The changing face of insurance in 2021
Written by Harry Franks
2020 was a challenging year for individuals, businesses, and the global economy as a whole. Unprecedented restrictions due to the COVID-19 pandemic led to people quickly learning new ways of living, working, and interacting with each other. For industries that have been traditionally reliant on working from the office or those that are heavily regulated, including the financial services, healthcare, and insurance industries, there’s been a need to advance and transform their ways of working in a short space of time. For this, we’re talking weeks; when previously this would have taken months or even years. This revolutionary change has been forced, and has favoured flexible and proactive companies and individuals.
This change has illustrated what is possible when it comes to work, and it has highlighted the power of technology allowing dispersed people to work in collaboration and transparency, irrespective of their time zones. However, it has also shone a light on organisations that are unable to support this new way of working. This includes legacy technology and infrastructure, outdated views on facetime vs meaningful output, and a lack of company purpose leading to team mistrust through a lack of collaboration and transparency.
Trust has particularly suffered during this time, none more so than in the insurance industry where well-known and established brands have failed to support many customers at a time of critical need of business interruption, falling back on reams of paperwork, and assumed understanding, rather than living up to their promises of support in the hour of need.
Also, the pandemic has created a marked shift in what consumers are wanting from their insurance companies, as their needs have rapidly evolved. More time at home has created new risk profiles, new coverage needs, and less travel needs. Fewer people were commuting, which effectively led to lower mileage, and this subsequently led to customers requesting refunds for their vehicle insurance policies. Consumers have been looking at alternative forms of transportation to avoid congested public transport and this has resulted in new road risks in micromobility.
With these new needs, the lack of trust, and the rate of change in demand outstripping the supply, the insurance industry is experiencing a mismatch again. However, I believe there is an excellent opportunity to address this issue now, more than we have in recent years, as the playing field is unstructured and the industry is crying out for a change. I believe the insurance market can solve the challenges if it concentrates on these three core areas:
Customer-centricity and specialisation for long-term gain
Sadly, no business can satisfy every customer, and insurance is no different. It is vital that insurers decide who their customers are and will be, why, and what the problems are that they really need solving.
The following tagline has become familiar ground for insurance companies: “We are there for our customers.”; however, when you really dig in, and ask “Which customers do you focus on and why them?”, and specifically, “What is being done to service these customers to the core of their true needs?”, then the cracks start to show.
Having a very clear view on the desired customer base in the long-term will allow insurance companies to specialise in providing tangible, personalised solutions, not broad ones. This will create trust, customer retention, and long-term success as customers have a sense that their insurance provider understands them better, and less effort and cost is spent on marketing an unsuitable product to the customer ahead of improving the customer outcomes.
To make this happen, insurance companies must have a long-term strategy. Initial changes are likely to erode shareholder value as profits are reinvested to resolve systematic issues that have held the providers back in the past. However, when customers need new solutions and value from their insurers, the time is right more than ever before. Without this ability to see past the next shareholder report, insurers will be stuck in systems and obsolete products for a new customer type, and this will lead to a slow but steady decline as specialists take over.
Fully utilise new data
As customers require new solutions, they are increasing their willingness to look to alternative providers. We have seen this in banking in the last years, and now we are beginning to see this appearing in some areas of insurance already.
Gaining the customer’s attention and time is top of mind for every business leader, and it is won by delivering what the customer values and needs. In order to engage with ever-evolving demands, players should take advantage of real-time customer information to deliver high-quality experiences, in the exact moment the customer requires. For example, IoT-powered wearables are having a significant impact on the personal health insurance space. In the same way that telematic monitors in vehicles can track customer behaviour to reward safer driving habits, devices such as Apple Watch’s Health App can track and promote healthy behaviour, leading to lower premiums. Actionable data insights can be instantly collected from real-time visual and voice analytics to make decisions from a single customer view. In banking for example, RBS uses analytics platforms to transform complex data into simple, actionable customer insights that create a highly instinctive and user-friendly customer banking portal to drive results.
Customers are also willing to share more to receive more. Data is more understood, and the fallacy of all data shared is some sort of invasion of privacy is reducing. It is widely growing in belief that if you can share more data with a trusted provider, they can give you more back, and treat you as the individual you want to be.
Personalisation is crucial because whilst customers live more connected lives than ever before, they are more disparate because they have the ability to be unique via means of technology. Customers want to feel that their voice is heard and are getting the best outcomes from their providers. After all, customers do have more choices at hand, especially with the availability of multiple interactive devices.
Insurers must embrace this, and fully use the data made available to them. This is more than capturing and building a database for the value of future customers; rather it's about capturing, understanding, and delivering the inherent value of this data back to customers. These are three distinct skill sets that decision makers and true value creators alike in the insurance space must possess.
Capturing data means working with customers to gather the most indicative information possible for the risk at hand. Understanding the information is seeing how this data applies itself to risk, claims, and of course associated costs. Delivering value is the ability to use this data and your understanding of it to give back to the customer value in a format that makes most sense to them. We see specialists in the insurance sector who can do well in one or two of these processes, but the sum of all three is where the most value lies for both providers and customers.
Collaboration as innovation
I mentioned above that no company can focus on every customer, and I also considered the value and need for both depth and specialism in both customers and internal capabilities. The key challenge is that the magnitude of this change is quite significant, which magnifies the shareholder value conundrums. Therefore, I believe that innovation comes faster and is more cost effective through excellent collaboration between insurtechs and incumbents.
In a strong partnership, value is created by having a clearer understanding and appreciation for each other's strengths. This couldn’t be more appropriate in insurance, and especially in insurtech where the strengths of scale, experience, and knowledge can be greatly enhanced by skills in technological innovation and customer focus, and vice-versa. The nascent technology can take years to build and implement if the correct resources and skill sets are not there. This is very much true for the incumbent players, who are just not well equipped and resourced to build out the types of solutions, working styles, and teams that are best suited to keeping pace with the customer needs.
Collaboration between insurtechs and incumbents is the route that allows the best outcomes with minimal risk. Incumbents can quantify the costs, the risks, and the scale that they want to operate at to align with their budgets. If the partnership is strong, all parties will both develop and learn at a pace that is advantageous to them and most importantly to their customers. This means that incumbents can take a good product and with the assistance of insurtech innovation, improve it over time to serve customers better, and gradually link into new markets. This results in a more sustainable and collaborative model, supporting ongoing customer-centricity.
This shouldn’t be treated as a ‘toe in the water’ approach, as incumbents must invest in the work, as much as the insurtech should, and the results should be measured suitably such that downside risk is controlled. All partnerships are a bet, but controlling the approach, with a clear vision of what and why these bets are being undertaken, is key for advancing the insurance space and keeping up with new demands.
Challenges to all in insurance in 2021
My challenge to the insurance space comes from two sides: to the incumbents and to the insurtechs.
To the traditional, incumbent players, the challenge is to move now, adapt, and keep relevant. Without thinking in depth about who you are serving, with what and how, you will face long-term challenges of being specialists in a reducing market as customers seek more personal and focused support. Mergers and acquisitions (M&A) may allow you to retain some scale and market share for a time, but this is academic if the market is reducing.
To the insurtechs, or partners of insurers, my challenge is to make sure that you are focused on creating, from the outset, good outcomes for all parties involved. Whilst serving one party in the interconnected web of insurance might seem satisfactory, the reality is all have a part to play, so ensure you consider this early and throughout, or you won’t be around for long.
Looking into 2021
I am hopeful that 2021 will be a year when advances made in the previous years accelerate due to the reasons I have covered. My prediction for the year ahead; however, is that only a few of my key themes will be addressed, such is the reality of implementing change.
Where there is a shared vision of the future, we will see more partnerships. I think these will be in segments of the insurance market where this vision isn’t too blurry such as mobility. We know this space is evolving fast, and we have a good view on the direction of travel, and the solutions need specialists.
We will see more partnerships, but these will be larger, safer, “known bets.” Smaller insurtechs wanting to get a foot on the ladder will struggle as insurance partners will have to justify their partnership decisions more than before due to the tightening of margins within the insurance space as a whole. This will result in a greater polarisation between those who have a product in the market and can immediately illustrate benefit to insurers, and smaller pilot products that will be left behind.
Finally, we will see more M&A action, as this is a known route for traditional players to increase their footing in the market. Commoditised products will be sold by fewer, larger players with economies of scale, and this will be seen as a midterm solution to address the shifting market.
A time for optimism
I am passionate about the ability to change a part of our financial landscape that is so important to our everyday lives. More and more strong talent, funding, and new ideas are pouring into insurance and it's very exciting to witness.
I’m optimistic that after the past few years’, where the general direction has been building change, and the past few months have led to the enforcement of change, that 2021 is a great landscape on which to alter insurance. Customers need insurance, and they want new options for their new lives: it's time to grasp this opportunity for the good of all parties.