The ‘Digital Insurer’ is getting a lot of ink in the trade press these days. Numerous benefits emerge by applying digital to conduct the business of insurance. But the same construct is also finding its way into the popular press, with less sanguine implications. Are we facing a circle in need of squaring?
Digital is defined by what it does….
There is no one definition of the ‘digital insurer.’ Those definitions that are put forward usually consist of examples of products and processes. Given how dynamic digital technology is at this point, that’s probably the best we can do. I tend to use Bain and Company’s approach, which breaks digital into out into 6 dimensions:
- Digitally enhanced customer experiences.
- An omnichannel sales and distribution model.
- Optimized operations using digital technologies.
- Advanced analytics and Big Data applied throughout the business.
- Technology activated to enable a digital transformation.
- An innovation-ready organization.
The first two relate to ease of use / engagement for the end customer. The next two focus on making internal operations more efficient and effective. The final two highlight priorities for continuous improvement of technology and human resources.
By creating metrics for each category, insurers can benchmark their progress in quantifiable terms and map business results against objectives.
So far, so good.
Are Digital tools making insurance ‘Evil’?
A recent article in Huffington Post, by James Daley, has the less than subtle title ‘Why Insurance Is Becoming Evil‘. At first blush, Daley – who is self-described as ‘a consumer campaigner and financial journalist’ – is reprising a concerns about insurance. For example, referring to critical illness and home insurance, Daley writes: “why have we come to accept a world where some of the people that need this protection the most cannot afford it?”
We have heard this before. However, Daley takes a new tact: Data and Analytics. Citing a report from the ICAEW – a UK based global association of accountants and finance professionals – Daley concludes that access to Big Data sources would allow underwriters to draw meaningful statistical conclusions such as “strong statistical correlations between people’s shopping baskets and their propensity to have car accidents”.
Daley’s argues that increased use of data to price insurance will lead to unfair treatment. According to Daley, the ICAEW report “rightly points out that the insurance industry is moving further and further away from the principles of pooled risk on which it was founded. As we use more and more data to price insurance, it’s inevitable that we create more unfair outcomes.”
Wrong or right, we better have an answer
The reality is that better data inherently produces more accurate pricing, which creates a fairer environment.
But that argument has had limited impact in the past. Do we believe that more sophisticated algorithms will placate our critics?
We need to get creative
Obviously, pricing is close to our underwriting heart. But, as Daley’s post demonstrates, this is usually interpreted as detrimental to policy holders. We need to open some other doors for the customer to look in.
We know that analytics can assist in claims management, to improve the quality and timeliness of the claims experience We also know that the use of the Internet of Thing (IoT) can prevent or reduce the impact of risk. In addition to saving the customer money on premiums and deductibles, they also save the most important resource: time.
And how do we do this?
As we become digital insurers, our clients are becoming digital consumers. In addition to all the internal benefits, we have the opportunities to get external feedback.
We have followed American Family and its exploitation of the IoT for service and marketing. We are welcoming Ryan Rist from AmFam to provide additional insight at the 2016ICTC. He has titled his session as American Family and the Internet of Things: Doing to Insurance what Starbucks Did to Coffee.
Not all customer experience measurement needs to be hyper techie. I am getting very used to answering short surveys after major and minor transactions. I can remember the last time I heard from my insurer or broker after a policy change: Never.
A digital double win?
We should celebrate moving to digital insurance. But while we do, we should ensure that we celebrate a win-win with our customers.
What do you think?