It looks like BigTech players like Amazon, Apple, Google and Facebook are gearing up for their next move in the insurance market. And the threat they pose is a very real one. But by capitalising on excellent customer experiences and embracing digital skills, with or without the collaboration of FinTechs, established insurers can meet this threat head on. So says Edwin Steenvoorden, who is Director of Business Development at ITDS and has more than 30 years of experience in the field of ICT and insurance.
In insurance circles we’ve been talking about the impending disruption to the market for a few years now. Much has been said about the rising threat posed by retailers selling insurance, FinTechs introducing radically different business models and manufacturers making insurance a “part” of their respective products. And while it cannot be denied that these developments have impacted the market, so far it would be an exaggeration to say we’re dealing with a radical change. Given their huge advantages in the area of digital (digital channels, data analysis, customer experiences, etc.), those BigTech players are in a great starting position. But will current developments mean that established parties will have to start working radically differently?
The larger of the BigTech multinationals are already developing various initiatives on the market. For example, back in 2016 Amazon introduced the Protect programme, in which customers can extend the warranty period of the products they buy. Apple, meanwhile, has been eyeing up the healthcare market and Google has started investing in start-ups, such as Lemonade. These organisations also rely heavily on digital assistants and systems based on the Internet of Things (IoT) that continuously monitor the status of crucial functions in the home, such as Nest from Alphabet/Google). So what is it that is now making these organisations such a threat? The answer to this question comes in several parts. First of all, digital is stamped into the DNA of these organisations’ business models. By exploiting their BigTech background, they are ideally positioned to communicate with their customers through digital channels. Secondly, that digital background allows them to react quickly and flexibly and bring new products and combinations on to the market. Thirdly, they are uniquely placed to leverage the benefits of data and advanced analyses. Data they can obtain themselves through their IoT skills. Using smart algorithms based on large amounts of data allows them to provide highly personalised offers, and to optimise the customer experience too.
In addition to the many technical advantages enjoyed by the BigTechs, public opinion is also beginning to sway in their direction. The World Insurance Report 2018 published by Capgemini and EFMA, for example, showed that one in three customers in the US and one in five in Europe would consider buying insurance from a BigTech. Customers also feel increasingly comfortable buying these products, because they are getting used to buying different products from these organisations. It’s a trend that’s neutralising major privacy objections. The younger, “tech savvy” generation is more than willing to share personal information if it’s likely to give them a personalised and bespoke experience.
So which strategy should the established insurance players adopt if they are to meet these developments head-on? Naturally, the answer will vary per insurer and product group. But what is certain is that digital skills and business management will play significant roles. The digital paradigm is not particularly new for insurers. Things like straight-through processing, front-office integration, digital claim handling, chatbots, fraud prevention based on smart algorithms, and automated invoicing have already become part of the landscape. The next step needs to be a fully integrated approach to this domain. What’s needed is a holistic strategy that has specific solutions and an all-inclusive approach that maximises the use of data. Increasingly important real-time data and analytics, in particular, demand an approach that transcends silos and channels. These should be combined with a flexible back-office environment based on Cloud and FinTech technologies. This will allow insurers to communicate with their customers personally and quickly, providing a good experience across the different channels. This is particularly important, of course, because insurers traditionally still have fewer contact moments than banks do, for example, and certainly less than the BigTechs. Moreover, insurers can also fall back on excellent product and market knowledge, all of which will result in a very powerful combination. And while we’re on the subject of powerful combinations, now is also the time to seriously consider including FinTechs in an insurer’s ecosystem. It’s with good reason that when it comes to the influence of FinTechs, the World Economic Forum speaks of a “skills supermarket”.
In conclusion, I think it’s safe to say that established insurers can indeed defend themselves against the threat posed by the BigTechs. They can do so by capitalising on their excellent knowledge and positioning themselves as a credible party. Finally, the insurance they offer must be more than just coverage.
Edwin Steenvoorden is a director with ITDS business consultants and has more than 30 years of experience in the field of ICT and insurance. With his expertise, he specialises in effectively applying technology to boost organisations’ success.