InsurTech represents many things to many people. It just depends on your perspective and where you stand in the insurance line. For decades, insurers have been all about the product. Build it and they will come (or buy the cheapest!). But arguably, the single, most fundamental impact of InsurTech has been the shift in focus onto the customer.
The digital age has reshaped customer expectations
We have the Big Four to thank for this: Amazon, Apple, Facebook, and Google. Four tech giants that have reset the bar when it comes to wealth creation in the digital economy. Their collective aim is to make our mobile lives easier, happier, immediate and connected.
In so doing, they have reshaped customer expectations. Not just for their own customers, but for everybody else’s customers. There are many reasons how they achieved this titanic shift, but one of them is the use of advanced technology on a massive scale. Specifically data science and AI.
They know who we are, where we are, what we want and why we want it. They are able to predict our preferences and decisions based on the insight they have assembled about us. They don’t need statistics for this because they have real data instead. The digital consumer has traded it (their private data) in return for ease and convenience. Time will tell if this is the road to Utopia or if we are trading with the devil, but for now, most of us enjoy the fruits of the trade-off.
And our digital lives are simpler for them.
But let’s face it, giving away information about our self is nothing new. Clipping coupons for marketing databases predate the Internet era. But in the digital economy, technology has enabled scale and scope on an unprecedented level. The massive use of automation, algorithms, and AI helps the digital disruptor to understand all they need to know about us. (If you want to see what Google knows about you, go here and download all the data they have on you.)
With this data-driven insight and the power of predictive analytics, they (the digital provider) can second-guess our individual needs and wants. They remove friction from day to day activities and make our lives simpler. Uber didn’t invent cab hire, but they just made it a whole lot easier and frictionless to get one.
Using tech to make our lives simpler, easier, frictionless
Here’s a simple example of the power of tech from one of the Big Four. Google Flights uses AI to predict flight delays. They apply machine learning to historic flight data to flag when there is at least an 80% confidence that a flight will be delayed, even before the airline has informed you of a delay.
InsurTechs have redefined the focus on the insurance customer
So, what does this all mean for the insurance industry?
For decades, the insurance industry focused on products. Siloed products. All the while they talked about single views of the customer and upselling and cross-selling to give the impression they were customer focused.
But they weren’t, not really. Not the way that the Big Four (and all the new digital players) define customer focus. This is where the InsurTechs have made their mark across all personal lines of insurance. Now we watch as the insurance industry goes through a rapid technology evolution, making up for lost ground in the iPhone decade.
The rate of this technology evolution is proving to be rapid too! The lines are already blurred between the InsurTech startups and the incumbents launching their own digital startups.
And why are the incumbents doing this? Because customer expectations have changed and because the insurance industry is full of friction. ‘Your fat margin is my opportunity’ still applies, although fortunately for the insurance industry, the barrier to entry remains very high.
Making the insurance experience a simpler one
According to The Boston Consulting Group, the three critical dimensions of customer satisfaction in insurance are transparency, quality, and speed.
I’d add a fourth dimension; simplicity. But not price. Making it easier in the digital economy doesn’t automatically mean you have to make it cheaper. The fact that you can is secondary, but IMHO, convenience will always trump price.
Price alone has been/still is the primary buying criteria for the majority of personal lines insurance. The pursuit of the lowest premium has been the inevitable consequence of the commoditization of insurance. The origins of which go back to the race for massive scale and large numbers in the middle of the last century. This race to the bottom accelerated with the emergence of the aggregators when the Internet made apples for apple comparisons appear possible.
That is changing now because customer behavior is changing. Price will always be important, but so will other factors, such as convenience, personalization. ease of use, et al.
The three-part, 21st-century insurance value-chain
The distinction between brokers, carriers, reinsurers, managing general agents and the like is of little interest to consumers. From a customer’s perspective, insurance falls into three parts:
- Buying it
- Owning it
- Using it
For the digital insurers who make their customer experience simple, they remove friction from the three-part 21st-century insurance value chain.
Such as making it significantly easier and/or quicker to buy insurance. They use tech to mitigate, even avoid preventable losses for their customers. Or, they offer added value through engagement and complementary services. And they make the claims process quicker and easier.
Sadly, the majority of us still have to endure an analog experience with our insurers. But we know that the near future will come where insurtech can be able to overcome all these odds and make the insurance industry better and much faster than today.