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Dissecting Digital Dimensions: There is a Plan … Sort of …

Digital technologies are driving new opportunities for insurers, brokers, insurtechs, and just plain folk.  Digital offers streamlined workflows, processes, and intelligent assistants.  In some instances, digital alters the insurance product.

I borrowed an excellent post from a large insurer which has developed a model of digital things to come to start the discussion about impacts.  And we have some up-coming events (at the end of this post) which will offer new perspectives.

From a leader’s perspective…

American Family Insurance (AmFam) was early into to the digital world.  In March 2016, Kyle Nakatsuji, principal at American Family Ventures (the VC component of AmFam) published Transforming Insurance: Insurance 2.0 and Evolution of Distribution in CBInsights.

Nakatsuji contends that there are three elements that deliver value to insurance customers:  Distribution, Product, and Structure.   In his post, Nakatsuji elected to focus on distribution.

Nakatsuji delineates 3 time frames for products and service:

  • short term (V1.1), which will offer incremental improvements to effectiveness / efficiency in workflows.  He calls this ‘continuous’, as it builds on previous initiatives, with existing products;
  • long term (V3.0), which will provide ‘discontinuous’ changes, introducing new risks / insurance covers.  He offers this description:  “risk management in the age of commercial space travel, human genetic modification, and general AI.”
  • and the bridge between (V2.0). This is still in the short term, but offers ‘discontinuity,’ including “step function advances and significant departures from existing insurance processes and workflows.”

Nakatsuji focuses on V2.0 and distribution.  A wise choice in my mind.  This allows a measure of the disruption and its expected results longer term.

So, what about the consumer?

Nakatsuji writes that there are two types of consumer drivers when it comes to distribution.  The first is  Intent-driven, where the consumer discovers their insurance requirements, and responds by seeking it out, generally with an agent / broker as a guide.

The second is Opportunity-driven, where consumers “consider purchasing insurance because, in the course of other activities, they have completed some action or provided some information that allows a timely and unique offer of insurance to be presented to them.”

In other words, the consumer conducts normal activities, e.g.,  buying a new car, improving a home with a new deck, taking on volunteer functions for charities.  As a result of the transactions (possibly being tracked by a smart phone), the user will be advised of actions to take and, possibly, have the required transaction developed and completed without the user’s intervention.

When we bring this all together…

Both Intent-driven and Opportunity-driven actions will require bespoke development based on the consumer’s profiles.  For the Intent-driven consumer, Nakasuji argues that agents and brokers need to continue online development, with emphasis on mobile-first channels.

For the Opportunity-driven consumer, the emphasis is a longer term view and comes with  more generic ‘incidental sales platforms’ which are  capable of creating:

“a product or service that delivers value independently of insurance/risk management, but uses the resulting relationship with the customer and data about the customer’s needs to make a timely and relevant offer of insurance.”

This is clearly a larger investment, but with significant potential.  Nakatsuji  notes that the incidental sales channels will:

    • Reduce transactional friction
    • Dramatically lower customer acquisition costs, and
    • Improve customer engagement

Regulatory and Reality checkpoints ….

But there are risks with  ‘Incidental sales’.  Some are insurance regulatory requirements  and others are real-life bad experiences.

In Canada, regulators are mandated to ensure that consumers are protected.  For example, brokers and agents are mandated to maintain knowledge of current laws through continuous education.

However, some financial institutions argue that regulations (e.g., mandating licensed intermediaries for ‘simple’ insurance transactions) could preclude options for consumers. A 2015 article in Investment Executive provides a balanced review.

That said, platforms that are built to support insurance decisions for consumers have not always served the customer – and the platform supplier – well.  Wikipedia’s description of Zenefits’ first manifestation is a case study.

The Bottom Line

Failing to incur an attack from Planet Luddite, we are definitely on a path towards increased digital tools, platforms, applications, and products.  And we are increasingly relying on suppliers which will not be vetted by the traditional methods.

This requires us to seek alternative views and finding new clearinghouses for information.  At Insurance-Canada, we provide information through our website and on-line and in-persona events which bring these issues to the floor.  Our next event is InsurTechTO-17 on 6 November 2017, with a free preview webinar on 18 October.

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