Disrupting Insurance - Rise of the Digital Platform

Insurtech companies are truly disrupting the insurance industry by building digital insurance platforms in collaboration with insurance companies and suppliers

Disrupting Insurance - Rise of the Digital Platform - CIO&Leader

The rise of Insurtech companies is truly disrupting the insurance industry. Some of the traditional challenges faced by insurance companies like customer service, rising costs, customer acquisition and retention, faster time-to-market and risk management can be addressed by digital disruption.

The rise of technologies like Big Data Analytics, Artificial Intelligence and IoT creates numerous opportunities for differentiation in the insurance sector. These technologies not only bring value across the insurance value chain, they also create new products and revenue/operating models. At the core of this disruption, is the rise of the Digital Platform that is a marketplace or ecosystem that connects insurance companies, customers, and service providers. While the percentage of insurance companies owing the Digital Platform is low (estimated at 12%), insurers are participating as service providers, complementors.

Transforming Insurance with the Digital Platform

Insurtech companies are truly disrupting the insurance industry by building digital insurance platforms in collaboration with insurance companies and suppliers. The paradigm shift from product-centric model in traditional insurance companies to a primarily client centric model has been enabled by the digital insurance platforms that are enabled by technologies like IoT, Big Data Analytics, Blockchain, Artificial Intelligence and Cloud Computing. The digital insurance platform can be envisioned as a marketplace connecting insurance companies, suppliers (like Big Data Analytics, IoT Solution providers), supplementors (adding functionality to the value chain like Weather data providers who help provide data based insights to insurance companies and customers) and off course customers. The disruptions cuts across the insurance next generation value chain which is shown in the figure below:

Let’s do a quick review of how these technologies are transforming the insurance industry across its value chain.

  • Marketing and Product Development - One of the challenges that the insurance industry has continually faced is the relative lack of innovation around products and their features. This is now changing with the rise of Insurtech companies and their ability to leverage new data sets like sensor data from cars, weather data and social media insights about real customer needs and problems. Products can now be customized based on direct interaction with customer through digital channels, thereby creating flexibility around Product portfolios and individualized needs of customers can be met. Providing flexibility to the customer to pick and choose the required coverage and service levels also bring flexible pricing models in vogue, which has been a challenge in traditional insurance products. Weather data-based motor insurance is helping both consumers and insurance companies. Cyber Risk insurance solutions is another new offering for customers, increasingly at the risk of cyber-attacks.
  • Customer Acquisition - In this digital age, customers are information savvy and always on the lookout for best deals. Traditional methods of customer acquisition are less likely to work and a more pro-active approach around engaging with customers is needed through digital channels where in customer behavior, intent, personality, life events are well understood to create opportunities to meet customer demands with the suitable product at the right point in time. Recent industry surveys reveal, personalized product offerings are expected to improve customer experience by about 15%. Engaging with customers through self-service channels, with insurance advice through chatbots and providing information that helps compare product features and prices is key to acquiring customers in this age of disruption.
  • Underwriting and Pricing - With digital technologies, insurance companies can achieve faster and consistent underwriting and pricing. Deeper risk and pricing insights by combining machine learning, internal and external data sets, structured and unstructured data. Semi-automation of underwriting process is feasible leveraging Machine learning in the underwriting process, whereby if the risk scores are below a certain threshold straight through decision making can be invoked. Productivity benefits of 25% can be achieved in the underwriting process bringing cost savings.
  • Service and Support - One of the key digital transformation initiatives like providing Insurance-as-a-Service is bringing great value to customers. Customers can opt in and opt out, chose riders based on needs in this model. The IaaS model covers the entire value chain from marketing, customer acquisition, customer support and claims management. 24*7 support services provided to customer through bots and human agents.
  • Claims Management - Claims is another area that is being disrupted by digital technologies. Mobile submissions and payments are a key driver of change along with semi-automation in claims handling. This has resulted in a better customer experience and response time reduction in claims handling and processing costs. Use of Artificial Intelligence and Big Data Analytics also helps prevent fraudulent claims thereby reducing risk.

As is evident from the transformational impact of digital technologies at each stage of the insurance value chain, companies are increasingly looking at leveraging these technologies not only for productivity enhancements, cost optimization but also to create new revenue models based on dynamic product portfolios and pricing models based on customer preferences. The key benefits that digital transformation has provided the insurance industry can be summarized as:

  • Insurance-as-a-Service - A real-time insight into the customer needs and purchasing patterns. Digital channels have reduced the customer onboarding time as well as created flexible product and pricing models. This also creates a transparent experience for the customer, which is a key differentiator as compared to traditional insurance models.
  • Cost Optimization - Cost of customer acquisition and servicing have reduced cost associated with traditional insurance models. Faster claims processing through semi-automation has also helped optimize costs.
  • Customer Satisfaction - With self-service Dashboards and Insurance-as-a-Service, customers have a real-time visibility into their usage of insurance products via-a-vis needs and ability to process payments faster has increased NPS scores. Customers are also using digital channels of information to compare prices of products and making purchase decisions.
  • Productivity - Automation in underwriting and claims management processes has brought about significant productivity benefits. Underwriters have reported up to 25% productivity benefits from the emergence of digital technologies.
  • Revenue Enhancements - New products around weather data sets coupled with auto insurance, cyber risk insurance is increasing the revenue growth opportunities for insurance companies. Participating in digital insurance platforms creates an ecosystem of maximizing revenue for new operating models and products.  

According to McKinsey, digital platforms will account for USD 60 trillion in revenues by 2025.  In India, adoption of digital insurance models is still at an infancy and a clear opportunity for insurers to tap into, with increasing mobile and internet penetration. A recent PwC survey showed 35% customers are not happy with the claims processing responsiveness, 47% complained of paperwork being difficult to handle with. This creates new opportunities for insurance companies to embrace digital transformation to create a new customer experience and enhance market share.

The author is Data Platform Solutions Lead at the Services Integration Hub in IBM and has written three books

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