By Vaibhav Uttekar, VP Products & Development, ACORD Solutions Group
“Disruption” is the insurance buzzword of the decade. While the term today might be used loosely, it is best defined as a radical change in an industry or its business strategies, especially with those involving the introduction of a new product or service that creates a new market. These changes truly become disruptions only when mainstream organizations are compelled to adapt alongside them.
Not every disruption is impactful. A key driver behind meaningful disruption is improving technology and its relationship to the modern consumer’s unique needs, further fueling radical change. If the insurance world is to adapt along with the wider modern world, it’s worth assessing what these needs are and how technology is both driving and serving them.
Needs of New Age Insurance
In his book Sapiens, Yuval Noah Harari states, “One of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligation.” Such a transformation from luxury to necessity has happened with technological advancements, with widespread adoption immensely influencing consumer habits and demands.
For example, Motorola Founder and CEO Martin Cooper wanted people to have the freedom to talk on the phone beyond the confines of their homes and offices. Thus, the cellphone was born. This device, once considered a luxury, has now turned into a necessity – one that continuously influences consumers to keep demanding even more conveniences.
Consumers’ demands and expectations for the insurance industry are no different. Traditional distribution channels are no longer always attractive. Today’s consumers expect to engage with insurance the same way they engage with Amazon or Starbucks: through a few clicks on their phones. Insurers must innovate and think beyond traditional channels to suit the needs of the modern consumer.
While large insurers have traditionally dominated the market, a massive wave of InsurTechs and technology-driven small carriers have challenged their influence in certain markets. With modern expectations of immediacy and an abundance of options to choose from, carriers should not expect today’s insureds to always stay loyal. The industry must innovate to retain existing customer bases while attracting new ones.
Embedded insurance driven by Insurance-as-a-Service (IaaS) is a prime example of such innovation. This method has opened a quick-sell distribution channel that brings in massive new volume at lower operating cost when compared to those of legacy channels.
Pay-per-mile car insurance is another example of consumer-driven change, resulting from new transportation habits, further accelerated by an overall reduction in driving during the global pandemic. Consumers demanded and the industry obliged. Some carriers, like Metromile and Mileauto, now have pay-per-mile as their primary offering. Even large players, such as AllState, Liberty Mutual, and Nationwide are heavily invested in these new insurance options developed from consumer needs.
Technology Driving Innovation
The challenges facing the insurance industry have fueled new tools and technologies that are domain-specific as well as domain-agnostic, ultimately serving a larger purpose.
AI and Machine Learning have reinvigorated insurance functions across the board. Chatbots have drastically reduced response times and scaled up response volume. ML models have tackled complex functions, such as predictive modeling. Robotic process automation (RPA) tools have taken over the burden of repetitive manual tasks, freeing up valuable SME workforces to focus on key functions instead, driving growth. With the demand for rapid, low-bandwidth API responses on the rise, Microservices-based architecture has catered to the needs of insurance modernization.
Data extraction capabilities are enabling the automated digitization of unstructured data for today’s operations while also tapping into a goldmine of legacy data stores that business intelligence had yet to capitalize on. This surge of data can now be fed into new ML models, uncovering patterns that can influence business decisions.
Internet-of-Things (IoT) devices are helping to capture relevant data points and consumer characteristics in ways and volumes never seen before. These devices help insurers influence risk management by promoting safe habits, and also by building ML models to fine-tune rates. Advancements in cloud technology help host massive scales of such data and applications with ease, as well as security.
Technology has brought the world together more than ever before. It allows insurers to explore not only new products, but also new demographics. The rise and success of dense InsurTech markets has provided opportunities for insurers to grow collaboratively instead of strictly having to compete. Inevitably, the insurance industry is investing in research and development dedicated to next-generation technologies.
In the modern-day market, technological advancements and consumer needs are becoming increasingly symbiotic, with each working in tandem to drive change in the insurance industry. Efficiency, access, and accuracy are now consumer expectations, not amenities. With once-niche luxuries becoming mainstream necessities, the future of the insurance industry rests on this critical relationship serving the needs and demands of today’s digitized world.