A Celent report on distribution management reports that insurance companies are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel in order to improve customer acquisition and retention. How can an insurer retain insureds in the digital age? The question can be attributed to big tectonic shifts occurring in virtually all industries, and particularly in the P/C insurance industry.
Distribution channels are changing and new innovative business models are emerging – evidenced by billions of dollars of funding from not only traditional venture funds, but also by the venture arms of large global insurance carriers. Digital agencies such as The Zebra, Hippo, Bold Penguin, EverQuote, Coverhound, Coverwallet, Embroker, Insureon amonst a host of others are emerging on the scene. Technology is also paving the way for new business models. The Internet of Things (IoT), Peer-to-peer insurance, On-demand insurance are fueling new business models with new Insuretech companies emerging on the scene such as Metromile, Bunker, Slice Labs, Lemonade, Notion, amongst others. While not all of these are assured of success, massive funding in this space is driven by inefficiencies to be eliminated in the distribution process and new markets to win. And all of these ventures are adopting a “digital first” approach.
The impact of digital is getting bigger and consequently, there are major shifts underway that make it necessary for insurers to adapt. Failing to embrace the opportunities presented by digital and not moving fast enough, is a risky proposition. Take for example, Blockbuster Video – which failed to heed the challenge from Netflix with streaming video – and filed for bankruptcy. There are other cautionary tales such as Blockbuster, who became irrelevant even though they commanded dominating positions in the marketplace.
So how are property & casualty insurance carriers positioned to respond to these business drivers, and survive and thrive as they have done in the face of similar tectonic shifts over the past decades and centuries? The first step is to understand what digital truly means. According to McKinsey, for some, it’s about technology. For others, digital is a new way of engaging with customers. And for others still, it represents an entirely new way of doing business. McKinsey helps define digital as encompassing three attributes: creating value at the new frontiers of the business world, creating value in the processes that execute a vision of customer experiences, and building foundational capabilities that support the entire structure. Let’s take a look at each.
Creating value at the new frontiers of business
Consumers are making digital part of their daily lives and their daily experiences – accessing almost infinite information in their palms via mobile phones or in their cars, homes and places of work. Smart devices or apps on your phone help individuals and businesses monitor their assets – for example the NEST device which can control your home temperature remotely and also alert you in case of hazards like fires.
Insurers can help their end customers benefit from preventive maintenance – for example smart buildings are expected to bring down risk of loss. Sensors in jet engines are jumping from 250 to 5000 resulting in the ability to benefit from predictive maintenance. Similarly, monitoring weather, animal health, changes in soil, can help in taking timely action and reducing losses.
However, to view these digital enablers, with a lens of cost saving or loss prevention, would be short-sighted. There are many other benefits including the ability to increase “stickiness” with your insureds and even generating new revenue streams. Such opportunities include:
- Better risk management and incentivizing insureds for the same
- Better customer segmentation made possible by availing of rich behavioral data
- Better customer engagement by shifting from a “grudge buy” to enabling them to helping protect their assets
These examples suggest that insurers can embrace digital to provide higher value to their customers. Property & Casualty insurance carriers already have some of this data and when combined with new digital capabilities such as IoT and data analytics, they are uniquely positioned to achieve their growth and retention goals.
Creating value in core businesses
According to McKinsey, embracing digital also involves rethinking how to use new capabilities to improve how customers are served. This is grounded in an obsession with understanding each step of a customer’s purchasing journey—regardless of channel—and thinking about how digital capabilities can design and deliver the best possible experience, across all parts of the business. Let’s juxtapose this to the desire to attract and retain not just top producers, but also the new generation of producers. These constituents simply won’t stand for the challenges presented by manual processes. They are accustomed to, in their daily lives, getting instant gratification throughout their journeys and demand the same from the insurers they partner with. No longer is it sufficient to provide prompt quotes during business hours.
The agents today, are always connected and may research where to place their business at anytime from any device. And they want to be guided on the products you offer, not be knowledgeable on these products by reading your marketing literature in a static website! They expect you to support the process for winning new business and servicing existing business in the most efficient way, without having to spend their time keying in data in multiple systems. And this applies to the end insureds as well as insurers’ own employees!
Building foundational digital capabilities
According to McKinsey, the final attribute of digital involves the technological and organizational processes that allow you to be agile and fast. Such a foundation, according to McKinsey, involves two elements - mindsets and systems architecture. McKinsey advises that digital is all about making better and faster decisions, and developing iterative and rapid ways of doing things. For instance, insurers may minimize manual processes by enabling agents and/or customers to engage throughout their buying and servicing journey through an agent portal or customer portal that enable them to fulfill their work in as few keystrokes as possible by pre-filling data from third party providers, while guiding them every step of the way. In another iteration, insurers may roll out capabilities that help their end customers manage their risks and assets through new data capabilities.
Establishing foundational capabilities also involves putting in place a systems and data architecture. Such an architecture, involves creating a two-part environment that decouples systems which support critical functions and run at a slower pace, from those that support fast-moving, often customer-facing interactions. Agent portals, customer portals and related apps that engage customers, agents and other stakeholders accomplish the fast-moving customer facing interactions, while administration systems – or systems of record, address the more critical functions that require rigor in evolving them.
According to a Celent report, digital engagement facilitated by agent portals and/or customer portals are a top priority for insurers in their quest for growth and operational efficiency. Although portals are not a new concept, the requirements have changed. Here are some of the reasons:
- Attract and retain top producers and a new generation of producers who will not stand for legacy operational inefficiencies
- Have a slick user interface that is intuitive, easy to use and requires little or no training
- Have self service capabilities for agents and insureds for policy life cycle transactions
- Integrates easily to multiple back-end systems
- Connects real time between agents and insurers
- Provides an omni-channel experience
- Creates value that is compelling such that the insurer becomes a market of choice by providing significantly higher value
In summary, to survive and thrive in the digital age, property & casualty insurance carriers must embrace the opportunities fueled by digital. Responding to this changing landscape requires thinking about adding value in the frontiers of your business, in designing your systems and processes to deliver delightful agent and customer experiences and instituting foundational capabilities. There are many choices available for the latter – ranging from vended solutions to do-it-yourself approaches. Time is of essence, though as the pace of change is rapid and presents both – tremendous opportunities and also significant risk to becoming obsolete!
“Originally published in the PULSE digital magazine, [October], 2017”.
View the on-demand webinar: Are P/C insurers willing to be left behind in the era of digital natives? to gain insights into how leveraging digital technologies property & casualty insurers can engage customers and agents, and adopt emerging disruptive business models. Presented by Martina Conlon of Novarica, Michael Anselmo of Insurance, and Don Chase of ValueMomentum, the webinar also covers the business, technology, and organizational considerations when evaluating your options to build your strategy to digitally engage customers and agents.