Category: Blog

The insurance sector has a vast global market value that far surpasses the gross GDP of many nations, making it one of the largest industries in the world. The insurance industry plays a crucial role in the global economy, providing individuals and businesses a sense of security and stability against risk. However, insurers today face numerous challenges which are impacting their growth, profitability, sustainability, customer satisfaction, and relevance. These have much to do with a changing technological landscape and shifting customer expectations. This article examines the top 5 challenges facing the insurance industry today and how insurers can overcome them.

1) Digital Disruption

The insurance industry is being disrupted by rapid technological advancements reshaping traditional business models and transforming customer expectations. The benefits of this digital revolution to the insurance industry are limitless, but insurance companies are also under pressure to provide their customers with a seamless and convenient digital experience. Many need help to keep pace with these technological changes.

The rise of digital technologies such as AI, big data, blockchain, and machine learning has led to the development of innovative insurance products and services. However, insurers that are slow to adapt to these technologies are being left behind.

The insurance industry’s biggest challenge is to harness the power of technology to improve the customer experience and create new revenue streams. Insurance companies must invest in digital transformation to streamline operations, enhance data analytics capabilities, and leverage real-time customer insights to provide personalised products and services.

2) Regulatory Compliance

Insurance companies must conform to a complex and ever-changing regulatory landscape which can be challenging to navigate. The regulations are often implemented at national and state levels, making compliance a resource-intensive process.

Insurers must ensure that their policies and practices align with such regulations. If not they risk being fined or losing their license to operate. Such rules include privacy laws, consumer protection laws, and insurance industry regulations.

As the regulatory environment becomes more complex, insurance companies need to invest in compliance tools and expertise to manage regulatory risks effectively. Non-compliance can also result in hefty fines, legal disputes, and reputational damage.

3) Climate Change

Climate risk can strain local economies. This unfortunately, lead to market failures that have consequences for insurers and consumers alike. Swiss Re, the world’s leading reinsurer, has forecasted that property damages from natural disasters due to climate change may rise by over 60% by 2040. This could lead to a projected annual increase of 5.3% in homeowner policy premiums.

The effects of climate change are becoming increasingly apparent. Extended periods of drought, wildfires, and severe weather patterns like heavy rainfall, hurricanes, tornadoes, and floods are becoming more common in many parts of the world. These natural disasters can cause significant damage to homes, businesses, vehicles, and crops, leading to a surge in the frequency and severity of insurance claims.

The impact of climate change is not limited to property and casualty insurance either. It can also adversely affect the health of consumers, with poor air quality affecting anyone in reach of a wildfire zone. Irrespective of the causes of climate change, insurers have to take preventative measures due to the possibility of incurring unprecedented losses.

Some insurers have ceased providing specific forms of insurance coverage in particular areas of the world, while others have restricted the scope of their coverage options. Consequently, insurance premiums have increased, creating difficulties for consumers who may be unable to afford them. This has resulted in some consumers purchasing policies with inadequate coverage, while others have chosen to go without insurance altogether.

4) Changing Customer Needs

Changing customer needs, driven by demographic shifts, social trends, and economic factors, is one of the most significant challenges facing the insurance sector today. According to Consumer Intelligence, top-performing companies in any industry average 93 to 95 percent customer retention, but this figure sits at just 84 percent in the insurance industry. Customers expect more from their insurance than ever before, and some companies are struggling to keep up.

Consumers want personalised products and services with greater transparency and accessibility, fast and efficient claims processing, and a seamless digital experience. They also demand more flexibility and convenience in their interactions with insurance companies.

Insurance companies must adapt their products and services to be more customer-centric to meet these changing customer needs. They need to leverage customer data to gain insights into customer preferences and behaviours and use this information to tailor their offerings. They must also invest in digital channels to provide customers with a seamless and convenient experience across all touchpoints.

5) Cybersecurity Threats

The insurance industry is a natural target for cybercriminals due to all the sensitive information insurers hold about their customers. Insurers are required to protect this data from breaches and cyber attacks. However, the increasing sophistication of cyber threats means that insurers must constantly update their cybersecurity measures to stay ahead of the game.

Cybercriminals can often exploit vulnerabilities in insurance systems to steal sensitive data, money, or intellectual property. Cybersecurity breaches can result in significant financial losses, reputational damage, and customer mistrust.

Still, it’s not only outdated systems that face the risk of interception. In fact, industry employees are among the most susceptible to malware attacks and phishing attempts since they receive many files, links, and emails daily in exchanges with customers.

Insurance companies must invest in robust data protection measures to mitigate cybersecurity risks, including employee training, access controls, and network security. They must also implement incident response plans and conduct regular vulnerability assessments to identify and remediate security weaknesses.

Conclusion

In conclusion, the insurance industry faces various challenges that require innovative solutions. Insurance companies should invest in digital transformation, compliance tools, cybersecurity measures, talent management programs, and customer-centric strategies to overcome these challenges. By doing so, they can adapt to the changing landscape and emerge as leaders in the new era of insurance.

In The Metaverse – part 1: Should insurers care? I explained what the metaverse is, how Web 3.0 turns it possible and the hype around what Meta and Microsoft have defined as “the virtual world that will usher in the next phase of the internet”³. We read industry experts argue that NOW is the moment to reflect and act to play an active part and benefit from the metaverse economy that Citi estimates⁴ to be worth $8 trillion to $13 trillion by 2030.

In this 2^nd part, we shall consider how the metaverse is impacting insurance, suggest an approach to engage with this phygital world and show how some of our industry practitioners are going forward.

The way the metaverse will impact insurance is seen potentially in 2 ways by PWC⁵. Firstly, it creates and amplifies new and emerging digital asset classes, and insurers will need to assess those risks and provide coverage. Secondly, the metaverse becomes a new economy, and ecosystem, for insurers to transact in, and for insurers to communicate with customers on. While the metaverse currently seems to mimic many of the ways we interact in real life, it will invariably create new forms of virtual communication and information exchange that businesses will need to adapt to.

Thinking of the areas of the insurance business that will be affected by the metaverse, Publicis Sapient¹¹ mentions:

• Admin and product development will need to dedicate efforts to create and develop new covers for digital assets which consumers increasingly care for and want to be protected.
• Following the examples of brands such as Nike, DBS and Time Studios¹², creative insurers may also benefit from the metaverse in the distribution and marketing
• The uniqueness, trust and traceability brought by blockchain technology and a universe in which one may move instantly from one place to the other will facilitate an effective underwriting process, reduce fraud in claims and render payments in cryptocurrencies possible.

Publicis Sapient goes on to point to 3 important factors that need to be carefully considered when engaging in the metaverse. The people that will lead the company on its metaverse journey need a high level of data literacy as well as sufficient knowledge and understanding of emerging technologies. As referred to above, many processes, such as underwriting claims and payments, will need to adapt. Finally, technology-wise, the cost of the equipment necessary to access the metaverse is high. Hence the latter may reduce over time, blockchain does not require the use of a headset to engage with.

Looking at concrete initiatives & Insurance players that are already engaging the Metaverse
Animoca Brands, a global leader in gamification and blockchain, invested $10 Mn in GOQii to launch Health Metaverse⁷ – The smart tech-enabled healthcare platform of GOQii brings together the entire preventive healthcare ecosystem to its users, amongst which fitness tracker, app, coaching, health store, insurance, and many others. By doing so, Aminoca Brands looks to contribute to building the open metaverse.

Insurance brokerage firm IMA Financial Group announced the launch of IMA Web3Labs⁸, the metaverse’s first insurance and risk management research and development facility, to be located in Decentraland, a virtual world based on blockchain technology. Web3Labs sets new industry expectations for exploring, testing and bringing to market risk and insurance strategies specific to the metaverse.

Qualcomm has set up a $ 100 million fund to invest in virtual and augmented reality technologies to help metaverse jump start⁹. They will also establish a funding program for software developers creating virtual and augmented reality content in areas such as gaming, health and wellness, media, entertainment, education, and business content.

Sigortambir, the recent winner of the 2022 TDI InsurTech Innovation Awards for the EMEA region¹⁰, set up what they describe as the first insurance centre on the Metaverse. They invested in the Metaverse in anticipation of demand for insurance products in the virtual world, which will include insuring land, vehicles, avatars, clothes, and crypto-wallets. Among the innovations Sigortabir has harnessed, its virtual office is built on a decentralised platform, OVRLand, and users can visit the office, speak to advisors, and get their insurance policies via WhatsApp or email.

Decentralized Finance (DeFi) initiatives and application based on blockchain technologies are multiplying. Nimble presents itself as a Licensed Decentralized Insurance Marketplace, where one “pays for insurance, not insurance companies”. In this insurance platform built on the Algorand blockchain, Nimble stresses that underwriters, actuaries, claims assessors, appraisers, insureds, capital providers, and more work in a decentralized environment. Each is paid for his work, is rewarded for his participation; and together, as part of the larger Nimble community, they are building a stronger and more secure future.

We are just at the dawn of the Web 3.0 era and of the metaverse. Many challenges remain and the insurance industry has only scratched the surface of potential applications. Nevertheless, as the metaverse gathers interest and more people and companies reflect on the opportunities it unveils, new use cases appear which in turn grow the prospects and its potential. Not being possible to predict with great certainty what the metaverse will be like in 5 to 10 years and to what extent it will impact our day-to-day life, having looked deeper into the topic one understands something is happening.

Now is the time to engage and start experimenting with the metaverse. Insurers who do so will gain a strategic and tactical advantage over their competitors in discovering how to create value and benefit from it, in the digital and physical world. The longer an insurer waits to begin the experimentation, the more likely he will fall behind the competition as it targets the insurance buyers of the future, who find the metaverse exciting and inviting.

Sources:

¹ in: Web 3.0 Vs. Metaverse: A Detailed Comparison

² in: How to access Metaverse? Everything you need to know

³ in: TDI Connect Monthly Topic (September): Metaverse – Week 1

⁴ In: Metaverse and Money, Decrypting the Future

⁵ In The impact of the metaverse on the insurance industry

⁶ In: TDI Point of View: Insurance Blockchain & Web3

⁷ In: Animoca Brands, a global leader in gamification and blockchain, invested a $10 mn in GOQii to launch Health Metaverse

⁸ In: IMA launches metaverse’s insurance research & development facility

⁹ In: TECHQualcomm bets on Metaverse with a new $ 100 million investment fund

¹⁰ In: Award Applications

¹¹ In: Unique Ways Insurers Can Embrace Web3 and the Metaverse

¹² In: TIME Studios Presents ‘March Through Time’ in Fortnite to Celebrate the Anniversary of The March on Washington for Jobs and Freedom

We were at the 2022 edition of Web Summit in Lisbon recently and were struck by how much the event was geared toward virtual themes such as Web 3.0, Blockchain, NFT and the metaverse. In this global event that gathers the founders and CEOs of technology companies, fast-growing startups, policymakers, and heads of state to ask a simple question: Where to next? 70.000+ attendees were exposed to a plethora of information to make sense of the uttermost tech novelties and trends to shape our society for the years to come.

One of these main trends is the metaverse, which is becoming less of a concept and more of a reality each day. A reality companies are reflecting on and increasingly engaging with.

If like me you have heard of the metaverse but associate many question marks with it, read on.

In this blog, I will pass on some of the elements I collected from industry leaders. For bite-size readings, I will divide my comments into 2 texts. In this first part, I will strive to shed light on what the metaverse is, where it originates and, what’s in it for you, me, the corporate world and insurance in particular. In the second part, I will share how it is anticipated the metaverse will impact our industry and some suggested strategies to engage in this new reality. I will also illustrate some concrete steps taken by insurance players.

Metaverse technology is made possible by Web 3.0 and blockchain technology. While Web 1.0 was the age of data and search engines, Web 2.0 was the era of sharing made possible by the mobile internet and social networks, Web 3.0 is about space and ownership.

Also known as the Decentralized Web, Web 3.0 (or Web 3) is made possible by combining blockchain technology, artificial intelligence, Augmented Reality and Virtual Reality¹.

In simple words², Metaverse is an augmented reality platform that allows users to create interactive experiences that merge the digital world with the physical world. It is a concept or idea of cyberspace made real; a virtual 3D world that is immersive, interactive, and collaborative, and that is shaped by the technology to access it.

It is all based on the concept of transporting our physical-world experiences into mixed reality, virtual reality, and eventually augmented reality. The ultimate focus is to develop decentralized, fully interoperable, and immersive digital communities and environments.

See this short video explains it well: What is the Metaverse? – BBC News

But why all of this hype all of a sudden? What is the metaverse and who is concerned with the metaverse?

On October 28, 2021, Mark Zuckerberg, the CEO and founder of Facebook announced the rebranding of his group as Meta, in an attempt to, what is considered by some, as to own the metaverse. This public announcement has attracted attention to an area where activity and investment are picking up rapidly, an area that Meta and Microsoft are defining as “the virtual world that will usher in the next phase of the internet”³.

The metaverse is not just about 3D games with virtual and augmented reality. It materialises the convergence of the digital world with the real world. Real people are shopping, buying, selling and socializing daily in the metaverse, and Citi estimates⁴ that the metaverse economy will be $8 trillion to $13 trillion by 2030.

While the interest of individuals for entertainment and social purposes is more obvious, the use cases for corporations are multiplying too, from Marketing to onboarding and training of employees, just to mention a few.

Insurance Industry experts agree to say the metaverse will have a huge impact on our sector too, as a virtual world where users share experiences, interact in real-time and buy, sell and own assets.

PWC classifies the metaverse as a ‘new economic sphere’, which it defines as “a booming virtual economy where blockchain-based transactions involving virtual assets… occur more frequently and at higher volumes than ever before… digital data representing virtual land, buildings and other property will be considered a regular part of an individual’s economic assets, which will lead to the need for such assets to be insured”⁵.

Simon Phipps, a co-founder of The Digital Insurer, argues that NOW is the time for insurance board rooms to reflect and act because, it will most likely be three to seven years for blockchain and Web 3 (of which Metaverse is part) to start making a real impact on our industry, which is outside most CEO/executive teams’ three year incentivisation periods, so boards need to drive the strategic debate⁶.

Another reason Simon Phipps points out is that, with the advent of ecosystems and platform economies, insurers will increasingly be working with non-traditional partners (utility providers and social platforms, f.e.) which expect and demand 21st Century technology capabilities, including blockchain and Web 3.

In part 2, of our blog, we will therefore explore how the metaverse will impact insurance, share a possible approach to engage with this new phygital world, and illustrate some bold initiatives already taken by some industry players.

Sources:

¹ in: Web 3.0 Vs. Metaverse: A Detailed Comparison

² in: How to access Metaverse? Everything you need to know

³ in: TDI Connect Monthly Topic (September): Metaverse – Week 1

⁴ In: Metaverse and Money, Decrypting the Future

⁵ In The impact of the metaverse on the insurance industry

⁶ In: TDI Point of View: Insurance Blockchain & Web3

Core system modernization has picked up in the last few years for technical and economic reasons. Increased digital transformation has led insurers to create numerous apps and integrations which surface legacy constraints such as Data consistency, stability, performance, and speed to delivery. Improvement on the front end alone is not enough to implement new technologies and cater to consumers’ expectations. Achieving the full benefits of digitalization requires real-time data access as well as agile feature development in core systems. To enable this vision, most insurers must substantially overhaul their core systems and, in conjunction, transform their overall business model. Mobile first user experience, switching covers on/off, IoT connectivity, and embedding solution in 3rd party channels and ecosystems will be configured more easily and rapidly in a modern core.

McKinsey assesses and explains the value of core system modernization in 3 areas[i] – see graph below:

Increased gross written premiums and reduced churn. Flexible, digitized product systems enable insurers to revamp their product innovation process, often resulting in a faster time to market for rate changes and new products. Likewise, digitally enabled integration capabilities can facilitate a more satisfying front-end user experience and increased support for agency and broker sales processes—a key driver of sales.

Increased operations productivity. The productivity benefits stretch beyond IT. Indeed, the disruption of introducing a new core system often motivates insurers to overhaul their operations setups and adapt workflow mechanisms, thereby improving work organization.

Reduced IT cost. Once implemented, modern IT systems can substantially reduce the cost of IT core systems by, for instance, running on commodity hardware versus the mainframe systems used today by many insurers. This last benefit will be maximized once the redundant older system is completely decommissioned.

The increased flexibility and real-time data exchange capability made possible by the implementation of a modernized core system may then be further leveraged in all processes of the insurance value chain with AI, ML, and RPA.

The potential value at stake explains why core system transformation is today a top priority of the insurance industry and should remain so for the next two to five years[ii].

The crucial question to consider when embarking on a core system modernization, a multi-year initiative, is what should I do with the core? Consolidate, rewrite, or wrap/extend an existing system or replace a system with best-of-breed COTS (commercial off-the-shelf) vendor solutions. The decision is generally based on priorities, risk appetite, investment budget, people/skill availability, vendor solution fit to its needs, time to market, IT estate, and organizational preparedness towards change. But insurers must build trade-off metrics and carefully pick the best transformation option that aligns with strategic priorities, plans, and risk appetite while not allowing organizational constraints to derail the project.

Each path to IT modernization has different pros and cons. In addition to choosing between the fundamental options described above, the timing and extent of existing policies of migration need to be considered. While many insurers develop a platform for both their existing and new business, some carriers opt to start with a greenfield implementation specifically for the new business that would provide an option to migrate the existing business later.

The latter also named The Land and Expand Approach by IBA, is becoming the most consensual amongst its insurance clients. As shown in the drawing below, this low-cost and low-risk approach consists in adding a new modern core system to launch a new digital offer that the older core could not handle.

A cloud-based solution, IBA’s IBSuite may be configured, implemented, and run alongside your existing core in as less as 5 months – see the drawing below. To allow for a quick time to market, the number of products and services configured in a first implementation is reduced as are the interfaces needed. By doing so, and with very little strain on his financial, technical, or human resources, an insurer may present a product or service to a consumer via any channel of his, of a partner, or via any marketplace or 3rd party ecosystem.

Once the first implementation of the new core is done and running smoothly, the organization may plan and roll out the new core-selected products, services, and applications that will most benefit from the capabilities of a modern system. Amongst these are top-notch functionalities related to Distribution, rating, product configuration, billing, policy admin, claims, and data insights – see the illustration below.

This hybrid design can gradually bring about valuable modernized core functions without compromising day-to-day activities. In the future, when the insurer wishes to switch out individual system components for more modern ones that will keep him on the leading edge, this approach will make it easy.

A hybrid, multi-core Innovation Platform was chosen by Klinc, a subsidiary of Zurich. This client of IBA wished to roll out a mobile-first digital experience to insure phones and other devices with advanced functionalities such as switching covers on and off usage-based and repair and replace. Their older system not permitting, Klinc opted for a greenfield project with IBA which allowed them to roll out their product to a great number of partners throughout Europe in 5 months, through a multicore strategy.

Modernizing insurance core systems is imperative to achieve the full benefits of digital transformation and, eventually, sustain an insurer’s activity. Given the digital advances in insurance—especially in personal lines—transforming the core is the next frontier. How it is done, and the choice of a new core will bind those involved. An approach that is gaining consensus and that is less disruptive is the multicore strategy. Adopting a new core alongside a legacy system permits an insurer to reap the benefits of new technology for selected applications and projects. It is a low-cost approach that limits the risk to the business and allows a gradual, as-needed basis, modernization of the technological stack of the company.

[i] In: https://www.mckinsey.com/industries/financial-services/our-insights/it-modernization-in-insurance-three-paths-to-transformation
[ii] In: https://www.mindtree.com/insights/resources/core-systems-transformation-7-modernization-best-practices

Our expectations are driven by the GAFAMs

Technology has entered our lives and is shaping our expectations. In an ever more connected world, the rise of the big tech platform has accustomed us to seamless interactions and responsive operations. Tech giants such as Facebook, Linkedin, Instagram, Google, and Amazon are dictating the way forward. Users now expect and seek the same instant and convenient interactions from all other service providers. Due to entry barriers and traditionally lower touch points, the financial service industry did not react at once. A growing gap between customers’ aspirations and the services offered by traditional insurers has favoured the appearance of new players; technological enablers and neo-insurers. While the neo-insurers concretized a direct threat to their client base, the technological enablers offered innovative technology to better satisfy customers, improve their experience, and better defend themselves from neo-insurers.

In an industry where a big part of interactions between customers and insurance companies were traditionally face-to-face, the remoteness imposed by Covid turned even more dire the need for insurers to provide a new customer experience that is as satisfying or more than before.

What makes a good customer/user experience

The overall experience a user or client has relative to a product or service results from a series of factors.

Don Norman, considered the inventor of the term “User Experience” when he worked for Apple in 1993, believed that products that provide a great user experience (e.g., the iPhone) are designed with the product’s consumption or use in mind and the entire process of acquiring, owning and even troubleshooting it[i].

The International Organization for Standardization (ISO) defines user experience as: “A person’s perceptions and responses that result from the use or anticipated use of a product, system or service.” [ii]

KPMG conducted further research to identify the underlying characteristics of a world-class experience and concluded they amounted to 6. The Six Pillars of customer experience excellence are universal qualities that they found to be present in every outstanding customer relationship[iii].

According to KPMG, these Six Pillars of Experience have consistently been the essential characteristics of world-class experiences. The presence of these six factors is essential if commercially beneficial behaviors are to ensue because of customer experience. Whether it is an increased share of wallet, loyalty, or advocacy, KPMG supports that these six factors are the prerequisites for commercial success. Companies need to be good at them to succeed.

The Six Pillars of Customer Experience Excellence, by KPMG

Keeping these Six pillars in mind when thinking about process improvement in any part of the insurance value chain is essential. Aiming for excellence on each of them will help increase customer satisfaction metrics such as Net Promotor Score (NPS) or Customer Satisfaction (CSAT) score.

Customer experience driving operational change

Technological innovation and improvement drive customer expectations, which in turn nurtures R&D that leads to new technological breakthroughs which insurers need to introduce in their processes and interactions with customers to continue pleasing them and merit their loyalty.

New technologies that incorporate AI and machine learning are appearing to help insurers better respond to customers’ expectations and deliver a convenient and timely service.

Insurers need IT systems that are apt to integrate these new technologies and enable them to deliver the enhanced expected customer experience and further grow their business. Time to market being a decisive factor, quick and effortless integration of technological modules in the cloud through APIs is an option that insurers have come to appreciate. Being usage-based such cloud solutions – such as the IBSuite of IBA – are also cost-effective and scalable to adapt to small, medium, or large volumes.

Nevertheless, an optimum customer experience will not be achieved if the user experience of the employee managing the tool procured by the customer is not optimum too. The interfaces of the software are therefore designed to be simple, and self-explanatory to facilitate everyone’s work.

Today one may conclude that the insurance industry was slow to hear and respond to changing customers’ expectations. Nevertheless, pressured by new entrants and the fear of losing customers attracted by innovative offers and services made possible by new technologies, insurer have stepped up their game and are accelerating digital transformation. How insurers transform and ultimately access and integrate new digital tools is varied. The path is clear though; achieving corporate goals passes by optimizing the customer experience.

[i] In: https://www.interaction-design.org/literature/topics/ux-design

[ii]In ISO 9241-210, Ergonomics of human-system interaction—Part 210: Human-centered design for interactive systems

[iii] In https://home.kpmg/xx/en/home/insights/2021/09/the-six-pillars-new.html