by Charles Sybert -
The insurance industry is now being held to a higher customer interaction standard based on other industries. The ease of ordering products from an online retailer such as Amazon is setting the standard for ordering products to be simple, efficient, and fast. The ability to chat with an airline to change a flight is setting the expectation of an instant conversation to solve a problem within the application. New InsureTech is using the cloud to focus on niche markets are setting the expectation insurance should be easy and simple. The consumer market has changed to address the millennial usage of mobile devices instead of in-person discussions so too must the insurance industry change.
In this blog, I review three key trends that will impact the insurance industry in 2020, near and longer-term.
Digital transformation is a journey from existing legacy systems to a customer-centric interactive experience where transactions are seamless and fully automated.
In our client base, we often see clients thinking digital transformation is just about placing technology that is available onto the web or a mobile app, but when examined at its core; digital transformation is fundamentally about customer interaction. There needs to be an organizational mind shift focusing on ease of customer-defined interactions and how as a company, technical or business barriers hindering customer interaction must be removed. The secondary focus should be lowering costs through automation and predictable results through uniform application of business rules.
A key component to the transformation is the replacement of legacy applications due to constraints of data accessibility, transaction support, ability to expose to the internet, maintainability, etc. The measure of the transformation success is how the new technology enables the business and not if it is delivered on time. For example, Lemonade who in 2017 reported that a customer was able to enter a claim in 61 seconds and paid the customer within 3 seconds1. From that achievement, Lemonade continues to apply more technology to their digital transformation journey and are now paying 1/3 of the claims without human interaction.
One of the biggest challenges of the journey will be convincing the business teams to trust technology and codify their daily low value-added tasks. There is a perception of IT cannot deliver, they always get it wrong, fear of job loss or the perception the job is too complex. In a properly managed transformation, the results are the exact opposite, mundane tasks can be managed through Robotic Process Automation (RPA); a new system can engage a human on an exception basis or provide predictive analytics on complex risks. The goal is not to replace the worker but rather elevate them to focus on higher value-added tasks while enabling the customer more direct access to the information and self-service.
To see where your company is on the journey, we have a simple outline of key customer interactions per insurance function. For each area select the digital experience that closest corresponds with your company’s digital experience.
|
Action |
Points |
|
Request a quote |
1 |
|
Provide policy document and proof of insurance |
2 |
|
Straight through processing of policies and endorsements |
3 |
|
Action |
Points |
|
Provide account status |
1 |
|
Set up automated payments of bank or credit cards |
2 |
|
Accept alternative payments such as Pay Facebook, Zelle, Apple Pay |
3 |
| Action | Points |
|
Notification of a claim |
1 |
|
Provide claim details such as pictures, documents, etc. |
2 |
|
Fully automated claim adjudication |
3 |
|
Action |
Points |
|
None |
1 |
|
Web page with portal capabilities |
2 |
|
Web page and mobile application |
3 |
|
Total |
Comment |
|
4 |
Just starting the journey |
|
5 – 8 |
On the path but have much to do |
|
9 – 11 |
Well along the journey with some room for improvement |
|
12 |
Setting the trend |
With companies like Amazon, Google, Apple, and others providing a rich and fully digital experience, customers are demanding the same from their insurance companies. Now more than ever legacy insurance companies are starting to feel the presence of newer startups like Lemonade erode market share due to their ability to meet the customer on the customer’s terms.
The journey to a fully digital transformed company takes time and is unique to each insurer’s culture and brand image. If the vision is not centered around the customer, the investments in technology, data and collaboration will be ineffective at retaining and increasing sales while lowering costs.
Building upon the historical gains of identifying differences in images, comprehending unstructured data from social media and ability to detect seemingly unrelated trends Artificial Intelligence (AI) is poised to accelerate efficiency gains throughout the insurance interaction lifecycle. We have seen a marked increase of AI in claims processing but we are now starting to see traction in the policy processing.
Today it is common to see chatbots being used to provide 24/7 support to customers using natural language processing, enabling insurance companies to communicate on the customer terms instead of technical terms. For example, the customer can type in “I hit a parked car, what do I do next?” If properly configured, the chatbot can walk the customer through a set of questions to complete FNOL, set up the claim in the claim system and provide the customer with the next steps that can include an approved body shop based on the location of the accident. While providing the customer with customer-friendly responses, the chatbot can execute all of the insurance processing through APIs or if APIs are not readily available can use Robotic Process Automation (RPA) to complete the process. This enables the insurance company to deliver consistent near human-like responses 24/7 for a fraction of the cost.
Insurance companies have access to terabytes and terabytes of invaluable data gathered from various sources such as the insured, third-party providers, Internet of Things (IoT) and even driverless cars which provide over 30 terabytes of data a day2 but have not begun to fully distill customer insights and earlier fraud detection. AI has the ability to use the higher computing power of the cloud and highly complex data analysis techniques to sift through the sea of data and run millions of trend analyses, preform correlation validation and develop preliminary theories on possible fraud in ways a human could never physically run or even contemplate.
Fraud detection would be a natural fit when insurers are placing a claim and AI can in real-time determine the possibility of fraudulent activities. Based on the score, various actions could be taken ranging from flagging the claim for a human investigation to canceling the policy. AI fraud detection is not limited to insurer fraud but can also be used in a wide range of internally facing activities including identifying employees who are overpaying claims, employee theft, and vendors that are overcharging or not doing the work as promised. As the landscape of payments and transactions becomes wider in the gig economy, it is increasingly more difficult to identify small leakages in payments without the use of AI’s ability to sift through data identifying seeming unrelated correlating factors.
An auto damage claim is reported by the claimant and the claimant sends a set of pictures detailing the damage. AI is able to review the picture to determine if it is a surface bumper dent or is it more substantial requiring additional work. Based on the assessment, AI is able to combine the identified repair with historical data to establish a total claim value. Using the estimated value, the AI would set up reserves, recommend a body shop, set up the car rental and other services as needed all without human interaction.
Another use case is during a catastrophe such as a tornado or extreme hail damage. A drone is able to survey the damaged area, taking a high definition video of all losses and possible claims. AI is able to dissect the video based on geocoding to identify insured customer’s homes using policy data. Using a comparison of observed damages to a static photo provided at time of policy issuance, a third party image such as Google Maps or stock image of a roof, the AI would blend observed differences in the home’s appearance, detailed data from the weather service, comments/video from social media and historical internal company knowledge of home repairs to establish claim value for home repair, housing and other policy related coverages.
AI is a very powerful tool that if properly harnessed has the ability to fundamentally change the insurance company’s workforce and solve the lurking problem of institutional knowledge loss with an ever-increasing rate of employee retirement. AI can not only apply simple rules but analyze any unstructured data presented and comprehend the appropriate next step. AI is not a tool that can simply be deployed but must be carefully weaved into the fabric of a company using a thoughtful strategy, as it will require access to data, time with skilled resources for training and continual monitoring to ensure the appropriate outcomes are achieved.
Blockchain technology has the possibility of becoming the true “killer app” through complete automation of the insurance life cycle from policy issuance, billing and claims processing with a decrease in processing costs and fraud. Blockchain provides the ability to store transactions, contracts and encrypted identity information that is able to be recorded and distributed but not edited in a trusted manner.
To understand how blockchain works, we will use a simplified example where you decide to purchase something from an online retailer
It is step 3 and 4 that makes blockchain so interesting, the ability to hack a blockchain is nearly impossible due to the interlinking of the blocks and the multiple network nodes storing the blockchain. If a hacker wants to change the past, they will have to change not only the block in question but all of the subsequent blocks and do it in such a way that it can’t be detected by the network. It has been proven that it is nearly impossible to do without monumental computing power.
Before we discuss the possibilities of blockchain technology an additional concept needs to be explained, smart contracts. A smart contract is an electronic contract that is built into the blockchain that is activated based on a given set of conditions or business rules. For example, a smart contract could be set up for a rental where the landlord must provide the security code to the front door and the tenant must provide a security deposit by a given date. If both parties provide the details, the smart contract will send the code to the tenant but if the landlord doesn’t provide the security code the contract would return the security deposit to the tenant.
Using the concepts of blockchain and smart contracts, the application of technology can cause a fundamental shift in insurance processing. For example, a buyer purchases a new house and adds it to their personal blockchain where they have a smart contract outlining their insurance preferences with NexCo. Just prior to closing, the smart contract uses integration to pass all of the details of the house such as location, number of bathrooms, flooring type, quality of construction and other details from the home’s blockchain (which is separate from the owner’s blockchain) to NexCo. NexCo uses the insured’s smart contract’s preferences and blockchain details to systematically underwrite the policy, generate a binder and a payment request that is added as a block to the buyer’s chain. Upon acceptance to the chain, the invoice request is added to the closing costs and then is paid from the closing proceedings.
Another example, a person gets into an accident with another car and the sensors provide a readout of the damage to the car. The car would automatically report the damage to the blockchain that would in turn, validate the coverages for the damages and then notify the car owner and insurance company of the total projected cost. The insurance company would open a claim and add it to the blockchain that could then be used by the selected body shop to request payment. During the subrogation process, the insurance companies would use the police report that was added to the blockchain as a basis to complete the subrogation process using standardized data exchange.
The future of blockchain is dependent upon legal hurdles and public acceptance, but the trends are indicating the ability to freely exchange detailed information in a secure manner, fraud reduction, and ultra-low processing costs will be too powerful to ignore. Aon just recently announced the launch of crop insurance in Sri Lanka for rice paddies using blockchain technology from insurance startup Etherisc that automatically pays out based on weather catastrophes4. Blockchain is coming and will be here soon, but will your systems be ready to support the data needs or will you be left behind?
The trends of using technology to enable improved customer-centric interactions is exciting as companies are morphing themselves to meet the customer on their terms. Through the use of these and other technology trends, companies are able to create personalized and thoughtful insurance transactions that were only a marketing director’s dream a few years ago.
To achieve the goal of market relevance, a meaningful strategy must be developed to focus the hard work and energy of the team in the right direction taking advantage of technology and new data. Every strategy must take into account the trends and the technology improvements but also allow the company's unique culture and brand to shine through while addressing technology constraints. When RCG develops a strategic roadmap, we take into account not only the technology to get there but also account for the culture, people and processes that are going to be impacted to develop a holistic business outcome-focused program. RCG does not stop with just a deliverable, we focus on continual adjustments throughout the delivery process with a relentless focus on value-added activities.
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1. Lemonade "Lemonade Sets a New World Record" Retrieved from https://www.lemonade.com/blog/lemonade-sets-new-world-record/
2. Wards Auto (2018, Jan 18) "Storage Almost Full: Driverless Cars Create Data Crunch" Retrieved from https://www.wardsauto.com/technology/storage-almost-full-driverless-cars-create-data-crunch
3. Wikipedia "Cryptographic has function" Retrieved from https://simple.wikipedia.org/wiki/Cryptographic_hash_function
4. Ledger Insights (2019, Nov 4) "Aon, Oxfam, Etherisc agriculture insurance blockchain makes first payouts" Retrieved from https://www.ledgerinsights.com/aon-oxfam-etherisc-agriculture-insurance-blockchain-payouts/