A chase between Auto Insurers and Technological Innovations

Top 3 strategies and 10-point checklist to help insurers adopt technological innovations seamlessly.


Introduction

While automobile insurers are busy chasing Telematics Insurance, the next path-breakinginnovation—driverless cars— is already on the horizon. This development raises a few important questions:

  • Are insurers ready to take on back-to-back disruptive innovations?
  • Do they have the ability to build scalable strategies to manage resilient business models?
  • Are they ready to compete with digitally aware players and grow their business profitably?

This whitepaper exploreshow automobile insurers can tackle the challenges posed by next-gen customers. It provides thetop 3 scalable strategies, which can be adopted, and a10-point checklist to validate their journey towardsfuture business growth.

The Chase: Auto Insurer vs Tech Innovation

Thoughdriverless car is in its early stage of development and is expected to be commercially launched in the next 4-5 years.  When launched, itcould be named as one of the Top Innovations of this century, as this is expected to disrupt the fundamental automobile industry and thereby auto insurance (personal and commercial) business model.

One of the innovators said, “Driverless cars will dominate the roadways in the near future and 90% of the 1.2 Mn global fatalities due to auto accidents could be avoided with driverless cars”.

Let us glance through few instances when driver-less car is operationalized to warm up the impacts.

1)Premium Income:Insurersmay plan to link up with OEM/ car/ vehicle manufacturers to embed an insurance chip as a part of the vehicle, which means that automobile insurance premium will be includedin the price of a car. This strategy can help insurers be early movers in the market and create a lasting brand. The risks to be covered will also include smart electronic boards, communication devices, etc., apart from third party liability, accident cover etc., other insurance, and the cost can be reasonably high.

2) Regulator demand:Driverless cars require no human intervention. However, the regulatory systems could insist car manufacturers to program the car engine to start only when there is a licensed instructor/chauffer to instruct route changes, directions, etc. This will provide insurers with the opportunity to provide risk cover for “damages due to wrong instructions!” Auto Regulators, IT regulators, Insurance regulators may form consortium to address common needs to regulate auto industry.

3) Insurance Claims: In case of any risk occurrencemay also be due to mal-functioning of car system, we can assume car in it have the capabilities to contact the insurer, manufacturer, and the contacts of the passengers without any manual intervention. Based on the estimate (approximate loss estimate could be done by the car), the insurance company will reimburse to the manufacturer directly.  In case the communication failures, system may store in offline mode and communicate when connected. In short, the change will be, claims need not be initiated by consumer & insurers need not spend significant time, effort and cost for processing the claims – which also means the Combined Ratio will be re-base-lined.

Though very interesting, let us leave the driverless carsby the road for now and deep dive into the world of telematics (recent innovation) and how auto insurers can torque for a transformation.

Auto-Insurers leveraging Telematics

Even though telematics had arrived a decade ago, there are many reasons why adoption by next-gen insurers in the developed markets has been exponential. Among them, the top three reasons are:

Reason 1: For the first time, through telematics, insurers will be able to connect with their customers every day/moment. It will provide them with the opportunity to be nearer to their customers, (than any other financial service segments including banking), capture natural behavior and preferences, serve them with best-fit products/services, increase business at NIL/reduced cost, and grow it profitably.

Reason 2: Telematics policies account for just <5% of written premium in a globally scale currently. However, it can go beyond automobile insurance and help allied businesses such as home/ content/ travel, other consumer insurances to grow. In addition, it can enable businesses in the emerging countries to scale up by targeting a fresh segment of customers through the communication window.

Reasons 3: Insurers can predict risk and use data-led information to undertake risk-adjusted underwriting with personalized pricing and eliminate fraudulent claims drasticallyby increasing capital availability.

Tackling new-age consumer demands

In this context,for a while let us explore how insurers can response for 3 nagging questions from typical new-age drivers:

Q1: “WhyI need to drive, when I can connect in real-time with friends through social media, online conferencing, and watch movies in home theatres, play virtual games, exercise at home, and shop online?”- Next-gen consumers needa business case for every dollar/pound spent.

Response by Insurerscould be to identify what would motivate them to drive, and implement the following:

  • Focus on benefits: Insurers to create a business model to provide tangible benefits by partnering with external providers (retailers/manufacturers/service providers) and promote their respective products mutually – for e.g., if insured cross a certain number of miles/ kilometers on driving, instant e- coupons could be issued while on the move for food/other miscellaneous consumables, discount credit on the premium can be given based on the route they drive or on the fuel bills if they fill gas at a specific fuel station, etc.,. These examples are indicative only.  Important element is the benefits have to be clearly articulated and to be delivered in real-time& for short-term consumption.
  • Effective marketing/communication:Engage marketing/ intermediaries/ agents to promote products and discounts/pointsjointly, consistently, and effectively, especially through social media.
  • Experience through convenience:Aggressively partneringwith retailers/ service providers/ providing e-insurance cards with top-up insurance premium facility for their intermittent needs for a with instant access through mobile/web/social media – will improve significant customer experience.

Q2: “How can I mitigate the risks during my drive?”

In other words, insurers need to think what could help customers avert risk proactively and improve driving performance. This dovetails into the same question car manufacturers are trying to answerwhen they design their products. A few things that could be adopted by insurers are:

  • Focus on benefits: Proactively publish financial/physical impact of risks, by creating public risk database with powerful search facility, suggesting nearest mitigation plan to make consumer aware of situation could be of high use. This could also be done using gamification to make the consumer hook-up & create reward plan based on points earned.
  • Effective marketing/communication: Motivate young drivers by publishing their good driving behavior in social media, recognize & announce spot gift for winners, through the social media.
  • Experience through convenience: Omni channel enablement will help consumers to effectively communicate on-the-go to avoid risks.

Q3: “In case of risk occurrence, what service can I expect & how can I access those services?”

  • Focus on benefits:Telematics can help to track real-time, so even without consumer’s intervention;emergency alerts could be auto-enabled &managed by insurers, by partnering with service provider for additional fees. This could remove the hassles of triggering the occurrence of risk & waiting for help by consumers.  Any service level breach could be compensated by insurers. Integrating with partners like restaurants/service providers to serve will make the support effective.
  • Effective marketing/ communication: Communicating real-time experience using the social media will help consumer understand the process better and be alert with live examples. Communication of ‘technology enabled features’ will help consumers to get the right expectation.

Experience through convenience: Providing effective communication facility – like video conferencing with key expert could help consumer to record ‘moment of truth’, providing simpler mobile apps to communicate instantly to insurers or agents can improve experience.

While the list of questions/demands of next gen consumers may go beyond all these, let us just consider these as guidance to focus on key 3 strategies & 10 preparatory check-list items which next gen insurers may need to adopt to give equal or better chase to technology innovation.

Strategies for Insurers

While redefining business strategies for next-gen consumers, insurers may have to factor in future technology adoption like driver less car innovation and business model changes.The 3 fundamental strategies insurers may need to consider:

Strategy 1 : Collaboration Strategy

Insurers need to define clear collaboration strategy with a view to improve visibility (increase brand awareness), knowledge sharing (enable decision making), and receive instant feedback (enhance customer satisfaction).  Strategy could be to:

  1. Collaborate with employees:Employee participation at the ground level helps in increasing their bonding and passion towards business growth. Building internal eco-system for seamless flow of communication between employees enabled through platform will help to bring in great value to customers.  Employees need to be motivated by recognitions/awards based on quantified value created for customers will help insurers to shift their organization as ‘value’ focused organization.
  2. Collaborate with partners/ vendors: The maturity of product/ service vendors in other industries, especially in the retail, IT, and manufacturing, has grown substantially. There are a number of seamless tie-ups with banks and players from other sectors with the strategic intent to improve business. It will help provide seamless services and make insurance affordable for the customers.This will also include investments in the R&D innovation of auto manufacturers for future innovation adoptions and will make ‘future-ready insurer’
  3. Collaborate with customers: Telematics consumers have different set of priorities and expectations. Ways of thinking itself differs from traditional consumers.  So it is critical to have strategy to collaborate with different age segments of consumers.  This will help to proactively deliver unique experience and match their expectation.  Collaboration with this age-group consumers will mostly be virtual and their contributions need to be properly identified, evaluated and recognized at right time. Customers are ready to promote products/brands voluntarily, if there is a genuine advantage. In addition, feedbacks are readily available –through social media, specific websites, blogs, etc. Defining products, creating awareness of its features, illustrations and feedbacks will help insurers grow profitably and faster, while creating a niche customer base for the future.

Strategy 2 :2-D Strategy (Digital & Data Strategy)

Some people associate digital integration withproviding a platform for integration.While it is one of the preliminary elements, ininsuranceitmeans:

  • Platform and business process integration – In telematics insurance, the source of transaction initiation will be vehicle/consumers/customers, and will be processed, completed by service provider independent of insurer. This means the transaction will be just recorded in the system for reference and approval only. So not only the seamless integration between core systems and allied systems is important, integration of business processes connected with digital technology & integration with service provider data, will be equivalently critical.This involves efficient change management mechanism, right selection of applications, and experts to implement the envisaged changes across the business processes. Insurers need to carefully select IT partners who not only have the technology capabilities but also need to understand the Insurance processes, bringing in right domain technology experts for building digitally integrated systems.

 

  • Real-time integration with thirdparty systems– While core system integration can help to automate processes transactions seamlessly to reduce the process timeline and reduce the cost of transaction, real-time integration with third party systems will be essential to improve customer experience & reduce the data distortion, increase quality & reduce time. For example, financial advisors can involve underwriting or product experts during their conversation with customers with the help of the conferencing facility afforded by digital connectivity. Similarly, customers can interact with the claims officer through conference when they have an accident and receive instant guidance. In the same way, service requestscan be handled swiftly with illustrations and the damaged insured contents captured using video and uploaded for reference and quick assessment.Furthermore, 3D simulations can be used to identify and demonstrate the damaged portions for faster claims assessment. Regulators need not have to depend on insurers to publish data, but will extract directly from service providers.

 

  • c) Integrate with the unknown sources (social data) – While social data integration is a fabulous thing, the big question is, are the resources spent on usability, storability, and accessibility worth it. Insurers need the social data with sufficient substance and defined periodicity,for receiving feedback on the products launched, services, ideas, improvement in service levels, identify fraudulent claims on need basis, behavior pattern of customers, and create brand awareness. They need to think of sourcing only filtered substance data, after analysis for usage, because customers may ask them to pay for the usage of data.

 

Strategy 3 :Change Management Strategy

Change is inevitable while serving the next-gen customersbecauseinsurance product design, distribution models, service levels, and competitors’strategies evolve. This demandsa substantial focus on innovation, which may cause disruption in the business model, employee policies, and changes in the service model. Insurers need to identify competent leader to manage the change management team. Having right governance structure and mechanism will help to execute strategy. Decision on business model change, distribution change, process change should be taken consider the future technology changes – including internet of things.  Right communication at right time will make employees and consumers to be in sync with changes for easier adoption.  Change management strategy becomes very critical for Insurers to devise now itself along with other stakeholders – including HR, vendor management office, service provider, Technology partner, financial team & business operation teams.

TEN-point checklist for next-gen insurers

While strategies may need much time to design and implement, immediately steps for next-gen insurers is to use the below check list to verify and consider to take appropriate actions:

1) Identifying the right digital transformation partner who iscapable of bringing value, theright set of business-aligned technology, and high-speed execution using framework.

2) Creatinga special task force with the right set of professionals to work with the technology transformation partner. This collaborative team needs to have long-term objectives and a roadmap for execution. In addition, provide the team with sufficient space to bring in the right set of ideas and business case,along with governance and specific metrics to measure the progress.

3) Planning for a phased investment with a detailed roadmap for logical clustering—platform implementation across the value chain, and digital system integration as one cluster. Additionally, calculated decisions have to be taken by the insurer if there is a business need to run some of the phases in parallel to get faster Return on Investment.

4) Finalizing the decommissioning plans for the existing platform and the product support plan in advance.It can help to save 20-40% in the current running cost, which could be used to fund-back the transformation programs.

5) Designing the products to cater for future business needs.Direct channel distribution need to be enabled with technology. If itrequires the support of the advisors, makesure that they are given sufficient training for theright application/channels.

6) Collecting governance and metrics to assess the initiatives and infuse the necessary capital, resources or advice as and when required with the help of toolssuch as CXO dashboards, capturing plans, and actuals.Additionally, plan to have digital governance to adopt change management.

7) Deploying a strong marketing force asa part of the core team/special task force. Similarly, the collaboration with retail and communication using technology-enabled tools need to be planned. Furthermore, videos and interactive animated illustrations should be available for the customers at arms-length.

8) Prioritizing initiatives according to low business model impact, high customer experience and business growth opportunity. Instead of intuition or personal preferences, it is better to use proven scientific scoring methods/frameworks to substantiate decisions with data points.

9) Organizingsupport/service/operational teams with people from the same age group as the target segment including the mix of genders. It will help to understand and communicate with customers in line with their expectations.

10) Securing future customers by using the early mover advantage. Moreover, taking prudent decisions on facilities and service providers will not only help establish integration, it will also provide sufficient scale. The right focus is required on vendor relationships and infrastructure requirements including data management (operational, analytics and big data), devices, channels, software applications, integration, etc.

Conclusion

A few next-gen insurers — leaders in the market, have already taken steps to scale up to meet the requirements of the target millennial segment. Many, who aim to become leaders in the next 3-5 years, are re-thinking their strategies and have initiated conversations with vendors/partners – especially with their IT partners.

It is self-evident that automobile insurers, especially those who have recently launched telematics products, have serious competition. To be ahead inthe game,they have to join hands with partners who can understand business trends, support their transformation journey, and bring in the right expertise to deliver value.


About the Author
Murali H
[email protected] +91-9840857221

Author is a chartered accountant, heading Global Insurance Solutions in a top tier IT Enterprise.

With 18+ years of diversified experience has been instrumental in winning significant insurance IT business deals.  A keen researcher & strategist to support the insurers in their IT transformation.