Customer expectation: the driver of insurance innovation

There’s no doubt about it; some big changes are going on in the insurance industry.

Recently, I attended our annual Insurance Forum, in London, and met with some key names in European insurance to discuss how the industry is innovating around new products, processes and technologies.

Two years ago, we were talking about Digital Channels, Big Data, and Telematics. All these things are still relevant in 2016, but the focus at this year’s forum was on the increasing level of customer expectation that insurers are seeing and how they can respond to it.

Today, customer expectation and the full digital experience go hand in hand; a trend that is accelerating. Just look at China, one of the most important developing marketplaces. While less than 5% of insurance in China is written online today, by 2019 it is expected that this figure will be over 30%. This is due to customer demand.

So why has customer expectation changed when it comes to digital? I see several main reasons:

1. Predictive analytics and the ability to tailor dialogue with each customer. Data analytics allows for more intelligent automation, a better understanding of the customer, and it creates the space for insurers to differentiate with more personalised, relevant, and expert assistance. The use of digital channels like online chat really taps into this trend. Complex queries can be handled by subject matter experts in a responsive, timely manner.
2. New entrants to the market. Once upon a time, when you took out an insurance policy, you chose from a handful of big providers, and usually went for the insurer your parents used. Today, policy seekers can use an aggregator site to access hundreds of options, including insurance offerings from start-up insurers that are tailored to meet their precise needs. These new entrants to the market sell themselves on their flexibility and ability to meet the expectations of the modern consumer. Traditional insurers need to rise to this challenge, whether the new entrants are competitive or collaborative.
3. Decline in motor risk. One of the consequences of improved car technology, such as rear view cameras and autonomous braking capability, is a decline in motor risk and its connected premiums.
4. Emerging categories of risk. One of the most discussed types of emerging risk is cyber insurance, albeit still in low single digit billions of premium globally. Just 14% of US companies have cyber risk insurance now, but this has risen already 7% since 2007. This, and other risks, such as supply chain disruption, offer massive opportunities to insurers.
5. New technologies. The emergence of new insurance-relevant technologies, loosely grouped under the heading “Internet of Things,” includes the ability to cost-effectively embed sensors into many objects such as smart vehicles, homes, warehouses, smart roads, and food crops. This is impacting positively upon risk management, assessment, and insurance claims response.

What is clear is that we are in a time of rapid and accelerating change - change that is profoundly relevant to our industry: change in consumer behavior, in commercial demand, in competitive threat, and in technology potential.  Insurers need to focus on the right technology to underpin their success today and into the future. It needs to be flexible and evolvable, and not just confined to customer-facing channels, digital “window-dressing” rather than substance. It must combine core, data, and digital products, working together, supporting the new customer behaviours that are driving business.