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The insurance industry is changing – and insurers must adapt, fast

The insurance sector has been hit hard by COVID-19. Almost overnight, an industry that is traditionally heavily reliant on paper-based processes had not only to get everyone working from home – and all the technology issues that went with that – but also to move faster than they ever expected on their digitisation strategies.

They also experienced some serious operational challenges, as demand for services changed dramatically. Fewer cars on the road meant fewer accidents. Travel insurance virtually came to a standstill. More people at home meant fewer claims for things like flooding because someone had left the taps on. But health enquiries went through the roof. Some insurers saw significant spikes in customer enquiries (1000% increase in one case) as a result of COVID-19. Other research (from McKinsey) shows a rise in lapses and cancellations – with agents attributing it to customers having lower insurance budgets.

The big traditional insurers aren’t known for being agile. But they’re having to adapt to this upside-down world. And to add to their problems, there’s a real threat coming from start-ups that don’t have the legacy issues of the big firms, and can genuinely adapt to customers who expect and need something different. The status quo is changing, and the industry has to move or be left behind. And yet many companies are focusing not on transforming their businesses for this new world, but instead on cost reduction as the only source of profit growth. Cost reduction is important, of course – but it’s not transformative.

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I see the main issues facing the industry as:

  1. Racing to catch up with AI and automation

Most of the big insurers wish they’d made more ground in Artificial Intelligence before COVID-19 hit. Automating paper-based processes became an overnight priority for obvious reasons. AI will completely re-imagine the industry in ways such as the ability to spot fraud, make instant decisions, set premiums and assess risk. These are the big ticket items that will mean traditional brands can compete with the challengers snapping at their heels.

  1. Responding quickly to change

If something like this happens again, will the industry be able to cope better? COVID-19 has shown everyone just how nimble they need to be, to adjust to change rapidly. I don’t mean just redistributing resources to the areas that need it (although that matters), but also adjusting to a new way of working – contact centres operating virtually, everything being done digitally, suddenly having to worry about your employees’ home working technology and physical environment.

  1. Adjusting to virtual claims management

We’re seeing that virtual claims management is possible, but it’s not simple. Assessing claims damage is difficult when you can’t send an assessor out in person and you don’t have a technical solution to replace that process. The technology exists. Some insurers are making great strides in this area, others not so much.

  1. Using data more effectively

Insurers are sitting on a gold mine of data, but few use it effectively. For most firms, around 70 percent of their data is lying hidden and useless in silos. It’s a hugely valuable resource, and it’s being squandered. Yet data and modelling could predict a myriad of issues, from when customers might struggle to pay their premiums, to what new services and products they’ll need in the future.

If you can see patterns and predict behaviour, you can keep ahead of demand, not behind it, and spot and mitigate risk. To do that, you need two things: analytical skillset to make sense of the data; and a secure technology infrastructure to move large datasets effectively.

  1. Customer experience

Everything really boils down to the customer experience. There’s a lot of talk (and not just in this industry) about how companies are reinventing the customer experience. But reinvention is meaningless if the systems powering that experience remain the same. No customer has ever really wanted to fill out 15 pages of forms and wait six months for a claim to come through. That’s been imposed on them and people have accepted it because there’s been no real alternative. Challengers in the industry – who use technology to give instant decisions and cover, fast claims processing and immediate risk profiles – are changing that.

This is driven, of course, by a more demanding customer base. Gen Z is coming into the workforce now and they live different lives: renting homes, sharing cars, working in flexible spaces, holding down multiple jobs. They want an insurer who’s as flexible and intuitive as they are.

The insurers who will thrive in a post-COVID world will be those who can give customers what they’ll want tomorrow, not what they got yesterday.

By Bryn Barlow, partner, banking and financial services (Europe) for ISG

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