In this Opinion piece, Bryn Barlow, Partner, Banking & Financial Services (Europe) for ISG – www.isg-one.com takes a look at the way technology can be used to create better customer experiences after Covid-19.
The insurance industry has been hit hard by COVID-19.
Its reputation has taken a battering. Consumers demanded compensation for lost holidays last year. Companies are looking for business interruption payouts. The FCA has asked insurers to “think beyond the strict implementation of policy terms” and to think about what’s “reasonable” in each case.
The claims burden is growing, all in the context of deteriorating business, political and geological environments. Insurance prices are already rising as a result. This will pose a significant problem for insurers when the pandemic has passed.
To survive the fallout, insurers need to fundamentally reduce their costs. And that means looking at long-term sustainable cost-reduction in order to survive – after all its not like the last few years haven’t seen massive cost out already.
How insurance companies can achieve long-term cost-reduction
1. Re-assess office costs
We know that the pandemic is producing a rapid change in business culture. Remote and flexible working has become the norm. Insurance leaders are reporting consistent – or even increased – levels of productivity during the pandemic (despite the ongoing issues such as home-schooling, broadband connection speeds and so on).
Businesses of all sizes are reviewing their office arrangements, planning for a post-pandemic world. Some are relocating away from extortionate city-centre locations to the suburbs. Others are considering a hybrid of remote and office-based working; it will be critical to rethink how relationships, community, culture and trust will play as the balance shifts to protect cost savings.
2. Focus – genuinely – on customer experience
Every insurer claims it’s ‘customer focused’. Few really are. The challengers are doing well here; the traditional companies not so much. If you’re new to the market, you don’t have the legacy issues of the big traditional insurers. These new entrants are digital natives, setting up all of their services to suit the customer – virtual assessments, fast payouts, instant decisions. Their digital roots, automated processes and lack of red tape often make them 10-15 percent more profitable than traditional insurers.
These traditional insurers have a reputation for being slow to process claims, expensive and bombarding claimants with paperwork. For my generation trust outweighed convenience in choosing services; this is not the case for the generations that are following.
3. Use automation and AI to enhance fraud detection
The most expensive area for insurers is in claims management and settlement. In 2019, Cifas members reported seeing a 27% rise in insurance fraud (52% for household insurers). Reducing fraud reduces cost, improves experience and eases working capital.
What percentage of fraud is going undetected? In times of economic hardship, claims fraud skyrockets. Fraudsters are organised, have sophisticated technology and in some cases are collaborating to share claim money. They’ll even falsify identities to get a payout. This is organised crime, designed to get past human detection. Automation and AI will help to spot patterns of behaviour that could uncover fraudulent claims and save serious amounts of money.
4. Foster a culture of cost-reduction, driven by strong leadership
I’m always amazed at how much apathy there is around fraud prevention and cost-saving. From arguing that “we’ve always done it this way” to “there’s no need to reinvent the wheel”, there’s often a real resistance to change.
The result? A lack of collaboration between business silos and a lack of accountability.
Cost-reduction is a cultural issue. It starts with strong leadership and a change from the top down. Leaders need to have a cost-reduction mindset and work to create a culture that values – and rewards – efficiency and accuracy.
If you put cost-reduction and optimisation at the heart of your business strategy, you are communicating that all employees have a role to play in making the business efficient. That means getting buy-in from leadership. If they aren’t sold on the changes, employees won’t be either.
It takes a long-term view, and targeted investment in the right tools to save money and increase profit in the long-term. Winners will deliver the best experience for the lowest cost; both dimensions are key.