In today’s world, Internet-enabled devices and systems use technology to make sure we can track and communicate with anything, at anytime, from anywhere. In fact, a new Frost & Sullivan report projects that the global sensors market will generate more than $162 billion by 2019. This trend, often defined as “The Internet of Things” (IoT), is driving digital disruption across all industries – and the insurance industry is no exception.
A growth of “insurtech” investments and an upsurge in mobile devices has shaken the insurance industry to its core. According to the “Pulse of Fintech” Q2 2016 report, recent venture capital-backed insurtech investments spiked to $2.5 billion of investments in 2015, up from $700 million in 2014. With these new insurtech tools at their fingertips, consumer expectations of insurance providers have completely changed. For example, with peer-to-peer platforms such as Friendsurance, buyers are now able to come together and form a “social network” online to create their own risk pools. And digital insurance market exchanges such as Cover allow insurance shoppers to obtain quotes instantaneously from their cell phones.
If insurance providers don’t adjust their business models to meet these new consumer expectations, they will lose valuable business. Despite this urgency, according to a survey conducted by Ernst & Young, 79% of insurance companies are still lagging far behind in digital adoption. Completely transforming core aspects of how insurance transactions are conducted can be an overwhelming task for many providers. But the road to digitization does not need to be a daunting one. If approached strategically, it can be a valuable differentiation tool for insurance providers looking to acquire new customers and lead the market.
Below are five key ways that traditional insurance providers can leverage the digital revolution and use it to their advantage.
1. Reimagine traditional broker-based insurance systems.
Creative new companies can employ digitization to re-imagine the traditional broker-based insurance systems. One startup, Lemonade in the US, recently received $13 million in initial funding from Sequoia Capital to offer consumer insurance based on self-serve technology. These new insurance companies in the fast-growing peer-to-peer (P2P) insurance segment are using crowd sourcing and social networking to create a shared insurance experience. Digitally-enabled P2P insurance models are not only convenient for the modern consumer, they also promise to save money through reduced overhead costs, improved transparency, and more efficiency. Traditional insurance providers can capitalize on the projected success of these platforms by embracing them and folding them into how they interact with their customers.
2. Embrace new markets, such as cyber insurance.
Digitization is also opening up entirely new opportunities for insurance providers. The plethora of data now available is helping them gain better visibility and insight into markets that have traditionally been opaque and difficult to serve. For example, cyber insurance has emerged in the last few years as a must-have in today’s rapidly evolving threat landscape. Most executives today list security as a top priority, but cyber liability insurance remains a relatively small market, with low participation from insurers. As a result, fewer than 10% of companies have cyber insurance, with seven insurers controlling approximately 78% of the market. This presents a tremendous new market opportunity for new insurers to step in and offer cyber insurance to the remaining 90% of businesses who are looking to protect themselves in today’s evolving threat landscape.
3. Improve loss prevention and mitigation.
As the IoT matures, we’re seeing new technologies appearing in the home that were once limited to business environments. Video monitors, home security, entertainment systems, and even home appliances are going online. These changes are setting the stage for new insurance opportunities, especially in loss prevention and mitigation. For example, Siri or Google home could be reminding people to change the batteries in their smoke detectors or digital doorbells could be alerting them of unusual outdoor activity. These “Connected Home” applications are able to provide insurance carriers with data on the risk profiles of certain policyholders and serve as a valuable resource for significantly mitigating homeowner risk.
4. Get personal with your customers.
Consumers today enjoy a closer relationship with their insurance carrier. Digital transformation can help insurers differentiate themselves by delivering a personal, engaging experience to customers through mobile devices and other channels. For example, some insurance providers personalize digital communications (e.g. emails, online customer platforms, etc) to match customer profiles and use mobile apps to send alerts and reminders to customers on a regular basis. And insurers should also leverage digital to establish personal relationships outside of their current customer base. A recent Deloitte report found that 47% of millennials are significantly influenced in their purchases by social media. By strategically disseminating approachable marketing messages on social media channels such as Twitter and Facebook, and engaging in an ongoing dialogue with current and potential customers on these platforms, insurance providers will have a better chance at capturing current and future customer loyalty.
5. Use advanced analytics for even greater customer service.
Digital technologies not only help insurers provide the personalized customer service that today’s consumers expect, but also provide smarter customer service. Through advanced analytics, insurance companies can obtain a 360-degree view of client behavior to anticipate their needs and offer the right products with the right price, at the right time. For example, some auto insurance carriers provide users with applications to monitor their driving habits. By analyzing the collected data, they can predict risks and even afford discounts based on safe driving behavior. Similarly, a few health and life insurance companies are offering services based on their clients’ use of wearable activity trackers, like Fitbit and the Apple Watch. Through ongoing analyses of users’ activity levels, insurers can promote healthier lifestyles, thereby mitigating risk and rewarding participating clients with lower premiums. It’s a “win-win” for everyone involved.
There is no question that the explosion of data and new modes of communication that have sprung up in the IoT era have created a wealth of new opportunities for the insurance industry. But while the possibilities of new technologies are dazzling, it is imperative for insurance providers to effectively align and connect any of these utilizations of technology to business strategies. Insurance professionals who are able to align these four technology opportunities with business strategies effectively will dominate the industry in the coming years. Those that miss the market will undoubtedly have a tremendous amount of catching up to do, and could ultimately go out on business all together.
Article written by Danny Vicente, Cisco’s Global Banking Portfolio Manager, Financial Services.
Originally appeared on InsuranceBusinessMag.com