Innovation labs, investment vehicles and strategic partnerships; Edward Murray looks at the ways in which insurers are facing up to the challenges of a digital future
Speaking recently at a conference in Glasgow, futurologist Graeme Codrington said: “Whether you like it or not, the future is coming, one hour at a time.”
The relentless onslaught of developing technology means it is not enough for insurers to think about what is coming next – they must think about what is coming after that. Only by looking beyond the horizon will they give themselves time to adapt their businesses and realise the potential offered by new technologies.
Many insurers have taken the message to heart and it is not surprising given the size of the prize they are chasing. Accenture says there is $375bn (£277bn) of new revenue on offer to the carriers that innovate and adapt most effectively.
So just how are insurers developing new ideas, engaging with companies that have created emerging technologies, and implementing different approaches into their propositions?
Developing new ideas
There are various options when it comes to generating new ides and insurers are looking both internally and externally for answers.
For example, Zurich has created a formal process to encourage and gather ideas from its staff. Mark Budd, UK head of innovation at Zurich, comments: “Zurich’s newly founded Innovation Foundry was a formalisation of the innovative ambition that has always existed in the company. As well as welcoming new technologies from the outside world for the betterment of the overall company, we are also welcoming suggestions from inside Zurich – after all our employees are the ones who are on the ground learning what our customers want.”
Insurers have also been keen to invest in new companies and Axa, for example, has established Axa Venture Partners. It is a venture capital firm investing in seed and early stage companies, with a war chest running to hundreds of millions of dollars.
Aviva has its Digital Garage and Allianz Group has Allianz X, which are similarly well-funded investment and development vehicles.
Investing through non-insurance vehicles creates freedom, says David Williams, technical director at Axa.
He explains: “The great advantage of Axa Venture Partners is that they are not part of the insurance company. They are not beset with hundreds of people focused on risk and compliance. They are not a regulated entity. We have to go through certain hoops, when things are over a certain size within the insurance company.”
Another option, when it comes to uncovering new thinking, is establishing in-house units focused on innovation and proposition development. This is an avenue that RSA has explored.
Kenny Leitch, global connected insurance director at the company, says: “We have been set up as a standalone part of the business with an end-to-end capability to get things done, while still working within the corporate.”
He adds: “It is really hard to go and do something completely new when you are a 300-year-old company, but that is the route that we have chosen to go down.”
The benefit of working on the inside, he says, is that he has closer access and more regular interaction with the day-to-day business. He believes this fosters a positive environment in which to introduce change at a practical level. But whatever route insurers choose, they realise they cannot go it alone on their journey of discovery.
Whether looking internally or externally, it is exciting that insurers are exploring so many avenues when it comes to uncovering new technology. They have also expanded the number of partnerships they have entered into, and in turn, they have had to assess and improve their ability to engage with companies of different sizes, structures and cultures.
Leitch says RSA’s strategy to identify and work with partners is, ‘nailed down’. He adds: “Our skill set then becomes being world-class at partnering and that becomes something that we need to develop.”
He has asked start-ups what working with insurers looks like at its best and at its worst. At its worst, it is a lack of autonomous decisions, it is weeks to get meetings set up, it is an inability to work at pace. It is all the things that make big corporations so frustrating.
Leitch says some start-ups claim insurers treat them like curiosity items in a petting zoo and despite a lot of fuss and attention, never manage to turn conversation into meaningful action. Time gets wasted, opportunities get lost and start-ups fail.
But at its best, working with insurers brings instant credibility and exposure to partners. They provide financial support, logistical resource, significant data sets, large customer bases and the opportunity to grow rapidly.
Leitch adds: “At its best it is working with start-ups, doing proofs of concept, learning lots, and moving forward to create mutual benefit. I think there is a spectrum and one of the dangers is that it can look like there is lots of engagement, but actually it is just lots of frustration.”
Adam Mandel, head of group market management and distribution at Allianz Group, says the insurer has developed a framework that guides the insurer’s partnership strategy.
He explains: “First, we greatly value platforms that have already developed a communication window with their fans and users. This allows Allianz to begin immediately accessing the business potential and looking for opportunities to co-create with other players in the field. From there, we are very focused on quickly identifying innovative product solutions.
Sometime these solutions are linked to our traditional business, but other times they are completely new ideas. Finally, we always look for opportunities to support and influence the regulatory side.”
In terms of the technology areas that incumbents should be targeting to form partnerships in order to get first mover advantage, Peter Mansell, UK and Ireland intelligent edge services director, HPE Pointnext, suggests the internet of things, machine learning, artificial intelligence and analytics should be priorities. Indeed he points to recent research that indicated over a quarter of respondents are setting aside at least 15% of their IT budget for machine learning.
“Using modern cloud native tools to gain valuable insights in to your data will provide a better understanding of your customer’s needs and behaviours,” Mansell adds. “Working with a partner that has demonstrated success at industrial scale solutions will ensure your project has the best chance of success. Proven reference architectures will also ensure that the solution compliments your budget.”
Return on investment
In whatever way insurers work with partners, they are not doing it for charity. But while they all seek a positive commercial outcome, immediate financial returns are not the be all and end all.
Budd comments: “Improving performance is pretty much implicit in the exploration of new and innovative technology, but we are always alive to the fact that it is unlikely to provide a measurable and tangible benefit straight away.”
Williams echoes this sentiment and adds: “Everyone recognises that no one is going to back 100% winners and so some of the things we do will not be successful. But far better to be doing that instead of waiting for all of your competitors to have made huge leaps forward.”
“Speed to value is important in the insurtech world, but historically, costs to prove theories were often prohibitive, if not impossible,” continues Mansell. “Innovating in the cloud allows you to quickly test hypothesises, avoid debates about current infrastructure, security and governance and allows you to focus on outcomes.”
At Hiscox, there is currently a real focus on using digital technology to improve customer engagement.
Matt Churchill, head of Hiscox Futures, says that when the internet came along, many insurers simply repeated their face-to-face processes online. This worked – to a degree – but it meant that a lot of the human interaction that supported paper transactions was lost, and with it, a lot of customer understanding and trust.
Hiscox is working with a firm that collates the publicly available information on commercial customers and uses it to profile their potential exposures.
Churchill says the aim is to reduce the number of questions asked in the sales journey, to improve their relevance, and to better explain to customers where their exposures lie and what insurance products are available to cover them.
Another project that Hiscox is running is around the use of artificial intelligence to examine unstructured data from customer communications.
Churchill says: “Historically it has been hard to get that understanding at volume because it has needed someone to sit down and read all of the comments and to remember what they have seen/read and then put them into buckets. AI is making that possible and enabling it to happen very quickly.”
Almost in real time, it is possible to see what customers are talking about, what they like and dislike, and where introducing changes makes an impact. It also lets insurers measure and track customer satisfaction in a consistent way and identify issues long before they hit company financials, which have been the traditional benchmark for management information.
In addition to improved customer engagement, insurers want new technology to deliver everything from improved efficiencies and new revenue streams to transferrable technology and learning.
Indeed, they are keen to expose themselves to new entrepreneurial environments and create different perspectives on historical problems, improving their capacity for lateral thinking.
But they also want to move insurance on from its traditional and often confrontational framework. Insurance claims are often viewed as a battle that is either won or lost. Customer engagement happens annually at renewal and is based on price, not value.
Insurers are conscious that if they do not engage with younger customers then they will lose them. It is this desire for a meaningful relationship that has driven Hiscox’s focus on front end digital engagement.
If insurers can engage with customers effectively, then can then begin to influence them and they are very excited about the possibilities this creates.
Leitch says: “My team used to be the telematics team. About two years ago, we started thinking about the fact that telematics was just a special case for something more general. We have created a product where we nudge and change customer behaviour. Young drivers drive differently because they have bought our product.”
Where insurers create propositions that provide relevant, interesting and actionable feedback, they will start to change customer behaviour.
So, whether it is telematic systems linked to motor policies, or health apps linked to medical insurance, there are massive opportunities to empower and entice customers to improve the risk they represent.
However, Leitch accepts that as insurers develop these new propositions, they will not unlock immediately the commercial results they are ultimately after. The good news, though, is that the journey to discovery offers significant value and learning opportunities for insurers.
He says: “We are trying to come up with stuff that will ultimately be commercially successful. But we recognise that in the short and perhaps medium term it is about learning and viability. There is a whole journey to get to a viable commercial proposition. We recognise that it is a bit of research and development and learning in the short term.”
Insurers also know there is value in evolving and that the more they engage with different technologies and different companies, the more they will learn about working in the faster-moving commercial environment created by new technology.
Budd at Zurich concludes: “Investment in these sorts of tech start up projects is not the future in isolation. Yes, they create opportunities to deliver new services and products to customers and drive internal efficiencies, but organisations have to change to embrace moving at pace.”
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