Just Keeping The Lights On
The insurance sector has remained largely untapped in terms of technology innovation. Yet over the last decade a dizzying array of new technologies have emerged such as a robotic sales forces, heart-tracking watches and genome sequencing which could fundamentally reshape the sector. Christine St Anne looks how insurance incumbents can go from dimly-lit to dazzling.
Despite the plethora of technology available, research by the US-based technology firm CSC revealed that 60 per cent of technology in insurance is still used to keep the lights on meaning the bulk of technology spend is focused on keeping and maintaining legacy systems.
At the same time, customer expectations are changing. Customers are demanding faster claims processing and easier access to products. A new study by Morgan Stanley has also revealed that banks are emerging as a threat to the insurance giants - finding that beyond more intelligent use of data, there has been no real innovation. Insurers have recognised this challenge and a PwC report recently revealed that insurance CEOs ranked second (behind entertainment and media sector) as being most concerned about technology disruption. For Insurance Council of Australia (ICA) CEO Rob Whelan, disruption is already here and needs to be embraced. Whelan, a keynote speaker at the upcoming AB+F Australian Insurance Summit 2016 said the insurance sector needs to think long and hard about innovation.
“I see a determined effort by the industry to innovate and think about new products and new ways of doing business. We have the processes that were built in the 18 century. We have to move into the 21st century,” Whelan said.
While there is a range of exciting new innovation, first and foremost, insurers must look to solutions that address the perennial issue of claims processes and disclosure.
Industry veteran of forty-six years, Jim Minto, spearheaded insurance giant TAL (previously branded as Tower) for more than fourteen years before retiring last year. He acknowledged that innovation and technology have a big role to play in moving into the next century but that the customer must be central to all decision making.
“It is vitally important that any innovation adopted is about bringing new value to the customer. The customer today is more in control and there are now technologies that support that,” Minto said.
And in the business of insurance, meeting customer expectations is vital. Current media report about big insurers not meeting claims obligations has had a substantial impact on the sector. Whelan noted that out of the thousands of claims that do get processed, the few that don’t can bring a lot of reputational damage to the sector. Indeed, another survey by PwC found 78 per cent of people saw insurance as important but only 42 per cent believed that the insurer would be with them in their time of need.
Both Whelan and Minto believe that lengthy product disclosure statements do not provide consumers with the information they need to make the right decision, which also impacts on their expectations. Here is where technology will be important.
“If we can provide information electronically to customers that makes product disclosure information easier to access rather than wading through a 50-page document, this will improve a person’s capacity to understand their policy. Pop-up menus that navigate through relevant policies can also help customers understand what they really need,” Whelan said.
Under the leadership of Minto, TAL launched its accelerator project to put insurance online with 24-hour and seven-day access for advisers. This meant they could lodge an electronic application anytime. Minto remembers one year getting an application on Christmas Day – “you’ll be surprised the hours’ people work” – but it did highlight the need for the industry to innovate. “The aim of that strategy was to revolutionise the productivity of the industry. Within two years everyone copied the model,” he said.
Technology can also address the nuances of life insurance which have presented modern day challenges for the customer and insurer. Medical advances mean people are living longer (and hopefully better) lives. This could make original terms and conditions in a life policy irrelevant. For example, heart surgery today includes advances such as key hole surgery making open heart surgery unnecessary.
“Once a life policy is written, the insurer needs to also have a dynamic engagement with the customer in order to keep the terms and conditions relevant. A lot of this can be facilitated by technology systems,” Minto said.
As noted earlier, technology innovations have already emerged and these are aimed to improve process claims and achieve a good customer experience.
“Globally we are seeing a range of technologies addressing a wide variety of needs,” CSC insurance industry general manager, Michael Neary said.
He identified areas such as telematics in cars either using in car devices or devices such as iPhones. These monitor driver behaviour and the data collected may be used either directly or gathered for future use. The stored data will become a valuable asset for future analysis and implementing new product and services. There are also a range of sensors which can detect events such as fire or water which can be used to alert homeowners to enable them to take action and minimise damage, e.g. a leaking tap causing water damage.|
“This highlights an important shift enabled by technology – moving from post event payments to risk mitigation and prevention,” Neary said.
Video is also becoming an important technology, for example CSC through 360 global net has a claims module which enables the rapid assessment of claims using dynamic interaction and video investigations between the insured and an assessor.
“This has been found to not only lead to improved resolution times but also resulted in the withdrawal of fraudulent claims,” he said. “As an enabler APIs are now the key to enabling inter-operability and this trend will underpin many of the changes we see in the years ahead.”
According to ICA’s Whelan, both insurers and governments are also harnessing big data and data processing through data analysis using video techniques. These technologies help governments assess high-risk regions and plan accordingly. This risk mitigation should reduce the cost of insurance. The plethora of wearable technologies – think Fitbit, Apple Watch, GPS running watches - are also set to reshape the way insurers do business.
PwC partner Scott Fergusson – also a key- note speaker at the AB+F Australian Insurance Summit 2016 – believes that the use of wear- ables will drive insurers to have the ongoing dialogue with their customer. These technologies allow insurers to expand their offer and in a sense achieve the “dynamic engagement” highlighted earlier by Minto.
Programs such as AIA’s Vitality incorporate wearables as part of managing a healthy lifestyle. Data from this program is used to lower premiums and while AIA’s program is in its infancy, it is also resulting in a high- er retention of customers,” Fergusson said.
He also believes that technology has enabled a more engaged customer and is reshaping the way insurers communicate with their clients.
“Access to tools and information online has made customers more powerful in terms of their purchasing decisions. All of a sudden insurers have lost the balance of information power over their customers and now need to use tech and data to offer a different customer experience,” Fergusson said. Among these companies are of course insurtechs – fintech companies specialising in insurance. According to Fergusson, Insurtech is emerging as a game-changing opportunity for insurers to innovate, improve the relevance of their offerings and grow. These businesses have further enhanced the innovation landscape by offering newer technologies and reinforced the view that insurance is ripe for disruption. Insurtech business Flare HR is helping insurance companies tap into the workplace. Currently 70 per cent of life insurance is sold through default superannuation. However, Flare HR provides a platform to human resource managers to engage their employees with life insurance during different life stages. For example, when an employee is starting a family, it provides a trigger point for the HR manager to work with the employee on their new life insurance needs.
Flamingo – which has just listed on the Australian Securities Exchange after being acquired by Cre8t – helps companies boost their online conversation rates. The start-up uses enterprise software which includes web-chat and machine learning to support the sales channel for big businesses, including insurers. In fact, Flamingo has already secured a Fortune 500 insurance client. Using artificial intelligence (AI) in the form of a customer service representative called Rosie (inspired by the humanoid robot fictional character from the Jetsons), customers are guided through the purchase of their insurance. At any point, the process can revert back to a human being but to date the program has been effective, doubling online conversation rates.
Other insurtechs are using genome sequencing to minimise underwriting risk by predicting future loss. South African company Discovery has partnered with Human Longevity to offer whole genome and cancer genome sequencing to its insurance clients in South Africa and the United Kingdom. “A lot of advanced technology such as genome sequencing will change the way insurance is being offered. Innovation will increasingly focus more on prevention and experience than the claim payment,” Fergusson said.
However, while there is a lot of concern about these disruptors taking market share, Minto said the nature of underwriting will keep insurers in business.
“What is unique in insurance is you have to have underwriting – a company has to make a judgement on a person’s risk. It’s not always straightforward,” he said. “You can have all the technology available but a company still has to be prepared to take this risk and be prepared to pay that claim.”
Suncorp iTunes platform
Partnerships between insurance and insurtechs will obviously continue but insurance companies are also looking at different ways of harnessing technology and innovation.
Suncorp has adopted a more comprehensive approach as it aims to build an iTunes-style platform for financial services, to both grow its share of wallet and retain customers. This connected platform approach is a key plank of chief executive Michael Cameron’s strategy to grow the Group’s revenues through distributing more products to its nine million customers. Other insurers like TAL prefer to look at innovating parts of the value chain (see interview with TAL CEO Brett Clark on page 18). Insurance Australia Group (IAG) has set up its own innovation hubs – Customer Labs and Digital Labs - which will focus on new business incubations and venturing.
“There is no easy answer. Some insurers are buying start-ups and incorporating them into their businesses. Some insurers are investing in wholesale system platform transformation while other firms are focusing on where they can get the greatest bang for their buck,” Fergusson said.
Neary’s colleague, Stephen Browne, director insurance at CSC, points out that some insurers are working on a “bimodal” approach to technology implementation. Insurers come with business operations and technology that they been running for the last 40 plus years. A bimodal framework allows these firms to separate their systems into two modes and assess what skills and processes they need to innovate without impacting existing infrastructure.
“The hackneyed phrase around the insurance community is bimodal. Not only are insurance companies running their operations in a bimodal fashion, it’s also about where they can invest in the future to provide something new and exciting to entice consumers or how can they create areas or risks where they can write more business (such as cyber security insurance),” Browne said.
The other bimodal view is that insurers are trying to automate their back office and implement robotics into their back office. Browne said they are doing this by trying to digitize (the front office) and produce a wonderful customer experience in the front end.
Insurers will also need to rethink their business as new technologies emerge such as driverless cars. “Though not their yet and still a race to beat their competitors, autonomous cars are happening,” Browne said. The recent proof of concept in Singapore where they are testing driverless taxi’s and the advent of autonomous facilities within Tesla and trucks is certainly showing us that its really only a matter of time.
“This could be seen as a collision course for insurers,” he add- ed. “Throw in artificial intelligence, the internet of things, and deep learning AI and then who is at fault? Maybe one day there will be no need to everyday motor vehicle insurance because no- body will actually own a vehicle.”
Technologies such as genome sequencing which underpin preferred underwriting will also challenge the social purpose role of an insurer, according to Minto.
“As we move towards this type of underwriting, some people are low risk will be adequately covered but others who are high risk may struggle to get cover. The people who need the most cover won’t be able to afford it. This raises a number of societal issues and it’s certainly not in the insurer’s best interest either,” Minto said.
“We have a powerful social purpose and that is to give people dignity and choice in times of illness and bereavement. If the insurance world ends up insuring a few people and not those who need it than that is not a good outcome.”
- Banking, Insurance,
- Christine St Anne
- Article Posted:
- October 01, 2016
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