Capgemini Consulting and Efma collaborate in the annual instalment of the Capgemini World Insurance Report 2017, in which they investigate the extent of InsurTech’s disruptiveness on the traditional insurance industry. Leveraging on the survey responses of more than 8000 customers, the authors provide insights on how to navigate the innovation conundrum: plausible synergies, costly pitfalls and maintaining focus amidst a plethora of tech solutions. The insurance industry is on the brink of a greater change today than ever before. Unlike its peripheral role in the past, technology today is transforming every aspect of the insurance value chain, making it imperative for insurers to design a balanced strategy that ensures returns from their investments in innovation without the risk of losing focus.
Key insights
The powerful, cost-effective technology that spearheaded the fintech revolution in the broader financial services industry is also disrupting the insurance industry in similar ways. Insurtech innovations dovetail with the growing desire and comfort level customers have for digital interaction with insurers, with a third of customers globally (31.4%) using insurtech services exclusively or combined with conventional policies to fulfil their insurance needs. Digital interactions are highly valued by customers, especially Gen Y and the tech savvy, who ranked the computer as the most important touchpoint for their insurance transactions. Young and tech-savvy customers represent important segments in terms of incremental revenue potential, while also being more vulnerable to attrition. Building and maintaining relationships with young and tech-savvy customers will require insurers to cater to their clear preference for digital touchpoints. As the proportion of millennials will begin to rise, their digital preferences will also become mainstream. In spite of the innovative propositions that InsurTechs have to offer to consumers, traditional insurers hold a number of indispensable advantages that are hard to replicate in the short term. One of the integral elements long term survival in the conservative insurance industry is consumer trust — something that insurtechs lack. Nearly 40% of customers (39.8%) say they trust their insurers, compared to only 26.3% for insurtechs. Insurance firms also enjoy better brand recognition, superior technical knowledge of the insurance business and economies of scale. With different, non-competing strengths, there is much to be gained from collaboration.The rise of insurtech
Global insurers are unparalleled in their ability to assess and manage risk, having fine-tuned their underwriting expertise over decades. Now a new wave of technology from consumer-focused firms is forcing them to alter long-held business practices. Insurers must now navigate a flood of new technologies, which range from wearable devices to driverless cars and are expected to be taken up by a large number of consumers in coming years. As these technologies briskly advance, insurers must develop strategies that take full advantage of the opportunities they present, while minimizing the risks.The most recognizable technological advances that have defined fintech also carry the potential of disrupting the insurance industry in a variety of ways, for example:- Blockchain offers numerous insurance applications, including more efficient information exchange, simplified claims submission and improved fraud management.
- Artificial Intelligence – By mimicking the human capacity to process language and to self-learn, these systems hold potential for personalizing customer interactions, gleaning customer insights from unstructured data, and detecting fraud.
- Robotic Process Automation – Repetitive, labor-intensive tasks that do not require much decision making, such as data entry, customer communications, compliance tracking and property assessment can be automated for both cost and operation efficiency.
Collaboration, not competition
Instead of one-upping each other, the authors opine that insurtechs and incumbent insurers should collaborate, as both parties have distinct but complementary strengths. Insurtechs offer better value for the money than incumbents, integrating social networking and financials, and providing timely and efficient service. Meanwhile, in addition to their customer trust advantage, insurance firms excel in security and fraud protection, strong brand recognition, access to products and services, and supporting personal interaction. Collaboration can also potentially help both insurers and insurtechs address operational challenges, such as sluggish systems and paper-based processes that slow down underwriting, claims management, regulatory compliance and client on-boarding. Insurtechs can benefit from the symbiotic relationship by gaining know-how on survival tasks such as acquiring new customers, building brand awareness, funding for scaling up and navigating regulatory monoliths.(Most) roads lead to Rome
Although there are multiple approaches to joining forces, the authors observe that most insurers favour partnering with insurtech firms over acquiring or in-house development, suggesting that there are considerable benefits to be reaped by maintaining separate operations. The most popular way of collaborating is to establish an investment arm to make investments or take equity positions in InsurTechs (i.e AllianzVentures). Strategic partnerships (AXA and Alibaba) and incubators (AXA’s Kamet) are also viable ways for insurers to leverage on insurtech strengths. On a conclusory note, the authors underline the need for traditional insurers to prioritize innovation and digital practices. Much of this can be accomplished via non-antagonistic engagement with InsurTechs to gain first hand access to disruptive technologies. In exchange, budding Insurtechs can leverage on the expertise and resources of traditional insurers to help overcome growing pains. Click here to read the full report.
