We have had a very good response to our shout out for Predictions 2020, so before we post a general round up feature, here are some key points from Tony at Pegasystems;
1. The FCA could put their foot down on pricing
In its recent report into the pricing of home and motor insurance, the Financial Conduct Authority highlighted that competition is not working well for all consumers in these markets and may decide to enforce bans on automatic price rises and making firms move consumers to cheaper deals. If these bans come into force in 2020 it will cause quite an impact on profitability for insurers and insurance aggregators. This will mean that rather than selling solely on price there may be some requirement in the personal lines area to think about how insurers compete on suitability of cover and other criteria.
2. Mass personalisation gets the AI treatment
Mass personalisation of pricing will be a key trend in 2020 given that it helps traditional insurers stand a chance of competing with the start-up and large insurtechs offering microproducts, and AI will be invaluable. 2019 Pega research found customer satisfaction with insurance companies is declining and that AI can improve the relevance and attraction of the customer experience and enhance brand loyalty/retention.
However, insurers will have to tread very carefully when using AI to price policies, to avoid discrimination based on demographics such as race and sex. Even pricing a policy so high someone can’t buy it rather than turning them down for insurance could be taken as discrimination. Using personalised, transparent rather than opaque AI is one way insurers can avoid prejudice, as transparent AI must provide an explanation for how it came to all its decisions.
3. Increased effectiveness of underwriting in commercial lines
In 2020, insurance executives are going to wake up to the fact that underwriting is not all about efficiency. A combination of factors including changing climate leading to an increase in extreme weather events, a substantial national threat level and high levels of political and economic uncertainty, is making it harder to calculate risk making it more difficult to guarantee profitability in 2020. Y
es, efficiency is important – the faster the turnaround, the better the chance of winning. Nonetheless, of equal importance is the effectiveness of the underwriter. AI and machine learning will be used to improve algorithms and therefore effectiveness by helping insurers prioritise which policies make the most business sense to underwrite. This will allow them to strike the balance between winning customers and achieving a profitable portfolio mix for the year.
4. Management finally ask ‘what can modern tech do for me?’
There are still members of the c-suite that don’t fully understand what can be done with modern technology like AI and are not being materially affected by what’s happening outside the insurance industry yet. Once that starts to hit them, they’ll start to educate themselves and take action. Legacy thinking will remain a big issue, as legacy IT manifests itself from legacy thinking.
Lots of insurers are still thinking they need to renew their existing software package as opposed to deciding to build themselves a platform which can constantly evolve and will never become outdated. The big motivator for this is cash – it’s only when retention levels start to decline, and revenues and profitability takes a hit that insurers start to ask serious questions and figure out the solutions. With Lloyd’s of London noting in its H1 2019 financial results that it will continue to focus on performance management to deliver sustainable, profitable growth, we will see senior executives genuinely seek to understand how technology can help them achieve this in 2020.
5. From sticking plaster RPA to industrial strength DPA
Process automation has been with us 30 years already, but digital process automation (DPA) is what is new and will change insurance in 2020. DPA can be considered both in terms of robotics (RPA) and industrial strength automation. RPA helps insurance automate standard, easily repeatable tasks staff do every day. It’s tactical, cheap and easy with a fast return on investment, but it’s a sticking plaster and not the silver bullet – for example if any part of a workflow changes, the process stops working. What will really make an impact in insurance next year, and is strategically the right thing to do for long-term success, is proper enterprise-wide industrial automation, requiring case management and everything in between. This is because unlike RPA which provides short-term solutions, DPA enables insurers to fully futureproof their business so that they can scale and adapt in an agile way – just like an insurtech!
6. Insurers get data-savvy with IoT
In 2020 the number of internet-connected devices will grow extensively, the data from which will help insurers build more accurate models and algorithms for predicting event-related claims like flooding or burglaries. This will mean insurers participating more in risk avoidance, warning customers of threats before they occur, managing risks and thus avoid claims happening. The more data available, the more likely it is insurers will calculate the risk properly and avoid a worst-case scenario.
For example, data from motion detectors and CCTV can be used in conjunction with each other to understand whether someone walking around an office at 3 a.m. is the security guard or someone else not authorised to be there, or if the movement is water cascading out of a bathroom. You can move towards risk avoidance, protecting assets and avoiding claims. This will be a win-win for both customers and insurers.
7. Pension providers focus on brand values in wealth management
We’re seeing the likes of Standard Life, Legal & General and Aegon moving out of primarily selling pensions into wealth management and pay better attention to customer lifecycle management and generating brand loyalty. With rising competition from new insurtech start-ups, in 2020 wealth management companies will realise the importance of building strong relationships with their customers to drive up persistency rates through greater brand loyalty.
They will realise that for long term success, the objective has to be to build long term, consistent, individualised brand value with each customer over decades to keep their business. Players in the wealth management space could capitalise on far more opportunities during the customer lifecycle to drive loyalty than they currently are today: from when the client starts their career, gets married, buys a property, has a baby, gets a pay rise or even when they have a birthday. Plus, some of these life stages could mean great prospects for the provider to sell a new product, like life cover when they start a family.