The digital era presents a golden opportunity to engage with customers – and insurers should ensure they are not left behind, says David Ovenden, Insurance Management Consultancy Leader, Towers Watson
Ask 100 people to say which businesses have been massively disrupted by the digital revolution and insurance is unlikely to be one of them. That should be no excuse for complacency though, as the question is really one of when or how it will happen, rather than if.
One of the biggest innovations that is common to the success of the internet giants – the Googles, Facebooks and Amazons – is that they have all pioneered ways of interacting with customers. Rather than just setting out a shop front, they have used digital technologies to develop new ways of finding customers and keeping them happy, to the extent that customer expectations are evolving rapidly.
Surveys of the insurance industry have often found large gaps between what consumers want and what insurers actually deliver, and the distance is widening as customers experience fast and efficient service from other sectors.
A focus on customer needs is therefore essential to ensure that insurers remain relevant. Better customer analytics is the key to help narrow those gaps.
Ominously for insurers, the internet giants have stolen a march, having amassed petabytes of data on customer attitudes and developed advanced analytics to predict customer behaviours. While insurance is not their core business, they certainly do not lack the financial strength to launch such enterprises.
Could they threaten the established insurers? Well the outcome of the game is far from being decided. Insurance is a complex business and the understanding of how to price and manage insurance risk is without doubt a big barrier to newcomers.
In some ways, the ball is not in their court. Smart handling of big data has been at the core of the internet giants' success but insurers are no strangers to taking large amounts of data and analysing it.
Such techniques have largely been confined to dusty actuarial departments, but now is the time to bring them to the vanguard. The techniques that go into pricing or reserving – and the iterative development of observe, analyse, change, repeat – can and should be applied to customer and intermediary interactions.
A focus on customer needs is essential to ensure that insurers remain relevant
A different mindset needs to be adopted, going from 'what happened' analysis to 'how will customers behave'. Notably, in Australia, airline Qantas and supermarket chain Woolworths have invested in actuarial consultancies, having realised how actuaries can help develop their customer analytics.
With better analytics, insurers can deliver a more personalised customer experience and differentiated products, while still keeping overheads low and pricing competitive.
Smartphones and tablets will undoubtedly be the platforms on which near-term developments will be based, but insurers should also be aware how other devices could provide useful data to improve customer interaction, as well as to reduce claims frequency or severity, or to improve the accuracy of pricing.
Apps that enable usage-based car insurance have been around for a few years but the future is 'connected cars' that will effectively provide a technology platform for a whole range of services. Our homes are gradually being equipped with remote sensors that could help detect fire, flood or theft. There is clear potential to expand this to life and health insurers too, through fitness trackers and wearable sensors that monitor the body's vital statistics. Early evidence also suggests that the act of monitoring will change behavior, which in itself could improve claims frequency.
Taking advantage of new technologies is risky and insurers are highly aware of how reputationally damaging an IT failure can be. Cyber data breach and the ethics of customer profiling need to be considered. But equally there is the risk of doing nothing and seeing competitors forge ahead, or becoming beholden to a dominant intermediary that knows your customers far better than you do.
Insurers need to be alert to other possibilities that digital can provide – lest they find themselves going the way of photographic film manufacturers.
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Companies:Towers Watson
