For as long as there has been insurance, the insurance industry has existed as a complicated environment, rooted firmly in the "real world." However, as technology has advanced, the industry has crashed into new customer needs. This has created new systemic challenges for insurers. Nevertheless, these challenges may be opportunities in disguise; there is now more opportunity than ever to introduce customer value through mobile solutions. And emerging players are ready to take advantage. The rise of insurance FinTech, sometimes called InsurTech, has given the insurance industry reason to change their business operations, and to mirror the transformation banking institutions are now mastering.
Insurers should look to banking institutions who have entered the FinTech space as an inspiration for digitization. Banks partnering with FinTech enterprises can operate at lower costs and alleviate their reliance on legacy systems. As a result, banking institutions are able to retain clients, while FinTech partners improve customer experience with user-centric, mobile solutions.
The necessity for financial services to offer digital products has come on with lightning speed. What's more, the demand is moving faster than anticipated. The insurance sector is now at an important crossroads: with the aid of InsurTech, they can create partnerships and build mobile strategies focused on providing value.
Here's how.
Mobile devices are a core element of everyday life. However, Covid-19 created massive waves of disruption across every sector, and financial services are no exception. One major example is how customer demands for the insurance industry have shifted. Now, they look for mobile insurance solutions that integrate several areas of assistance on a single platform.
Many insurance companies are aware of and have embraced this shift in consumer demand. Rather than panicking at the potential threat of insurance FinTech competition, insurers should look at these businesses as catalysts for innovation.
Covid-19 significantly accelerated the digitization of financial service companies throughout 2020 - a trend that continues even now. In fact, according to CB Insights' State of Fintech 2021, insurance FinTech is also on the rise, with insurtech companies attracting $1 of every $10 of FinTech venture spending in 2021. These institutions are making substantial investments and partnerships in the growing technology space. Additionally, there has been an increase in insurance companies working on all manner of proof-of-concept (POC) initiatives to provide policyholders with better digital customer experience.
FinTech set the bar high for the insurance industry. Customers expect higher quality mobile experiences from all their financial services. Moreover, they want experiences similar to those they receive from Apple, Google, Amazon, and other heavy-hitters.
Financial service companies are now beginning to understand the demand for mobile-first experiences. Once, before the Covid-19 disruptions, mobile applications were mostly seen as a “nice-to-have” aspect to electronic banking. However, today, advancing technology and changing consumer demands are forcing financial and insurance companies to adopt a mobile-first view of features and development.
Similar to FinTech, InsurTech businesses offer many advantages insurance companies can leverage. These companies are free from legacy products and processes. That means they are free to use emerging technologies to build new systems from the ground up. They can target specific value pools, instead of wasting time, money, and effort on lengthy end-to-end solutions that don’t meet all their users’ needs.
By teaming up with an InsurTech enterprise, insurers are able to offer more extensive and robust connectivity. This is thanks to Artificial intelligence (AI) solutions, which can eliminate friction at several touch points throughout the customer journey. One example of this is chatbots. Advanced chatbots are able to understand and act on customer queries at any time. With deep learning, chatbot solutions can further interpret sentiment to identify when to introduce a human agent.
Another advantage that comes from partnering with an InsurTech company is personalized product offerings. Again, AI technologies play a role here, helping InsurTechs offer targeted products. Today, customers want the flexibility to purchase very specific insurance. Likewise, they want the ability to decide when they can purchase, and how often.
Additionally, joining with an InsurTech company allows insurers to offer end-to-end automation. The concept here is simple: customers are more than ready to leave manual claims processing behind. Instead, users want to report home insurance claims on their mobile app and get their claim reviewed, approved, and paid out almost instantly.
In the very near future, enhanced data collection from cars, wearables, and smartphones will further enable claim automation. If accidents occur, diagnostics from these devices will automatically contact insurance providers, process claims immediately, and even withdraw payment from designated bank accounts.
The younger end of Gen X, as well as Millennials, tend to prefer mobile channels for financial transactions. Additionally, these groups have a tendency to be less loyal to financial institutions. Indeed, they're more likely to change financial services and insurance policies to meet their changing needs. These younger cohorts put a lot of value in convenience and remote transactions. In general, they prefer as little direct interaction with institutions as possible.
Winning over these young customers can be quite lucrative for insurers. In many ways, business from a Millennial is more beneficial than opening a new policy with a Baby Boomer. This is because there is ample opportunity for long-term - potentially lifelong - business. On top of that, younger demographics are far more open minded to the advancements of technology. Providing these potential customers with mobile solutions and optimizing with InsurTech is the best way to gain loyalty with younger policyholders.
FinTech and InsurTech enterprises are successful largely because they address the most pressing pain points customers have with banking companies - and eliminate them. In the future, an increased focus on raising customer interest and promoting interaction will be critical.
One such pain point is the cost of insurance rates. To combat this, policyholder pooling has become a popular social engagement tool to lower those rates. Friendsurance, for example, is essentially a social network for policyholders and was the first peer-to-peer insurance model. It works by allowing individuals with the same insurance type to connect. If no claims are made within the group they are rewarded with cash back.
Immediacy is also a growing tactic for insurers looking to address customer pain points digitally. If customers can’t get information, advice, or make claims at any time, insurers run the risk of rapidly losing business.
There are a number of different strategies you can adopt to prepare for the quickly evolving InsurTech environment.
The first is to gain an internal focus. It’s critical to have an understanding of the evolution of the insurance FinTech ecosystem. Participating in InsurTech accelerator programs, or hosting events with InsurTechs are both helpful ways to become familiar with the value of entering the environment.
It is also wise to engage with the community. Seek out inspiration and look for opportunities to collaborate. Different perspectives on the industry are tremendously helpful for identifying new ways to generate value. By establishing partnerships, insurance companies can work with insurance FinTechs to develop POCs or launch incubator programs.
Finally, take action. Eventually, insurers will have to make a move; whether that’s collaboration, investment, or changing their organizational culture.
The insurance industry is ready for transformation, to support new business operations, and to maximize efficiency. To make headway, insurance companies will have to look to InsurTechs for inspiration and partnerships. While insurance FinTech is rapidly transforming the industry, it does not aim to overtake traditional insurance. Rather, it is opening the doors for both parties to extend the value chain and increase mobility overall.