Advice & Best Practice

We need to redefine the role of the insurer post Covid-19

In the 1984 classic Ghostbusters, Egon Spendler gives some sage advice to his colleagues on their first mission at the Sedgewick Hotel. Egon warns his companions to never “cross the streams”, referring to the proton beams zapped from their particle throwers, or they would risk “total protonic reversal”, and the instantaneous combustion of life as we know. “It would be bad”, he added. 

While the Ghostbusters would eventually emerge as heroes and the saviours of Manhattan, you must sympathise with the insurance businesses who would have to follow in their wake.

The process of de-spookifying is a costly one, with estimates suggesting the Ghostbusters would have caused around $23 million in damages, which would have been a headache for the insurance companies involved. Humorous fictional analysis aside, the reality is that we’re seeing similarly great levels of destruction in the wake of COVID-19 right now and as the industry comes under increasing scrutiny over lack of compensation and where the effects of the pandemic sit contractually.

Clearly we need a new approach to unpack ‘force majeure’ and other ambiguities in greater detail for future occurrences. 

To get to the bottom of who is paying for what, you would need a clear and comprehensive understanding of a huge array of data points. The Ghostbusters risk grave danger if they cross streams. Insurance businesses face grave danger if they do not.

Traditional insurance companies have a plethora of information and data streams flowing through their businesses, but many still do not know how to harness the data they have effectively. Insurers’ now enjoy increased access to customer data, analytical tools and marketing technology, enabling effective outreach to customers and providing real clarity as to what resonates with them.

With this information, insurance companies are also increasingly able to quantify what causes a customer to leave and use this data to improve the customer experience.

It’s important to recognise that individual datasets are essentially meaningless, and can lead businesses to misinformed solutions. All data, from internal company-owned information to external public data, needs to be consolidated and unified to allow insurers to operate with maximum clarity and efficiency, improve decision making and calculate risk. 

The time for this unification is now. We can see that data is perpetually multiplying at a rapid rate, and naturally organisations are becoming more data-centric.

Data intelligence already plays a key role in the risk assessment and underwriting process. In the coming years we are likely to see risk analyst services playing a more important role as insurers now recognise that the traditional format is no longer tenable and that the need to engage with clients after they have purchased their policy is important. Risk management services are therefore a great way of adding more value to both parties within the relationship.

The advantages are twofold – improved customer experience and reduced likelihood of a claim. Fewer claims should ultimately mean higher profits for the insurer and cheaper policies for the consumer. In order to implement this, new data sources will play a role.

For example your home insurer could use weather data to quantify the potential effect of a coming storm and offer to send out consultants who can help identify and improve vulnerable spots on your property. It is likely that insurers will essentially play the role of caretakers, ensuring that consumer homes are regularly visited by plumber or electrician.

The shift will be a refocus back on the customer. In the commercial space, carriers already offer risk management services as part of their product packages, but they often go unused due to lack of awareness. However as the sector has a whole becomes more digitised, technology will make it easier for clients to actually access these services.

In the face of these technological advances, it is important to consider the very real challenge that technology moves faster than regulation. At the moment, certain personal factors are not allowed to influence a person’s risk profile and subsequent policy pricing, and so the regulation dictating exactly how this data can be used to fine-tune underwriting will lag behind.

The next few years will see a huge increase in the number of connected consumer devices. The data from existing devices such as cars, fitness trackers, home assistants, smartphones, and smart watches will continue to be utilised and this will increase rapidly. As well as this data from new categories such as medical devices, wearables and home appliances will start to be used as well.

The resulting increase of new data created by these devices will allow carriers to understand their clients on a much deeper level resulting in new product categories, possibly more personalized pricing, and increasingly real-time service delivery. For example, a wearable that is connected to an actuarial database could calculate a consumer’s personal risk score based on daily activities as well as the probability and severity of potential events. The disparity between available data and data that may later become legally compromised, underlines the necessity for insurers to have a transparent information stream which can highlight dangers. 

Insurers that are slow to adopt the new digitisation will almost certainly be left behind by those who leverage the technology which can transform disparate data into clear insights. The top insurance companies have been the same for the past 150 years.

However, it is likely we will see this begin to change as retailers like Amazon and Walmart start to enter into the insurance world. Amazon is reportedly preparing to enter the Indian market as a corporate agent for health, life and general insurance products. Also, some of Amazon’s foreign competitors, including Flipkart and Paytm, have already begun selling life and health products with the support of big non-insurance retailers like Walmart and Alibaba.

Analysts predict that within the next decade, one of the top three insurance providers will be one of these non-traditional entrants. The threat to incumbents is becoming increasingly diverse and ever greater.

For Bill Murray and his crew of poltergeist hunters, crossing streams meant risking total protonic reversal. For insurance business, failure to cross streams means risking an equally dangerous fate. Data is perpetually expanding, and to help make sense of it all insurers need to leverage the tools and partners which can unify information, consequently empowering business performance and the decision making process. If they don’t? As Egon said, “it would be bad”. 

By Graeme Scott, Founder and CEO, Synoptic

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