The one thing that has defined the insurance industry may actually upend everything we know about it. For decades, actuaries have applied advanced math and financial theory to analyze, understand, and quantify the risks of certain human behaviors and decisions. Although this internal data has been critically important to an insurer’s existence, it appears that an incoming tsunami of data coming from the outside that provide “real” not just “statistical” data may disrupt it – unless insurers know how to capitalize on it now.
The revolutionary advancements of digital technology and computing are forcing insurers to reinvent how they view and service their customers. Take auto insurers, for example. Instead of analyzing only internal data such as loss histories, they can now pull behavior-based credit scores from credit bureaus into their analysis, realizing the empirical correlation between people who pay their bills on time and those who are safe drivers. Although this practice is contentious among consumer groups, the use of external data – such as social media accounts, claim histories, telematics, and demographics – indicates a new world of opportunity for themselves and their customers.
Critical lessons every insurer needs to know about competing in the digital economy
Now, you would think that the latest innovations in advanced analytics, Big Data, and in-memory computing would be a treasure trove of insight for the industry. However, this is not necessarily the case: A recent McKinsey report revealed that 90% of carriers are struggling to develop a technology infrastructure that supports digitization. The barrier? The size and complexity of their IT systems.
Because the pressure to invest in advanced, predictive analytics has never been greater, insurers should look beyond the industry and learn from other markets. The key is to inspire creativity, confidence, and consistency needed to incorporate these lessons learned by industries such as manufacturing, retail, and banking.
1. Data must be integrated in real time and across all business areas
Tata, the Indian conglomerate, was previously plagued by an inherited portfolio of disjointed systems that created over 600 separate data silos struggling to communicate with each other. However, a program to unite all of this data onto a common platform changed the nature of the manufacturer’s business.
By housing all of this information from one source and giving every business unit the rights to access, analyze, and act on it, manufacturing operations are streamlined around a set of standard business processes and data definitions. According to Lionel Grealou, global head of product lifecycle management at engineering services firm Tata Technologies, “such data integration allows workforce productivity to be improved,” including a 40% savings for some design functions.
What manufacturers are teaching insurers: Integrating data across the entire insurance value chain can lead to opportunities for simplification, cost savings, and better customer service. Monitoring social media can help carriers uncover fraudulent activity. Capturing data from splitting traffic on a site or app and monitoring visitor response eliminate the need for costly market research. Even hassle-free quotes and personalized policies can be delivered by tying everything from telematics to credit history to gain a full understanding of each consumer.
2. Consumers embracing the digital economy expect more – and you better deliver
As an outcome of the digital economy, consumers want a shopping experience that fits their lifestyle – not the other way around. This has prompted many retailers, including John Lewis, to connect a variety of online and offline channels to provide consumers that experience.
“We know that customer journeys vary – some begin their journey in-store and finish it online and vice versa,” says Mark Lewis, John Lewis’ online director. “Whether they are using their phones or tablets in-store, on the sofa, or on the train on the way to work, their experience needs to be seamless and the content and information easy to access. The key is recognizing what each device is best for and then tailoring the customer experience to that device.”
What retailers are teaching insurers: One word: Omnichannel. Insurers are quickly realizing that consumers have a high degree of choice – and the one differentiator that will keep them loyal is the customer experience. By understanding every channel’s role in influencing consumer perceptions and behavior, the insurer can build an omnichannel network that not only generates and retains more policyholders, but also offers greater efficiency and profit.
3. Physical insurance agencies are not disappearing – they’re evolving
Over the last few years, the emergence of digital-only business models has been difficult to ignore. Does this mean that the traditional agency is a thing of the past? If insurers look at the banking industry for a glimpse into the future, they’ll see how physical locations can serve as a competitive advantage over their digital competitors.
The Economist Intelligence Unit cites research showing that “customers are more open to an online relationship with a bank if they live in proximity to one of its branches. Increasingly, therefore, the purpose of physical locations is to uphold public awareness and perception of the brand, and to spur customers to connect [through] online channels.”
Forward-thinking banks, such as high-end UK bank Nationwide, are partnering with service providers including Apple and Visa to bring digital services into their portfolio to differentiate themselves as full-service institutions. In response to a suggestion that this strategy may allow digital brands to overshadow the Nationwide name, Tony Prestedge, chief operating officer of Nationwide, states, “We have to accept that this is the way things are going,” he says. “You have to decide whether other people’s technology is a threat or an exciting opportunity for retail banking.”
What banks are teaching insurers: As mobile and tablet use continues to grow exponentially, neglecting this new reality in your consumers’ lives will sacrifice future success. By taking digital living more seriously, insurers can add value to their offerings. This route can be fairly inexpensive, and, more importantly, can effectively engage and influence skeptical, digitally savvy consumers. However, the agent or physical branch may actually still provide a competitive edge if it fits into the customer’s journey.
For more insight into how your insurance business can seize competitive advantage from hyperconnectivity, download the Economist Intelligence Unit study “Hyperconnected Organisations: How Businesses Are Adapting to the Hyperconnected Age.”