Insurance is one of the very few products people buy hoping never to use. This gives it a unique position in our consciousness: we actively want insurance to be as cheap as possible; but we also want it to cover everything we expect it to cover, in the event we need to use it, writes Mark Colonnese, Director, Aquarium Software Limited. The contradiction in the mind of the consumer is one of the reasons the industry often receives such bad reviews. Insurance, it seems, is one area where people expect to get more than they pay for — and the industry is changing rapidly. What does the future of insurance look like?
A Little History
The past two decades have seen huge growth in the importance of price comparison websites (PCWs) in the route to purchasing insurance. In 2017, the UK’s Competition and Markets Authority estimated 85 percent of consumers have used a site to make a purchase. Initially consumers were focussed on using PCWs primarily to compare price, typically choosing the lowest cost option.
As PCWs generated more traction in the market, insurance companies were forced to become more cost competitive – not only to generate new business, but also to pay the fees associated with onboarding a new customer via a PCW.
Initially insurance companies did so by changing marginal elements of policies: excesses increased, and cover reduced. However, as PCWs have become more sophisticated, they have also become more transparent about these differences in policies. And following the initial shock of not being covered or not realising they had to pay a big excess – so have consumers.
The four most popular PCWs in the UK (Money Supermarket, Compare the Market, Confused and Go Compare) generate collective revenues of around £1 billion. Assuming 10% of revenue comes from insurance companies (which is likely a conservative estimate) the insurance industry is paying PCWs at least £100 million a year to acquire customers, plus whatever price cutting is required to be competitive on such sites.
Insurance companies have increasingly turned to new niche areas to help grow revenues outside the fiercely competitive motor and home markets. However, even traditionally more profitable insurance propositions, such as pet and travel insurance are under competitive pressure. The Association of British Insurers (ABI) reported early in 2019 that the cost of pet insurance claims is increasing much faster than the cost of premiums. The average claim amount has gone up by 75% in the last ten years while the average premium has only risen 50%.
With insurance companies under such increased pressure to be more competitive, something must give – typically it is customer service.
Customer Service Cuts
Cost cutting in customer service delivers short term gain, but long-term pain.
Consumers are increasingly being asked to become actively involved in their own claims: from sourcing their own quotes for repairs to providing images of accidents, insurance companies have reduced cost by asking the customer to do more. Often presented as greater consumer choice and empowerment that can be unpopular with the customer, leading to further churn, and dangerous. It opens insurance companies up to potential fraud issues, where customers collaborate with suppliers to deliberately inflate costs for mutual advantage. It also means that it is difficult for insurance companies to deliver a consistent level of quality in claims. Because the consumer is involved, more administration can be required, offsetting much of the cost savings.
Fortunately, the industry is on the cusp of a new era – one that can radically reshape the way insurance is purchased and claims are settled, as well as eradicating the need for human intervention in all but the most complex of cases.
To date the insurance industry has been insufficiently impacted by digital transformation. Digital processes have typically focussed on replicating non digital processes. So instead of buying insurance through a branch or broker, people purchase via a comparison site or company website. This is digital replacement rather than the digital transformation seen more widely across the financial services sector.
Insurance is, at its heart, a series of complex decisions combined. Technology is uniquely capable of helping businesses achieve two things:
Automating complex but repetitive processes – such as creating letters, forms, documentation – to reduce the time it takes to achieve something and lower the number of human interventions required
Capturing and storing data – which can then be used to identify patterns and trends that can help drive better decision making
The most effective technology deployments achieve both the reduction of manual intervention and increasing data insight.
The on-demand availability of computing power and storage enables any business to rent the volume of computing power it requires as needed. Increasingly new technologies such as machine learning are enabling businesses to automate processes to a much higher level than previously thought possible. The entirely digital insurance process is less than five years away.
The Technology Tools
How will we buy insurance, make claims and interact with insurance companies in the future? This will be driven by the adoption of new technologies.
> Smartphone: with the wide adoption of the smartphone as the primary means to interact, insurance companies need to ensure communications with customers are smartphone friendly. Smartphones will become the de facto standard for the purchase of policies and for claims management. Insurance companies should welcome this: the ability to record an event with a time and GPS stamp should help reduce fraud. Furthermore, by understanding more about where someone is (through consented access to GPS smartphone data) insurance companies can manage risk more effectively and proactively warn customers of potential incidents or events, reducing the likelihood of claims at all. Lastly, if insurance companies can harness the aggregate computing power of the customers’ smartphones, often referred to “computing at the edge”. It will provide new opportunities to improve how policy and claims information is processed.
> Voice interaction: the growth in voice activated technology such as Alexa, Siri and Google can be applied by insurance companies to enable simpler interaction with customers. Adding new items to a home insurance policy, for example, should be as simple as asking Alexa to do so.
> Artificial Intelligence/Machine Learning (AI/ML): insurance companies can use AI and ML to search large volumes of data for anomalies. This should make it simpler to identify fraud, while at the same time reducing the human interaction required for most insurance management.
> Optical Character Recognition (OCR): the increased ability of machines to read documents enables insurance companies to automate many processes, including claims management, to deliver faster and more accurate settlement of claims. Combining OCR and ML gives computers a sense of what looks like a plausible and accurate insurance claim based on millions of others and enables anomalies to be quick identified.
The Future of Insurance
What does this mean for the future consumer of insurance? They can expect a far more frictionless experience. Purchasing insurance through a smartphone app will be the norm as will making claims. Certain events will trigger automatic benefit payments: for example, a flight being late, or bags being delayed. A travel insurance user in 2025 may well expect its insurance company to track a lost bag through automated integration with an airline’s baggage system, sending mobile alerts to advise of status and deliver an emergency pack of toiletries and other essential items by default to a relevant address – effectively identifying evaluating and settling a claim before the policyholder even knows they have a problem!
Insurance propositions will be more integrated, even across different insurance types. Owners of dogs that are regularly walked for an hour per day will, for example, be offered reduced premiums on health insurance as well as pet cover. It will be easier to identify potential health risks to animals covered by pet insurance through insight into data from millions of policies, helping pet owners to prevent illness and not merely cure it.
Policies will be more personalised: where over 70s may struggle to find affordable healthcare or travel insurance today, personalised data on their long-term wellbeing will be considered, delivering a more bespoke and relevant insurance product.
To date the insurance industry has been impacted but not disrupted by technology. This is rapidly changing, and the next five years will see a step-change in the way the industry behaves, based on insight from big data and smarter use of technology. This will deliver a more personalised and relevant insurance experience to consumers, driving customer loyalty, reducing cost and risk and ensuring that the industry can enhance its reputation and deliver a vastly more efficient service to the public.