Digital Insurance Agenda

The Perfect Storm in Insurance (Part 2)

Written by Roger Peverelli and Reggy de Feniks - Founders The DIA Community on Oct 5, 2021

In the first part of the interview ‘The Perfect Storm in Insurance’ we learned that we have entered a new era: consumer perceptions and behaviour changed permanently, insurers have a more digital mindset and a higher sense of urgency and insurtechs are now on the turn of a next chapter.

So, what should incumbents and insurtechs focus on in the next decade?

Just like the title of the book Insurtech 2030: il futuro e gia qui, we should look beyond the current demand. This rise in demand for all sorts of online, digital and remote services to entire back ends is likely to stay even after the crisis is over. But this is all just deferred maintenance. These investments are about catching up, repairing the past, but not about taking a leap forward, creating a new future.

Can you already identify some examples, some glimpses of the future, of key areas to reimagine customer relevancy?

“Yes – most are still nascent – but expect them to be mainstream in the course of the next decade.

Take Health. I already mentioned, you need to think beyond your regular health plans. Assist customers in improving their lifestyle. Helping them to exercise more, to eat healthier. There is a lot of room to shift from only covering risk, to rendering pro-active and preventive services as a substantial part of the offering. So, platforms that combine self-tracking, data and all sorts of incentives to help customers with healthier habits will become even more relevant than they already are. Think of how insurers such as Ping An in China, AIA in Southeast Asia, John Hancock in the USA, Manulife in Canada and not to forget Generali in France and here in Germany are working with the Vitality concept of South African insurer Discovery. Irish Life is doing similar things with dacadoo. Achmea in The Netherlands launched Actify. By playing an active role, or even taking the lead, in promoting a healthier lifestyle these companies also increase their social impact.”

You mentioned ‘Connected Living’ is a key consumer trend. How can insurers tap into this trend? Do you already see glimpses, or successful use case here as well?

“More and more connectivity at home, and all the new data streams that come with it, open up all sorts of new opportunities for insurers to add new value, and to become ‘Always Part of Life’. The more time we spend at home, the more important such services become. New services that help customers manage their house better and decrease the total cost of ownership for instance.

With people working more from home, also after the crisis, the importance of cyber security will further increase.

Also think of aging populations. The 60-plus generation is the fastest-growing consumer group and enjoys an increasingly higher spending power. This ‘Silver Economy’ is a golden opportunity. Elderly want to stay in their house longer, while their children want to be sure their parents are safe, leading to a rising demand for remote solutions.

Ideally, we would think of smart propositions combining life, health and home insurance with IoT, property services, cyber solutions and all kinds of personal healthcare services. The condominium platform of Reale Mutua in Turin in Italy is a perfect ‘first glimpse’, with home related services tapping into the elderly way of living, also including digital healthcare services and security and safety.”

These are nice examples in health and home. Do you also have such a ‘first glimpse’ for car insurance?

“Sure! I don’t know about you, but not that long ago I realised that I am currently driving about a third of what I was used to. A third! And the funny thing is, that my car insurer is still charging me the same premium … It made me realise I’m paying way too much. I’m probably not the only one who thinks this. When people use their car less this will lead to an increase in the demand for simple solutions that reflect actual usage. It is probable that covid will push for usage-based car insurance to become more mainstream. Now, what we see is that many carriers already look beyond mileage and more sophisticated pricing.  They are missioned to promote safer driving in all sorts of ways. Next steps include looking at mobility holistically.”

Can you give an example?

“Unipol, also from Italy, in my view is leading the world here. Over the last decade they’ve built a customer portfolio of 10 million customers, which includes 4.2 million connected cars. And the wealth of new data this delivers, helps them to develop all sorts of new business models. They are for instance taking the lead in promoting electric cars. Let me explain. An important hurdle for massive adoption is still the maximum range of a battery; mostly around 300 km. So, Unipol analysed the data of those 4.2 million black boxes. They found that 48 percent, nearly half of their customers, didn’t make any trip longer than 300 kilometers. And 92 percent of their customers made less than five trips over 300 kilometers. So, an electric car would work perfectly for many of their 10 million customer base.

Their plan is to convert a significant share of their current customer base to electric car drivers. The new concept involves private lease through Unipol Rental, their long-term rental company, a partnership with the leading utility company in Italy to install charging stations near the home of target customers, and of course an attractive all-in-one proposition based on personal data insights. New propositions, new business model, new revenue streams – much more than just car insurance.”

You’ve shared examples in health, home and car … Are there any commonalities, success factors these examples all share?

“Definitely. They have four things in common. The first commonality is, they all have an implicit fundamental understanding that contact frequency with customers is an essential part of the economic engine. The more you engage, the more you add value; the more you build a relationship, the more share of wallet. In banking, this understanding is common practice. In insurance it is not. At least not yet. Quite a few still prefer to keep customer contact limited to the letter with the annual premium increase. And that is a shame. All the connected devices, all the smart phones, all the wearables make it possible for insurers to become ‘Always Part of Life’, to add value on a daily basis.”

What is the second common characteristics of the examples you mentioned?

“They all have the new data streams at their core. From data from connected devices in and around homes, to data from wearables that tell us all about the lifestyle of the user. And there are already plenty of use cases that leverage available data from other sources; varying from weather data to social media data, from DNA to data from smart phones. We already see initiatives which turn PSD2 payment data into wealth management solutions. Quite interesting for life insurance. Or the use of payment data to warn an adult child of an aging parent for potential elder fraud.”

Such new business models mostly require new capabilities as well …

“Definitely. A key challenge for incumbents is to build the right capabilities. Not just coping with all these massive new data streams. The essence is turning the new data into new insights. And turning these insights into new propositions. This requires different talent. That’s where many insurers still need to build a track record.”

So, what’s the third communality?

“All examples think beyond the traditional insurance vertical. More and more incumbents realise that the most effective way to reach out to customers is to be being present and active in the broader ecosystems of health, mobility, home, work, … And rightfully so. Solving the real need behind the insurance need, usually requires more than just insurance. And you want to be part of that context.

And moreover, being active in ecosystems is not just about increasing relevancy. It is also about getting access to totally new data streams. Which again allows opening up new business models and new revenue streams, with new services based on this new data.”

You mentioned you see four communalities …

“The fourth common characteristic is that they foster a different kind of relationship between insurers and their customers. This relationship is shifting from a transactional to a relational, collaborative, participatory model. Let me zoom in a bit. Connected devices, trackers and platforms provide actionable information and insights that users can act upon. This allows a much more active role for customers within insurance products and services. Let’s take health as an example. The adoption of health and lifestyle apps, clearly shows not only the consumer needs for more control and empowerment, but also the desire and readiness to take a more proactive approach themselves. For instance, a more proactive approach in assessing symptoms, connecting with healthcare providers and self-management of care.

Active participation allows customers to take more responsibility. This is a fundamental shift in the relationship and a great new perspective for innovation. By applying data, insurers help consumers to enhance their lives. But also here, there is room for more ambition. Insurers should aspire to give customers ‘Superpowers’ with all the available data.”

Superpowers?

“Yes. Superpowers. Examples of tech-enabled Superpowers already exist in other domains. Many are already mainstream, part of our daily life. Think of GPS car navigators helping you find your way without really knowing your way. Think of 3D-printers that enable consumers to make their own product. Thanks to speech-to-speech language translators there will be no need to learn foreign languages anymore. There are already apps that, with the help of sensors, help the blind to move through a city or building they’ve never been before and even recognise passers-by. It would be great if insurers could give their customers similar kind of superpowers.”

Doesn’t this kind of use of customer data result in immediate concern over privacy?

“Obviously, insurers need to manage the concerns that many consumers have. These concerns are not strange. Insurers never bothered to tell consumers what they do with their data, let alone explain how this benefits consumers. Reciprocity is the answer. Consumer’s perceptions about the use of data by insurers will flip if insurers use the data to put customers in control and to offer something meaningful in return. It is all about giving more than you take. The added value insurers deliver based on customer data should be perceived as bigger than the cost of handing over privacy in return. Insurers should combine data the customer cannot combine themselves and/or that customers would never think of.”

All sorts of new opportunities … But what is in your view the biggest opportunity?

“The largest area of opportunity is still uncharted territory. It still needs to be explored, for at least 99%. In the coming years, the amount of available data will explode even more. And at the same time, the possibilities to get much more out of that data will explode as well. Think of the advances in AI and Machine Learning and combine that with the benefits of cloud computing … Together, this will enable unprecedented innovation in insurance.

This point in time compares to what we experienced around 1995, when the internet had its breakthrough. We knew for certain is that something very special was happening, We already saw the first ideas, but at the same time, we could not fully imagine how it would evolve exactly. We were aware that the opportunities were endless. Similarly, it is hard to tell what the next level of insurance innovation will exactly look like. But the first glimpses are already there.

What we know for certain is that we are in a ‘Perfect Storm’: Consumer behaviour changed permanently. There is a digital mindset in board rooms. Insurtechs are at the turn of a next chapter. And with all the new data streams and the right technologies in place, everything is set for a Next Level in Insurance Innovation.”

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