Accelerating transformation in insurance
In order to thrive and compete in the digital age, insurers cannot afford to overlook the opportunities that emerge where industry and technology trends meet.
If digital had already fundamentally altered the way businesses operate over the past few years, the global pandemic certainly compounded those changes. Where and how we work, the products and services people choose to consume and how, what constitutes a positive customer experience from the significant to the subtle, no element of business is untouched by significant shifts. In many respects the insurance industry has done an excellent job of responding to these challenges—in the short term at least. But merely keeping up is not enough in the long term. In order to thrive and compete in the digital age, insurers cannot afford to overlook the opportunities that emerge where industry and technology trends meet. Seizing these opportunities may mean reprioritizing the transformation agenda, but the rewards will more than justify the means.
By prioritizing effective data management, insurers can improve operations, dramatically innovate the product portfolio and transform customer experience.
Time to embrace tech-driven opportunities
The insurance industry’s need to drive operational efficiency and navigate rising cost and pricing pressures is nothing new, but now the urgent task is to manage these drivers alongside challenges like extracting value from swathes of unstructured data, managing the cyber risks that come with digital transformation, maintaining customer trust, attracting and retaining top talent and shoring up business resilience. Any meaningful response to these challenges will be technologically nimble and underpinned by the effective use of data to drive the business forward. We at EXL see four enabling technologies in particular opening up opportunities for insurance that are ripe for development. Let’s take a look at them:
Conversational technologies offer the potential to profoundly transform the way customer experience is designed and delivered.
Driving the data agenda forward with renewed energy
Take care of business-as-usual or innovate? Insurance companies must do both. Currently insurers have masses of data, yet much of it is unstructured and hard to use effectively on a daily basis—we estimate that 80% of the data needed for core decision models, portfolio monitoring and financial reporting resides in unstructured internal claim, underwriting and customer data. But by prioritizing effective data management, insurers can improve operations, dramatically innovate their product portfolio and transform customer experience. It’s also time to look to new sources and intelligent applications of data. For example, connected cars collect around 25GB of data per hour, yet this data is not widely used by auto insurers to calculate premiums. Ford’s partnerships with several US insurance companies offer a taste of what is possible when connected car data is shared with insurers to enable them to base premiums on actual miles driven. On the claims side, data from telematics and sensors generates insights for better and faster decision making.
Getting closer to customers with the Internet of Things (IoT)
The convergence of the physical and the digital—particularly in fields such as home automation—represents a major opportunity for insurance companies to create partnerships that address what matters most to customers. We see, for example, American Family and Liberty Mutual leading the way with partnerships around connected smoke alarms and smart video doorbells that enable customers to proactively protect what is dear to them while reducing their risk and, in turn, their home insurance premiums. Beam Dental, a digital-first dental insurer, uses smart toothbrush data to reward customers for good dental hygiene with premium reductions of up to 25%. Disruptors such as Beam demonstrate the endless potential of IoT as a route to valuable, actionable data.
Making better decisions, quicker, with AI
The mechanics of the insurance industry are characterised by the need for quick and effective transactional decision making, particularly in the claims area. AI is a critical enabling technology that is yet to be fully exploited by insurance companies, despite many compelling use cases. For example, AI is proving its worth time and again in fraud detection, enabling insurers like CNA Financial and AXA to automate fraudulent claims detection and identify and mitigate cyber threats. On the business operations side, hyper automation (where automation, AI and analytics meet) enables companies to transform their legacy systems and automate traditionally time-consuming manual processes.
Accelerating transformation with cloud
Digital transformation thrives on speed and agility. Cloud makes it possible to generate clean data flows that circumnavigate cumbersome legacy processes and technology. As a result, machine learning, automation and AI can be swiftly deployed and start adding value sooner rather than later. EXL recently partnered with a land title insurance company to help it achieve 25% savings and cut policy issuing time from days to minutes by establishing a cloud receiving center utilizing AI and automation. There is no true digital transformation without cloud.
Transforming customer experience with conversational technologies
Conversational technologies offer the potential to profoundly transform the way customer experience is designed and delivered. Implementing intelligent customer interactions with chatbots, voice assistants and other similar conversational platforms such as EXL Exelia.AI™ powered by Amelia enables insurance companies to personalize, automate and scale customer experience. With AI embedded, machine to human conversations are more natural and empathetic in nature, while at the same time being immediate, accountable and cost-efficient to deliver.
Tech trends, meet insurance product trends
With the data agenda, the convergence of the physical and the digital, AI and cloud as the technological backdrop to the contemporary business landscape, insurance companies’ task now is to identify ways to apply these enabling technologies to evolve the product portfolio to remain both relevant and competitive. Right now, three key industry trends are creating new opportunities for insurance companies:
Insurance product trend 1: Personalization
We only need to look to other industries to see that a frictionless, personalized customer journey is one that keeps customers coming back for more. Think Amazon, Netflix and Uber—brands that have fundamentally changed customer expectations forever. By emulating their approach to effectively collect, process, store and apply the right customer data, insurance companies can personalize and simplify customer interactions and offer tailor-made policies and products that offer the right cover levels, at the right time, at the right price.
In practice: US insurer State Farm offers its customers a personalized home page when they open the State Farm app and collects driving habits data to offer the most suitable policies. Customers are also motivated to adopt better driving practices in order to unlock lower premiums.
Insurance product trend 2: Insure-per-use
Savvy consumers are more motivated than ever to shop around for the best deals. In 2020, 50% of insurance customers said they preferred to be charged on usage. In the automotive space, premiums priced on a ‘per kilometer’ basis can save customers around 30% on their policy deal. We see this move towards an insure-per-use model as one that’s gaining traction in the auto insurance space. The question now is, where else can the model be applied?
In practice: AXA’s Pay-As-You-Grab auto product is the first usage-based insurance policy for private-hire drivers, while Marsh and AXA have partnered to launch a priceper- mile insurance product for businesses.
Insurance product trend 3: Intangible assets insurance
A major shift towards digital or intangible assets—from cryptocurrency to art in the form of non-fungible tokens (NFTs)— is taking place. As intangible assets gain credibility and value, the need for appropriate insurance products to protect them is acute. In this highly complex and still-emerging space, the challenge for insurers will be not only to create the right products and mitigate the associated cyber risks, but to deliver them in a way that customers can fully understand.
In practice: UK broker Howden’s fine art and specie division is responding to the meteoric rise of NFTs in the art space by creating a new NFT insurance solution based on its tried-and-tested cryptocurrency offering. This demands robust technology that can facilitate indepth due diligence to identify counterfeit NFTs on the blockchain.
In this highly complex and stillemerging space, the challenge for insurers will be not only to create the right products and mitigate the associated cyber risks, but to deliver them in a way that customers can fully understand.
Readying the organization with data-led transformation
At EXL, we are firm in our belief that data is capable of creating significant value for insurance companies—and of enabling them to disrupt, before being disrupted. At an operational level, for example, AI- and NLP-powered digitization of data processing can cut turnaround time and cost by up to 70% and 60% respectively1, representing a major opportunity for insurers to shift from an incremental approach to a scaled approach.
For traditional insurers, speed and scale at a transformation level are now critical in an increasingly ‘Uber-ized’ space, which is seeing a host of direct-to-consumer digital entrants which are disintermediating existing channels and offering instant policies with tempting sweeteners like cashback for recommendations and no claims. Data-led transformation is vital to competing in this new landscape.
How can insurance companies start creating meaningful value today?
As insurance companies look to their digital future, ‘digital at the core’ must be the guiding principle, with data as the compass. Business leaders would do well to ask some key questions of their organization in the context of the enabling technology trends and the evolving nature of the insurance product portfolio. For instance:
- How can these emerging themes act as a catalyst for our business transformation?
- In harnessing digital, what is our differentiator?
- How can we use technology and apply data to offer our customers the right products at the right time, in a distinctive way?
- Where can technology enable us to introduce moments of value in the customer journey? What matters most to segments such as millennials and Gen Z-ers?
- How can we as an organization use data to drive actionable intelligence to make the right decisions at the right time?
- How do we apply ethical rigor in our data approach? What does that look like?
These are undoubtedly big questions, but the answers are within reach. At EXL, our mission is to make sense of data to help drive businesses forward. We believe that by identifying opportunities in the trends, technologies and fundamental shifts that present themselves and by committing to act on them, insurance companies will lay strong foundations for innovation, growth and progress. EXL partners with bold businesses to help them to turn the possibilities into reality, backed by in-depth domain expertise and market-leading solutions that turn data into value. The insurance industry is undergoing major changes at unprecedented speeds; the imperative to accelerate data-led transformation with a new sense of purpose and ambition has never been clearer.
EVP & Head of Insurance Business, EXL