right time are the ones who obtain the best market shares. Time-to-market is becoming a key concept in digital innovation, the time between the idea and its transformation into a distributable product must be reduced. To do this, it is better to be as agile as possible, and IT development is a good example of this.
The greater the break with the world before and the more difficult it is to return to what was done before, the more successful the disruptive innovation.
Hacking, startups and tech giants (GAFAM) form the ecosystem that creates this disruption, but also universities, research laboratories, regulations, taxation, user-friendly innovation, business culture and risk.
The insurance sector has been reluctant to take part in the change, but is finally taking the tentative step. On the one hand, this change is inevitable and on the other hand it creates a real break in the habits of the communities while offering immense opportunities.
Insurers are slowly entering this dynamic of "HYPE" innovation through communication channels, emails and websites, but also by taking advantage of existing innovations to fine-tune their products or the relationship with their affiliates (e.g.: connected objects, sensors, etc.).
We are in the age of data, and the immensity and wealth of available data are a godsend for insurers, as this data allows them to lift the veil on what is not or not easily known at the right time about policyholders, employees and market players.
Real-time data allows insurers to frame their strategies towards the market, taking into account changes in the market or in the behaviour of its players.
Big data, the combination of data and technology, is the basis for strategies that insurers can use to make data talk, as it is increasingly available via mobile terminals and connected objects.
Data has thus become a real "asset" that can create value for anyone who manages to structure and exploit it. BI is an integral part of the strategy to be adopted to structure, analyse, make available and thus make the data collected speak for itself.
It is not simply a matter of providing insurers with tons of data, but of structuring the data and making it available at the right time to whoever in the sector can use it to create value.
The data can thus be valuable for marketing, insurance product pricing, communication, product management and also for customer service purposes.
The digital age has brought with it new habits and customs in the way we consume and produce, and companies are creating new models to respond to them.
The new behaviours that influence the insurance product offer are essentially :
- The shared economy: carpooling, roommates, group purchases, dispossession of property replaced by use (AirBNB, shared cars) etc.
- Dematerialization: use of digitalized documents instead of paper documents, for example
- Personalized and instantaneous service/product
New business models have also emerged with digital technology, such as the best known, e-commerce, which is a hit all over the world, but also digital intermediation, which allows web platforms to propose a connection, to serve as comparators, and we should also note the growing influence of search engines. We should not forget the strong influence of social networks which, through the exchange and sharing of content, can advertise a player in the insurance sector (recommendations, feedback, satisfaction etc.).
Digital technology has not only brought good habits and innovation, but also new risks. Cybercrime was born with the digital age and is still growing as the digital age expands, including the most well-known cyber risks: hacking, data phishing, viruses, spam.
These new risks for policyholders and players in the sector have given rise to new professions, IS security managers, antivirus publishers and all the professions and projects linked to data protection etc.
Note that "new risks" implies "insurance", so why not have insurance products designed to protect against cyber risks or to compensate for damage? Some products already exist for companies!
Our digital age has had a significant impact on the business world and certainly on the insurance sector. On the one hand, we have moved from a product-centric model, responding to one or more issues, to a customer-centric model, both in terms of the product and the services around it, as well as its marketing and management. The customer is now at the centre of all attention and he intends to play it well.
The new strategies and projects are no longer only structural and organisational for the company, they are end-customer oriented and aim to meet the requirements of the new types of policyholders and the associated ecosystem.
There is clearly a break between the former policyholder, an atomised consumer, misinformed about his insurance contracts, dissatisfied but loyal to his insurer/broker, and a user or consumer of insurance products rather than a customer.
Insurance used to be bought, now it is sold, the new customer of insurers is better informed or likely to find information in an instant and structured way. They are also less loyal, since regulations and competition allow them to leave their insurer for another "when" they want to. This customer is much less dependent on his insurer or his broker, and is also better defended and better oriented, notably through consumer associations, policyholder defence organisations and insurance comparison sites.
This new customer is demanding because he wants a specific product that responds to his specific situation, he wants it as quickly as possible and without having to make a lot of effort.
Insurance companies should no longer design products and market them as they see fit. They should listen to and observe policyholders, analyse their situations, behaviour and needs and then derive models and products that respond to what the policyholder is willing to pay for.
It is therefore necessary to make life easier for the consumer by simplifying processes, by dematerialising what can be dematerialised, by facilitating the digitalisation of sales and post-sales processes (operations on existing contracts), by proposing omni-channel distribution and marketing channels (brokers, websites, e-commerce, applications, social networks, events), the objective being to achieve operational excellence and an optimised customer experience.
The sector must also face new entrants, insurtech and techno insurers (GAFAM). It is necessary to accept change and to enter into a partnership dynamic, as traditional insurers have been on the market for a long time but are not very innovative, whereas insurtech and other digital insurers have innovative ideas but lack experience.
Some insurers are already forging partnerships with digital insurance players such as innovative software publishers (CRM or ERP), Insurtech, IS service firms with expert resources in technology or in the support or management of digital projects.
Others have focused on the creation of internal innovation labs or even the financing of start-ups.
Digital projects are of several kinds, depending on the challenge faced by the insurer or broker who initiates them:
- Launch of new products or redesign of existing products
- Redesign of application IS (CRM or ERP): towards the Cloud and platforms
- Improving the customer experience: multi-channel distribution VS Omni chanel (website redesign, back-office, chat bot, customer reception avatar)
- Dematerialisation and archiving
- Business process management
- Optimisation of support services (HR, IT, Marketing, etc.)
- RPA or robotic process automation in order to automate processes that have no added value and that cannot be eliminated because they are necessary in the production cycle. The robot does not replace the human being, it takes over the boring and repetitive tasks, while the human being concentrates on tasks with added value.
- Regulatory projects: GDPR, PRIIPS, TWIN Peaks, DDA, MIFID 2, Solvency 2, IFRS-17
- Business intelligence and data mining
In conclusion, the insurance sector has been shaken by the wave of digital innovation and has been slow to react.
Today it is part of a dynamic of participation in the evolution of the digital world, of being a player both through the financing of startups, the transformation of insurers and brokers themselves, but also through partnerships with new competing players such as Insurtech.
Robotics, artificial intelligence and blockchain combined, could, among other things, revolutionise life insurers by using algorithms that are likely to be more or less autonomous, based on the data of policyholders and society in general to refine products, their pricing and the management of the risks to be covered.
Savings/investment insurers would also benefit from this type of development by taking advantage of these innovations to adjust their investment, portfolio or asset management strategies, but above all the optimised modelling of risks, the keystone of their performance.
Tomorrow's market challenges will be to be able to incorporate concepts that are not yet well known to the market, such as blockchain and artificial intelligence, to improve the customer experience and to design and market new products in the age of the times.
It will also be a question of making this ecosystem, made up of traditional insurers, agents and brokers, Insurtech, start-ups and new types of customers, even more dynamic and stronger.
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