The level of technical knowledge required to read the article: ⭐⭐⭐⭐⭐ (low)In 2022, every industry is more or less using digital solutions in its daily operations. However, there are still many processes to digitalise, making them faster, more accurate, and more cost-effective.
No industry can avoid the rapid wave of digitalisation. As an example, the banking sector experienced such a wave around 2013–2014. And nowadays we can enjoy the fruits of this development – easy payments over the phone, online banking that we can no longer imagine everyday life without, lightning-fast transfers by dropping a web link into WhatsApp, countless exchanges and trading platforms where you can buy/sell anything you want.
This time it's about the insurance sector, where we @ Mitigate have more and more partners and work to do. When we studied the current state of digitalisation in insurance companies, we came to the conclusion that there is a lot to improve and a huge (we use that word with certainty) potential for new opportunities. There is a good reason why the term ‘InsurTech’ is already spreading across the internet.
Please allow us to share our thoughts on where the digital potential of the insurance industry lies:
#1 API Economy
API in human language means a way of connecting programs so that data is exchanged automatically, without manual human intervention. Here, it is appropriate to mention the term ‘Service Oriented Architecture’ (SOA). It is a style of software architecture that fundamentally uses API practices.
The SOA style is fundamentally different from the way software was produced 7–15 years ago. This is why legacy software does not organically support the API economics that are rapidly gaining popularity today.
The API economy is (or can be) important to insurance companies because of:
- Integrations with partner systems to enable online data exchange and provide instant service to the customer. For example, broker systems, exchange systems, commodity dealer systems.
- Integrations with online products. For example, e-commerce shops: I put a product in my basket and at the same time I ‘tick’ that I want insurance.
- New business opportunities using collected data. Of course, complying with all GDPR conditions, it is still possible to create new products based on the data.
- Allowing third-party developers to decide (by regulating possibilities and responsibilities) how to use APIs to create new products that integrate an insurance service. For example, if I were building a car rental app, I might think it would be a good idea to make all rental orders automatically come with insurance. Which I arrange automatically via the API.
#2 More Customer Data
Digital channels continue to proliferate aggressively and the amount of customer data is growing exponentially. Provided the new channels get used, of course. Despite all the challenges associated with data security, it is also an opportunity for insurance companies to develop new products.
On the one hand, insurers need to find ways to effectively manage and store this growing volume of data. On the other hand, insurers that are able to use this data effectively will be able to gain a competitive advantage.
#3 Customer-Focused Experience
Customer-oriented business is the cornerstone of the insurance industry. The growth of digital products (social networks, online everyday applications, portals, etc.) gives customers more influence than ever before. Customers can now shop around for better prices, compare different products, and find the most suitable insurer for their needs in a few clicks.
Insurance companies need to respond to this by focusing more and more on delivering a great customer experience (UX/UI). This includes offering personalised products and services and making it easier for customers to conduct business through digital channels.
#4 Pay-As-You-Go Business Model
It is now an integral business model in other industries, such as the rental of software technical infrastructure. And it has already been implemented in the insurance sector, but only recently and not in all companies.
This type of insurance means that the customer pays an amount based on the actual use of their service, not on the estimated use. For example, there is a currently popular offer for drivers: the insurance premium is calculated based on the kilometres driven.
The introduction of such a business model inevitably requires the development of existing applications and most likely the addition of new ones, such as a mobile app where you can ‘turn’ the service ‘on’ and ‘off’. ‘Right now I am driving and need insurance, please’; ‘Today I am not driving, no insurance is needed, thank you.’
This could be the next BIG thing for the industry. Phones, watches, sensors, readers, meters... Potentially huge amounts of data that insurance companies have not been collecting and asking their customers for until now. However, access to this data could provide new business opportunities while improving customer experience and service availability.
For example, by knowing exactly how and when a customer drives, insurers can better assess the associated risk and price their products accordingly. In addition, telemetry solutions can also be used to reduce fraud. For example, if an insured driver is found to be deliberately driving in a way that could cause an accident, their insurance policy could be cancelled.
Insurance has traditionally been a conservative sector. But the rules of the game are changing as digital solutions change customer habits. The industry is transforming from a conservative to an increasingly innovation-driven digital culture.
In our view, competition is intense and will become even more so. Digital insurers and tech giants are spoiling customers (in a positive way) and they are demanding an ever better customer experience. Digital transformation is no longer an option; it is a necessity.