The insurance industry has an image problem. Most policyholders engage only rarely with their insurers – to renew their policy once a year or when something goes wrong and they need to make a claim – and they’re rarely impressed. Research from the Institute of Customer Service suggests satisfaction with insurers has been falling in recent times, while regulators have upheld complaints that the industry rips off loyal policyholders with the “loyalty penalty” in order to subsidise cheap deals for new customers.
Innovation and digital transformation could be the key to challenging these perceptions. Insurers need to have a real grip on the problems they are trying to solve across the enterprise and their vision for serving customers.
New technologies enable insurers to offer a much better customer experience throughout the lifetime of their policy. In fact KPMG’s recent CEO Outlook Survey found that 73 per cent of insurances CEOs are now taking greater personal ownership of driving digital transformation in their organisations. For example, forward-thinking motor insurers are using telematics data to respond more quickly when a policyholder’s vehicle needs attention. In the back office, tools such as automation and artificial intelligence enable insurers to work more efficiently and offer higher standards of customer service.
“Insurers need to find new ways of doing business,” says Will Pritchett, Global Head of Insurtech at KPMG. Those that innovate too slowly are taking a big risk. Not only will their customers continue to think badly of them, but also, these customers increasingly have the option of taking their business elsewhere. A new breed of insurance technology (insurtech) start-ups is bringing much-needed competition into the sector, either grabbing customers from the incumbents outright, or working with innovative insurers to facilitate improvements that will give them a competitive edge.
“Insurtechs are going to play a key role in transforming the insurance industry,” says Pritchett. KPMG’s recent report highlighting the top ten trends facing the insurance and insurtech industry over the next two years highlights this. The No 1 trend will be a focus on customer experience and retention. This will become a more important KPI than operational efficiency.
“Incumbents are going to have to radically change their business models to address this,” Pritchett says. Another key trend is that the growth of the insurtech business models have encouraged new ways of working, necessitating a cultural shift in order to upskill employees and reorganise business models to retrain talent for a digital world.
“Insurtechs are going to play a transformational role in the industry,” agrees Matthew Smith, Partner, Insurance at KPMG. “There’s a real opportunity for insurers to move away from just collecting premiums and paying claims, to playing a much important role in helping people manage risk in their everyday lives, from prevention and protection to response and resolution.”
Paul Stanley, the CEO of 360Globalnet, an insurtech scale-up working with a number of insurers to transform their customer service and claims handling processes, agrees. “If insurance executives could step down one level and look at what new technologies can do to enable them to serve their customers better and improve internal efficiency, they will be better equipped to define IT strategy for claims,” he says.
Digital transformation needs to be led from the top. You often see heads of claims focusing on improving processes rather than responding to what the customer actually wants. Executives must be prepared to challenge and work with their “Head’s of” to ensure digital remains at the top of the agenda. “This needs to be sponsored and led by people as high up the tree as possible, those with the power to really change their businesses,” Stanley says. “The key is for senior executives to understand how technology can be an enabler for their business.”
By working with insurtechs, the big insurers can make dramatic progress very quickly, plugging into technology platforms that offer a whole range of tools from data analytics to the use of video in the claims process. In recent years a number of large insurers have been replacing their core legacy systems, adopting projects that have involved long-term programmes of work. Now they need to start leveraging some of the best digital solutions out there, which can bring about change in a matter of days rather than months or years.
Partnership is the important concept here, says Pritchett. “Although the industry has only seen tentative moves so far, once they have overcome issues around business integration, we will see a great deal of partnership over the next few years.”
As in other areas of financial technology, for traditional insurers willing to innovate and invest in new approaches, the insurtech start-ups once seen as challengers are now often turning out to be key enablers. “It’s not so much David versus Goliath, but David and Goliath,” Smith says. “Insurtechs can help insurers solve some of those seemingly intractable operating problems without having to rip out everything that went before.”
There are all sorts of different ways – not necessarily mutually exclusive – to kickstart the process. Some insurers are sponsoring the accelerators and incubators where new insurtechs are developing; others are making direct investments in certain insurtechs or forging joint ventures; outright acquisitions of insurtech leaders are another possibility.
“It’s fine to play with ideas and give yourself a license to explore new solutions in areas where you might not have previously looked, but you need to keep coming back to understand the problems that you’re trying to solve,” says Smith. “Think about what you will have achieved in 18 months’ time – and whether things will really have improved. After all, that’s the goal: to make things better and easier.”
It will be important to think about what is possible across the whole business. For the most part, insurers have so far focused on digital transformation of the front end of their businesses, particularly in distribution. They’ve built new websites and channels to sell direct to consumers, for example, or to offer basic customer service functions. Now, however, they need to look more fundamentally at their business processes and systems. Without digitalising these, it will be difficult to modernise the rest of the customer experience.
What’s the secret to prioritising digital transformation in insurance?
Partnering with new start-ups that can mobilise change quickly and efficiently is the first step in prioritising digital transformation. Secondly, measuring activities and acting on insights to improve the overall customer experience. Consumers are expecting technology to develop at an ever-increasing rate. Insurers need to use partnerships and insights from their performance to learn how they can continuously improve and implement even faster change.
To explore how you can thrive through digital disruption and help prepare your workforce for a digital future visit kpmg.co.uk/changingfutures
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