While the insurance industry might not be full of Amazons and Apples, the state of innovation in the sector isn’t anything to scoff at, even outside of the investment in insurtechs that smashed records in Q1 2019.
“It’s really exciting that for an industry that’s over 150 years old, we’ve seen more change in the last three to five years than we ever have before,” said Sophia Yen, insurance strategy and innovation leader at EY. “I think there’s a lot that is happening in the industry that’s causing the drive for innovation, largely our continued softening market as well as everyone’s pursuit and drive for profitable growth.”
Customer expectations are also driving innovation, as businesses evolve from the manufacturing business model to the platform ecosystem.
“Once upon a time, you ran a company and you produced a widget, say a bottle of water, and you produced the best bottle of water,” said Yen. “What we’re seeing is that the most successful and profitable companies today actually sit on massive ecosystems, and they know and learn the needs and interests of their customers and clients, and then create products and services around that. We think about Amazon, who started by selling books, and now, they just launched retail clothing.”
Platform companies can sell their customers anything and everything based on the data they’ve collected about them, and have perfected the consumer experience. After all, just like you can buy anything instantly with the ‘Buy Now’ button on Amazon, why should consumers fill out a 50-page form to get a life insurance policy?
The insurtech landscape is shifting as well, explained Yen, for the benefit of traditional insurance players.
“We’ve seen the pendulum swing from a total disaggregation that was the birth of all the insurtechs. If you look at some of the more successful insurtechs, they’ve taken out a piece of the vertical of the insurance value chain, and they’ve specifically made that component easy to do business with, or heightened that customer experience, but that left us with a very fragmented ecosystem,” she told Insurance Business. “In the last 18 to 24 months, legacy traditional companies are saying, ‘which insurtechs do I need to pay attention to’, either that ‘they’re taking away some of my business’ or that ‘I should partner, align, and do business with’.
“We’re starting to see aggregation and we’re starting to see heightened M&A activity across the board, and part of that is fueled by the capital surpluses that most of our companies are enjoying right now, and needing to put that surplus to work. While we’re seeing a lot of innovation happen on the frontend around the customer experience, I think there’s a lot of room to grow around making our underwriting decisions faster, quicker, better; making our actuarial decisions faster, quicker, better; and ensuring that the claims process is akin to a client experience that we experience in other segments and aspects of our lives.”
Whether it’s blockchain or artificial intelligence, both of which will likely continue to disrupt the insurance industry, insurance executives need to stay at the forefront of technology and how it can help enhance their business processes.
“We always talk about not running around trying to implement blockchain, but more solving clients’ problems [by using] technology,” said Yen. “The two are combined because when you’ve got an effective blockchain that’s settling multi-party transactions real-time, that’s audit-proof. You’ve got a clear source of the truth, and when you’ve got a single source of the truth and you’ve got data and analytics, that propels you to now have the knowledge and information that the large profitable platform companies that are not in insurance have.”
However, are insurance companies ready to put all the data they sit on to good use?
“We have tremendous amounts of data and information on people, on vehicles, on buildings, on climates, and we have yet to even embark on the brink of monetising this data,” said Yen. “Data is the new oil, and the question for all traditional carriers becomes, do you have the right refinery, and are you actually monetising the data the way you should? There’s a great opportunity here.”