How can insurers prepare for a ‘post-digital’ future?

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By Guest on 06 June 2019
How can insurers prepare for a ‘post-digital’ future?

In the recently-published Technology Vision for Insurance 2019 report, Accenture claims that we are entering a new, post-digital era. With technology permeating all aspects of life, quick digital solutions are no longer enough to future-proof a business. The post-digital age will mean much higher societal expectations to meet customers right where they are and whenever they need the service.

For insurance companies, the rapidly changing digital landscape is full of opportunities. They can offer their customers lower prices for faster services, they’re developing more sophisticated fraud-protection systems and they’re streamlining operations.

But in the post-digital age, the risk of being left behind will be even greater than today. With new opportunities for business come higher expectations and a whole new set of challenges. Let’s take a critical look at how insurers are preparing for the future and what obstacles they’re facing along the way. 

Big data carries a promise of more information and greater accuracy than we could even imagine a couple of decades ago. For a data-based industry like insurance, this translates directly into revenue growth. From health and life insurance to auto insurance, companies across all fields are looking for smarter ways to harness the power of data in their daily operations.

The internet of things (IoT) has been extensively employed to harness individualised data that can be used for reliable underwriting. IoT devices, from smartphones to smart fridges, collect intimate information about users, thus providing unique insights into behaviors and lives of customers. Thanks to IoT, insurers are no longer relying mainly on demographics and other indirect indicators. A driving app lets an auto insurer tell a reckless driver from a careful one and an Apple Watch informs a life insurer if the potential policyholder leads a healthy lifestyle or is a chain-smoker.

No wonder then that IoT devices have been widely proclaimed revolutionary. Some companies, like the North American insurer John Hancock, switched to the so-called ‘interactive policies’ where fitness tracker data is the basis for a customer’s life insurance underwriting. Policyholders are encouraged to take advantage of these plans with discounts and special awards.

Critics, however, were quick to point out that IoT devices are problematic when it comes to privacy and security. The public is becoming more and more aware of data misuse threats so these privacy concerns could stall the development of interactive policies in the near future. In the long run, using IoT-generated data could become a serious PR challenge to companies who choose to do so.

Big data isn’t of much value unless you have the resources to process the vast amount of information. That’s why insurers are increasingly investing in artificial intelligence (AI) which can process and analyse data much faster than humans. It’s thanks to this technology that some insurtech startups boast lightning-fast underwriting and claim management – the US-based Lemonade claims to underwrite policies in just 90 seconds.

But before most insurance operations can be fully automated with AI, there’s one significant hurdle the industry has to overcome. AI is what we call a black box technology. We can input data and get back results but we don’t know what happens between these two touchpoints. The AI algorithms are so sophisticated that humans can no longer follow and understand them.

The black box nature of AI poses real problems to the insurance industry. If companies can’t answer fundamental questions like “How did you arrive at the quote for this policy” or “Why did you refuse to settle that claim”, they fail to earn the trust of their customers. And perhaps even worse, they have no means of proving compliance with regulations. Simply put, a lack of transparency is just not on the table for a highly-regulated industry like insurance.

For now, the only way to understand AI is to make it less complex which also means lower accuracy. AI is far from reaching its full potential and currently needs human assistance when used in insurance. For the industry to realise its dream of replacing humans with machines, a lot more work needs to be done both on the data science and regulatory fronts.

The post-digital age is all about convenience. In the world where everything is on-demand and mobile-first, policyholders are likely to opt for services that fit their lifestyle best. Slice Labs, Cuvva, and other startups are paving the way for flexible insurance policies in auto insurance, for example. The pay-as-you-go car insurance can be switched on and off by customers whenever and wherever they need it. Similarly, on-demand travel insurance policies will alert policyholders when they detect a border crossing or an airport and prompt them to adjust their coverage. These strategies are meant to blend insurance services into digital natives’ lives as seamlessly as possible.

While these types of innovative solutions are convincing as the way forward, James Maudslay, Global Head of Insurance at Equinix, warns against digitising too fast too soon. Even though younger customers tend to prefer fully digitalised communication through apps and chatbots, loyal customers might want to stick to what’s familiar. Suddenly shutting down call centers and offices could alienate that client base, Maudslay suggests. When customers are scattered across many different media of communication, reaching them where they are can be trickier than it seems.

Brad Smith is a writer at TurnOnVPN

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