The insurance industry is facing its very own Kodak moment.
Forty years after the once heart-warming 1970s ad slogan became part of popular culture, it now reminds one more of the company’s spectacular failure to act in the face of massive industry-wide disruption than it does to capturing special moments. One of the world’s most dominant market leaders was virtually wiped out because it simply could not adapt to a changing consumer and business environment.
Insurance providers across the world are facing increasing pressure of costs, the ability to grow revenues and their contact with customers. Generally, they aren’t responding fast enough to digital transformation or changing customer behaviours, and run the risk of their own Kodak Moment. And it’s not a matter of efficiency, cost reduction, or customer satisfaction only: this is a matter of survival.
So, what is the challenge?
The dangers of a quick-fix approach
One of the main mistakes insurers currently make is to think implementing a shiny new digital front end or mobile app will solve the issue of their disparate legacy systems and enable them to quickly adapt to customer expectations. It won’t, because it doesn’t solve the core problems of increasing contact with customers, anticipating events which are insurable, and delivering timeous offers which make use of deep insights and customer knowledge.
Digital transformation requires end-to-end processes from the front end all the way through the business to the back office, enabling a truly data-driven capability and a digital experience for customers, brokers, affiliate partners, and internal users. Digital transformation must come from the core with a modern, dedicated digital platform supported by CEO buy-in – or you’ll simply spend a lot of money and time implementing fresh legacy systems and creating even more complexity.
Technology is accelerating the pace of change in society and business. When everything – from lifestyles to customer expectations to business models – is changing, the time for stop-gap measures is over. Forget front end and tactical work-arounds, and start embarking on real transformation, harnessing meaningful, digital insights, better margins, and greater value.
The digital transformation imperative
The insurance industry is facing a set of challenges that will upend insurers’ business models. In fact, 75% of insurers believe that industry boundaries will dramatically blur due to IoT and other platforms. While most insurers are still focused on selling insurance coverage and settling claims, customer expectations are changing quickly and dramatically.
New technologies like sensors and IoT-connected devices are becoming more widespread, and customers expect their insurers to use and innovate with these technologies to improve their experience. Today’s customer expects tailor-made coverage for their individual life situations, and want insurers to offer on-the-spot, personalised products and solutions.
New fintech players are answering this call much quicker than the traditional insurers: legacy insurers can only stay in the game if they are willing to adapt.
Toward usage-based insurance
The mistake that a lot of companies are making is to think of sensors and IoT devices as the beginning and end of digital transformation. However, they are simply supporting technologies for the bigger transformation at hand. Real transformation is about how insurers use IoT and their vast sources of internal and external data to change the customers experience, and adopt current technology to reimagine entire business models.
Insurers can’t just connect sensors and instantly provide usage-based insurance. In addition to providing ever-important premium adjustments, insurers need to leverage technology and innovate to provide additional benefits and customer services pre-emptively, and then monetise such services.
This can be more readily achieved by using sensor and other data. The more sensor data created, the more opportunities insurers will have to provide additional services and benefits for the customer. Naturally, the services will vary based on the property that’s insured. For a connected car, services might include parking or roadside assistance. For a connected home, the service could be automated responses to sensor-detected issues. For example, a water leak would automatically dispatch a plumber to the house. For a connected human, wearables could detect potential health issues and alert an appropriate medical provider before it becomes life-threatening.
Insurance that uses sensor data also provides the opportunity to offer customers “loyalty points” for improving driving behaviour or exercising more regularly. And just like an air-miles program, these points could convert to cash, gifts, or premium reductions, bringing new lifestyle benefits to customers that will increase loyalty and long-term viability.
For insurers, the challenge is clear: go all-in on digital transformation, leverage sensor technology, data, and innovate new products and services that improve the customer experience. The alternative: suffer your own Kodak moment, and be relegated to the history books.