The insurance industry is facing an identity crisis. Known for its ability to pool risks, it is now experiencing a fresh onslaught of challenges that demands insurers to take risks on new IT paradigms.
The most obvious is regulations. Regulators are becoming more demanding and clinical. New rules like GDPR are increasing the compliance load. Non-compliance leads to hefty fines as well as tarnished reputations.
To survive, insurers need to know how their data is being used across its entire value chain, not just within its four walls.
However, the challenge to drive customer centricity dwarfs regulatory concerns.
Companies like Amazon and Facebook have made it easier to connect, shaping customer expectations. The problem is many insurers are still behind when it comes to customer convenience and engagement.
“Just think about making a small claim with your insurance firm. It can be a painful experience. People want simplicity and efficiency. Insurers have to rise up to that challenge,” James Maudslay, Global Head of Insurance at Equinix said.
Becoming Customer First
Insurtechs solve part of the problem. Maudslay noted that many are embedding themselves "deeply in the insurance value chain."
However, very few insurtechs are actually involved in the business of insurance "where someone pays a premium at the end of the day." "They are really concentrating on improving the [existing] process and making it better," he added.
“It is not entirely clear what [internet companies] are doing because there is a massive difference being an insurance company and selling insurance on the website. The latter is really about intermediaries,” Maudslay said.
Insurance still requires “human touch.” "Insurers with vast agency networks are in a hard place. But there are parts of the world where people still buy insurance from other agents. Some of that is seniority-driven," he added.
But the drive toward customer centricity is already shaping the industry in unexpected ways.
One example is the rise of microinsurance. Created initially for low-income customers, it is often limited in scope. Like, for example, buying insurance for a 15-day trip as opposed to getting an annual travel insurance coverage.
“But now, a lot of people do not want to buy annual policies anymore. The true irony is that such a [microinsurance] policy will cost many times more than an annual policy, but people still want it even if they are well aware of it,” Maudslay said.
Going Big on Data Interconnectivity
To be customer centric and explore new opportunities, insurers need to interconnect with data sources.
Many are already sitting on vast amounts of historical data. But often they focus on sizing up the cost of an incident and the impact on their insurer's finances.
Interconnecting historical data with other data sources offers a more significant opportunity. It allows insurers to become preventive rather than reactive.
“My underlying belief is that if they can architecture their infrastructure where they can securely and cheaply interconnect with other parties, it will make life a lot simpler. Then they will be able to pick and choose the data they really want. At the moment, there are substantial inefficiencies in the process,” Maudslay said.
With the proper interconnectivity, insurers will have more opportunities to get preventive.
"For example, lift manufacturers can now do predictive maintenance. It is a similar thing for insurance. Insurers will now be able to prevent loss rather than covering the consequence," Maudslay.
Collating all these data from a myriad of sources is, however, not straightforward. Big data analytics can help, but insurers are hard pressed for finding the right talent to interpret the analyses.
Enter artificial intelligence. “Insurers are increasingly using AI and machine intelligence to gauge genuine insights into the customers. All these mean diverse parties need to get interconnected in a digital way, so they can share all these information,” Maudslay said.
More importantly, becoming more data-centric requires a mind shift.
“Insurers have always been socially connected to each other. In fact, they are usually [housed] on the same street. But now with the world changing, they need to be digitally interconnected with their customers in the same way,” Maudslay said.
It is not easy for an industry that is traditionally cautious about adopting new technologies and paradigms. However, Maudslay noted that the conversation is changing.
"Insurers are very conscious of the fact that they are exposed to new risks with digital connectivity. But there is also no longer any resistance to looking for solutions. In the past, they would have said that the risk was already covered internally. Now they are open to exploring," Maudslay said.
The shift will take time. Part of the reason is because insurers are not defined by time like financial trading or retail, where microseconds can make a huge difference.
“But, honestly, [insurers] are doing their best to change. The arrival of Chief Digital Officers shows that. Yes, giving a job title or getting someone in is not cultural change. But it is well on the way,” Maudslay said.