Last year, our digital compendium, Digital disruption in insurance: Cutting through the noise, examined how carriers could create a comprehensive framework for digital transformation. These insights are still relevant and provide guidance on taking a holistic approach to a digital transformation.
Building on that base, we have synthesized some of our most interesting articles from this year. Taken together, they extend the discussion in two areas: reinventing the core of insurance and pushing our thinking on disruption and on what the future holds for the industry. This article is extracted from a new compendium that highlights these insights; for more, download Digital insurance in 2018: Driving real impact with digital and analytics (PDF–2MB).
Reinventing the core of insurance
We believe the industry is now in a position in which executives can embark on a digital journey to achieve real impact. It is no longer “if” digital technologies will change the industry, it is “how” and “when.” The challenge—or opportunity—for incumbents in the digital transformation lies in determining the concrete steps they should be taking right now to join (if not lead) the digital revolution while maximizing existing assets. (For more on imperatives for transformation, see sidebar “Making digital and analytics a reality in insurance.”)
Claims in the digital age: How insurers can get started
With new attackers on the hunt for customers, incumbents must move quickly to integrate digital technologies into their operations. Claims should be a top priority. To capture the value of digital, claim functions must embark on a transformation to become customer-centric, digitally enabled organizations.
So where to start? We offer five essential elements needed to digitize and transform property-and-casualty (P&C) claims. By examining each of these areas, P&C claim functions can start to rethink the claims customer journey and back-office processes. This approach should be synthesized into an aspirational future state that outlines the digital assets needed to achieve the ideal state (interactive).
For more, see “Claims in the digital age: How insurers can get started.”
What does the future of insurance look like?
The future of digital insurance is bright and increasingly determined. Surveying the landscape, a few interesting themes emerge. Ecosystems, the Internet of Things, and artificial intelligence will each play a significant and interconnected role. Europe is already feeling the effects of online aggregators, while commercial insurance is facing a future in which its players need to decide on whether and how to partner with insurtech companies.
Insurance beyond digital: The rise of ecosystems and platforms
Society’s growing reliance on digital technologies is not only reshaping customer expectations but also redefining boundaries across industries. Insurers cannot avoid this phenomenon: as traditional industry borders fall away, the future of insurance stands to be greatly influenced by platforms and ecosystems (see video, “What role can insurers play?”).
An ecosystem is an interconnected set of services that allows users to fulfill a variety of needs in one integrated experience. Consumer ecosystems tend to concentrate on needs such as travel, healthcare, and housing. B2B ecosystems generally revolve around a certain decision maker—for example, marketing-and-sales, operations, procurement, or finance professionals. Seven of the ten largest companies by market capitalization—Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, and Tencent—are ecosystem players, and that only hints at the power of digital.
By 2025, as this revolution gains speed, McKinsey expects 12 distinctive and massive ecosystems to emerge around fundamental human and organizational needs (Exhibit 1). These 12 ecosystems will account for $60 trillion in revenues by 2025, or roughly 30 percent of all global revenues.
To succeed in ecosystems, insurers will have to take a hard look at their traditional roles and business models and to evaluate opportunities to partner with players in other industries.
For more, see “Insurance beyond digital: The rise of ecosystems and platforms.”
Insurance 2030: The impact of artificial intelligence on the future of insurance
By 2030, artificial intelligence and its related technologies will have a seismic impact on all aspects of the insurance industry, as follows:
- Distribution. Cycle times for completing the purchase of an automobile, commercial, and life policies are reduced to minutes or even seconds. Smart contracts enabled by blockchain instantaneously authorize payments from a customer’s financial account. Highly dynamic, usage-based-insurance products proliferate and are tailored to the behavior of individual consumers. And the role of agents transitions to process facilitators and product educators.
- Underwriting and pricing. Manual underwriting has ceased to exist for most personal and small-business products across life and P&C insurance. Underwriting is reduced to a few seconds, as the majority of the process is automated and supported by a combination of machine- and deep-learning models built within the technology stack. Sophisticated proprietary platforms connect customers and insurers and offer customers differentiated experiences, features, and value.
- Claims. Carriers achieve straight-through-processing rates of more than 90 percent and dramatically reduce claim-processing times to hours or minutes, from days. Internet of Things sensors and an array of data-capture technologies, such as drones, largely replace traditional, manual methods of first notice of loss. Customer interaction with insurance-claim organizations focuses on avoiding potential loss.
While no one can predict exactly what insurance might look like in 2030, carriers can take several steps now to prepare for change.
For more, see “Insurance 2030—The impact of AI on the future of insurance.”
The impact of European aggregators’ growth on traditional insurers
We estimate that almost 50 percent of online insurance in Europe today is sold via aggregators—digital brokers and expert advisers that connect customers with product providers. Customers increasingly use aggregators both at the start of their buying journeys, to get an overview of the market, and at the end, by purchasing directly from the aggregators rather than the product providers.
For many insurers, aggregators have become, in effect, the customer-facing side of their businesses—and for others, a huge potential disruption. The implications for insurers are significant; however, many insurers have yet to develop a full understanding of the aggregator landscape and characteristics of top performers—as well as the threats to the aggregator business model.
For more, see “Friends or foes: The rise of European aggregators and their impact on traditional insurers.”
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Commercial lines in insurtech: A pathway to digital
Commercial-insurance executives recognize the benefits of digital but face several obstacles in making headway. Large incumbents lag, because the complicated nature of underwriting and claims often requires human judgment and interaction, transactions are sometimes low volume and bespoke in nature, and legacy IT systems and processes make the transition resource intensive and complex. What is more, commercial insurance has historically been slow to change, and a lack of companies with clearly demonstrated impact from digital has left many executives focused on their own plans of action.
Enter insurtech companies. Rather than seeking to transform commercial lines completely, most insurtech companies focus on enabling or extending the insurance value chain. The majority of commercial insurtech companies (63 percent) focus on enabling the insurance value chain and partnering with incumbents. Only a small number of insurtech companies (9 percent) are attempting to disrupt the insurance market fully (Exhibit 2).
How will insurtech companies affect incumbents? How should incumbents approach partnerships with insurtech companies? (For a look at what is shaping the sector, see sidebars “The five trends driving insurtech” and “Burning questions from InsureTech Connect 2018.”)
For more, see “Commercial lines insurtech: A pathway to digital.”
We have seen insurers moving away from “shiny objects” and toward real impact in 2018. Successful carriers are conducting pilots in clearly prioritized parts of the value chain, such as underwriting and claims, and are preparing to scale successful applications across their enterprises. Carriers have an opportunity to differentiate themselves by providing an excellent customer experience across multiple points of contact and “moments of truth.” The outlook is positive for carriers that move quickly and decisively in a “winner take all” world.
In the coming year, digital technologies and analytics will continue to change how we live, work, and play. They will also be the driving force for the future of insurance—which we believe will be a bright one.
Download the full collection from which this article is extracted, Digital insurance in 2018: Driving real impact with digital and analytics (PDF–2MB).
