This Opinion piece is by Vijaykumar Mahendrakar, Senior Vice President, Insurance Solutions, UK & EMEA at Mphasis and it takes a look at how the insurance landscape has been changed by technology, yet still has customer wellbeing right at the heart of each and every transaction.
The emergence of next-generation technology solutions such as AI, machine learning, predictive analytics, cloud and Edge computing, is causing a seismic shift in the insurance market – disrupting the outdated, typically protection policy-focused model.
By facilitating access to richer, unstructured data in real time, technology is paving the way for insurers to employ greater personalisation and become truly customer-centric. Used well, it can drive tremendous growth opportunities as well as cost and operational efficiencies – crucially, through promoting wellbeing and prevention services.
It’s a hot topic, given that customer satisfaction with the UK insurance sector has seen a year-on-year decline since 2017. The sector is the largest in Europe, managing almost £2 trillion and playing a significant role in the country’s economy. A market of this size and influence has little choice but to adapt to the times in order to survive and flourish, particularly when emerging insurance models focus on more effective use of technology by design and default. Take the recent successful momentum of AI-backed Lemonade, which made huge waves in the US and is now expanding in Europe, with its ethos of a fair and totally digital future for insurance.
What’s the challenge for the rest of the sector? Customer expectations and requirements are shifting, and insurers need to accelerate change to meet them. The solution is to harness emerging technologies to gain valuable insights and enable greater personalisation which, despite the progress already being made, is still a nascent concept for much of the industry.
Turning the status quo on its head
Today, most customer data is still being collected via form-based documents, a cumbersome manual process that, more often than not, fails to deliver a solution that is the best fit for individuals.
Larger insurers, as well as tech-savvy start-ups, have realised that they can lean on technology to gather the necessary information and present it to the customer in a ready-made package. This takes the pressure off the customer to supply the precise data that would guarantee the most suitable deal.
However, access to information that’s not readily available means engaging in more meaningful ways with customers, so that they see the advantages of opting in to share personal data. A great case in point is Vitality, which rewards customers with savings in return for tracking their physical activity and biometric data through wearable devices. As a knock-on effect, this encourages people to improve their fitness levels, wellbeing and quality of life.
Consider also the use of IoT in car telematics. By installing a small ‘black box’ or dashcam device, insurers can now measure exactly how, where and when someone uses their car. This level of intelligence can benefit young or new drivers the most, for whom the cost of insurance can be prohibitively expensive (often more than the car itself). Depending on the data, insurers can decide to charge a lower premium and adjust it monthly, rather than a rigid annual price. In turn, this inspires drivers to focus on road safety and careful driving.
This marks a leap forward from the closed, impersonal and stand-alone insurance system to a fresh business model that is part of an open market ecosystem and revolves around the customer.
Prevention is better than cure
Currently it is common for businesses to follow the mantra of ‘systems and applications are the core’. I believe that it should be ‘data is the core’. Tapping into data in game-changing ways enables insurers to be agile and informed enough to offer thoughtfully-tailored solutions.
Enhancing the customer experience should be the raison d’etre of insurers, something easily lost in the race to gain profitability and market share in a crowded space. They have a responsibility to deliver value to customers and to set the new standard for best practice.
Technology has empowered insurers to contribute to society by preventing adverse events in the first place or minimising their impact as much as possible; they’re already using predictive analytics and AI to map historical weather and geographical data to pinpoint potential hazards.
For home insurance – approximately £1.8 million a day is paid out for water leaks. Given that rates are based on the likelihood of a claim, smart technology that can spot leaks and provide quick remedial action naturally results in lower costs. The likes of LeakBot, for instance, are now offered by insurers as an incentive for people to protect their homes against damage.
With great innovation comes great responsibility
With any emerging technology, the other side of the coin to its manifold benefits is the potential for misuse and security issues. There’s much controversy surrounding price optimisation and dual pricing, whereby insurers are seen to let down their loyal customers.
Price optimisation, like underwriting, is increasingly dependent on the use of machine learning. If insurers aren’t careful, this kind of automated profiling can lead to discriminatory decisions that contravene the GDPR. Another big concern is underinsurance, which puts certain vulnerable segments of society at a disadvantage, such as those living in flood-prone areas. By leveraging technology, insurers can stop relying on ‘guesstimates’ and assess levels of risk properly to offer better deals and democratise access to insurance.
Insurers are still learning how to introduce disruptive solutions while mitigating the accompanying risks. Seeing that new technologies have the potential to benefit the population, the government is avoiding overregulation in order to not inhibit the flow of innovation.
In the absence of firm regulation or policy on the ethics of data, the onus is on insurers to self-regulate and lead by example. They need to understand that their bottom line relies on them prioritising the ethical use of data, fraud prevention, fairness and transparency, to strengthen customer retention and build trust. It’s win-win.
Mphasis is well-versed in the challenges and opportunities faced by insurers, supporting major players through digital transformation journeys. Therefore, I’ve seen first-hand how cutting-edge advancements – which were considered science fiction a decade ago – have revolutionised the way insurers collect and use data. Their desired outcome is not only to bolster growth but to do so by elevating the customer experience.
So what’s the next frontier?
The urgency for legacy insurance processes and models to change is being pushed by ever-evolving consumer behaviours and is aligned with wider trends. The way we live, work and travel is shifting.
In an age of digitalisation and globalisation where everything is at our fingertips 24/7, service providers must adapt to offer the same level of flexibility. Consumers are used to renting everything now (think Uber and the gig economy) and insurance needs to integrate itself seamlessly into the renting economy to stop being a ‘grudge’ purchase.
I think that the real proof of innovation will come when insurance becomes invisible. This means that it is a truly frictionless and effortless buy, instantly modifiable to suit the customer’s lifestyle. For example, if you’re a delivery driver using your vehicle on a professional and personal basis, you need to be able to change your cover at any given moment without buying two separate year-long policies.
Therefore, customers will only truly benefit if insurers learn how to adapt to their specific needs in a fast-paced world, and they will only be able to achieve this if they focus on having the right forward-thinking strategy in place on incorporating next-generation tech. The time is now for the industry to embrace this much-needed disruption and ensure that the end goal is wellbeing with a capital ‘W’.