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Insurtech: Expectation Vs Reality

The idea behind the implementation of technology in the Insurance sector is to make the Insurance processes much more efficient, comfortable and provide the customers with a simplified interface. In recent years when talks about Insurtech was ripe then it was all about blockchain, IoT, wearables, innovations labs and AI. But, as the things started to roll out, it doesn’t seem to be an easy road with expected results will not be visible anytime soon. The digitalization of the Insurance industry has begun with a boom but the challenges surrounding this whole new era are unlimited, and Insurers need to strike a balance between expectation and the practicalities.

The challenges of the Insurtech industry and Insurance as a service:

1. Data and more data

It is a matter of the fact that the available data for the insurers is unlimited which help them to underwrite policies, detect fraud, price the products that were otherwise not possible traditionally. Insurers are constantly gathering, incorporating data received from automobile sensors, home sensors, Amazon web services, social media channels into their business models. It is a great way to be efficient enough and provide relevant content to the insurants.

Reality: There is a widening gap between the available data and the ability of the insurers to process this data contextually and derive insights into it. The data is something that keeps changing continuously, and it needs to be processed and used quickly for the expected results. But, the truth is that insurers do not have any actionable information around this data as they lack the proper infrastructure for fast processing the datasets.

2. Automated customer service and the chatbots

The impact of AI and machine learning on InsurTech is profound, and it is most visible in the customer service department. The automated chatbots are programmed to provide an instant solution to customer queries without any delays.

Reality: Even though chatbots are being adopted by big insurance companies, but accuracy is still an issue. The more complex the chatbot is, the more problematic it becomes.  No matter how intelligent a chatbot is, it can never replace a human.  Insurers need to ensure that their bots offer a high level of data protection and are compliant with regulatory measures.   There are still customers who want to talk to the customer representative, not an automated agent. So, chatbot can never replace the human representatives it can just be another option of communication.

3. AI and cognitive automation

Data analytics and AI are a boon for the insurance industry. The power of AI backed systems help insurers to accurately price risk, manage claims value and do a lot more than only providing insurance. For example, in health insurance, the insurance product is more like a health assistant and for auto insurance using car sensors for usage-based policies. All this sounds like an insurance-perfect technology which is ready to revolutionize the insurance industry.

Reality: The technical hurdles sprout at every stage of AI implementation. AI helps insurers, but it may prohibit them to consider some factors or introduce some new precise elements. The immense intrusion of AI into the systems poses a roadblock that is the more sophisticated and accurate AI becomes the capability of humans to interpret and understand it keeps growing bleak.  It is a challenge for the state actuaries and the rate reviewers who are responsible for evaluating the vast number of risk-classifications and seeing how it influences other in the process. Rate determination for tomorrow requires a perfect balance between the insurers and the AI-driven risk pricing tools.

From the above, it can be concluded that the insurance industry is rapidly evolving introducing a new wave of innovation. But, the challenges are still persistent and to be successful insurance companies need to employ quality people with competent management and supporting technical infrastructure.

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Retention playbook for Insurance firms in the backdrop of financial crises

4 minutes read

Belonging to one of the oldest industries in the world, Insurance companies have weathered multiple calamities over the years and have proven themselves to be resilient entities that can truly stand the test of time. Today, however, the industry faces some of its toughest trials yet. Technology has fundamentally changed what it means to be an insurer and the cumulative effects of the pandemic coupled with a weak global economic output have impacted the industry in ways both good and bad.

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Source: Deloitte Services LP Economic Analysis

For instance, the U.S market recorded a sharp dip in GDP in the wake of the pandemic and it was expected that the economy would bounce back bringing with it a resurgent demand for all products (including insurance) across the board. It must be noted that the outlook toward insurance products changed as a result of the pandemic. Life insurance products were no longer an afterthought, although profitability in this segment declined over the years. Property-and-Casualty (P&C) insurance, especially motor insurance, continued to be a strong driver, while health insurance proved to be the fastest-growing segment with robust demand from different geographies

Simultaneously, the insurance industry finds itself on the cusp of an industry-wide shift as technology is starting to play a greater role in core operations. In particular, technologies such as AI, AR, and VR are being deployed extensively to retain customers amidst this technological and economic upheaval.

Double down on digital

For insurance firms, IT budgets were almost exclusively dedicated to maintaining legacy systems, but with the rise of InsurTech, it is imperative that firms start dedicating more of their budgets towards developing advanced capabilities such as predictive analytics, AI-driven offerings, etc. Insurance has long been an industry that makes extensive use of complex statistical and mathematical models to guide pricing and product development strategies. By incorporating the latest technological advances with the rich data they have accumulated over the years, insurance firms are poised to emerge stronger and more competitive than ever.

Using AI to curate a bespoke customer experience

Insurance has always been a low-margin affair and success in the business is primarily a function of selling the right products to the right people and reducing churn as much as possible. This is particularly important as customer retention is normally conceived as an afterthought in most industries, as evidenced in the following chart.

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        Source: econconusltancy.com

AI-powered tools (even with narrow capabilities) can do wonders for the insurance industry at large. When architected in the right manner, they can be used to automate a bulk of the standardized and automated processes that insurance companies have. AI can be used to automate and accelerate claims, assess homeowner policies via drones, and facilitate richer customer experiences through sophisticated chatbots. Such advances have a domino effect of increasing CSAT scores, boosting retention rates, reducing CACs, and ultimately improving profitability by as much as 95%.

Crafting immersive products through AR/VR

Customer retention is largely a function of how good a product is, and how effective it is in solving the customers’ pain points. In the face of increasing commodification, insurance companies that go the extra mile to make the buying process more immersive and engaging can gain a definite edge over competitors.

Globally, companies are flocking to implement AR/VR into their customer engagement strategies as it allows them to better several aspects of the customer journey in one fell swoop. Relationship building, product visualization, and highly personalized products are some of the benefits that AR/VR confers to its wielders.  

By honoring the customer sentiments of today and applying a slick AR/VR-powered veneer over its existing product layer, insurance companies can cater to a younger audience (Gen Z) by educating them about insurance products and tailoring digital delivery experiences. This could pay off in the long run by building a large customer base that could be retained and served for a much longer period.

The way forward

The Insurance industry is undergoing a shift of tectonic proportions as an older generation makes way for a new and younger one that has little to no perceptions about the industry. By investing in next-generation technologies such as AR/VR, firms can build new products to capture this new market and catapult themselves to leadership positions simply by way of keeping up with the times.

We have already seen how AR is a potential game-changer for the insurance industry. It is only a matter of time before it becomes commonplace.

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