What are the challenges of the e-insurance business
Digitization insurance: opportunities and challenges for insurance companies in the digital world
For a long time, insurance companies did not take advantage of the opportunities offered by digitization. But that has changed massively in recent years. Just like in retail or at banks, the digital transformation is also rapidly changing the rules of the game that have been in place in the insurance industry. We will show you step by step how you can use the potential of digitization for insurance companies.
Digitization of insurance lowers costs
Most insurers have long recognized the necessary shift towards a digital future: concluding new contracts and managing existing ones, comparing dental offers, submitting invoices and reporting a car accident - all of this is now online. There are two reasons for this: costs and customers.
“We have to keep cutting costs. In this respect, there is inevitably the pressure in the industry to further improve efficiency, ”said Alexander Erdland, then President of the German Insurance Association (GDV), as early as 2017 to the Handelsblatt. He also knows how the lowering of costs should work: "For this we need more employees in new technologies."
However, the possibility of digitally optimizing processes and thus reducing costs is by no means the only driver in terms of digitization for insurance companies.
Customers are driving the digitization of the insurance industry
For the digitization of the insurance industry, the changing (and growing) demands of policyholders are the second important innovation driver alongside pure efficiency.
As early as 2013, the study “Insurance: The digital challenge” (PDF) by Bain & Company caused some astonishment in specialist circles: Not only because 40 percent of the insurance customers surveyed stated that they would be willing to switch. But above all because even then around 60 percent considered the web-based communication channels to be the most important in interactions with insurance companies in the future.
In terms of “customer focus”, that was a wake-up call for the industry. Previously, the majority of customers were certain of their customer base for decades, but this foundation of successful sales is increasingly shaky. The digitization of the insurance industry makes it easier for customers to access information, enables easy comparisons between providers and accelerates closing processes - even with the competition.
Interview with Stefan Butzlaff (tecis / Swiss Life)
Stefan Butzlaff is a board member of tecis Finanzdienstleistungen AG and managing director of Swiss Life Deutschland Vertriebservice GmbH. It combines the two innovation drivers “efficiency” and “customers” in the overarching digital strategy of the Swiss Life companies in Germany.
Our focus is very much on knowing the needs of our user groups. Every technology, every project, starts with the user. A detailed analysis of the current pain points is the basis of every newly developed digital solution. For constant progress, a cultural change in perspective, i.e. anchoring and evaluating change positively, is inevitable. Another key success criterion for future sales is to consolidate and radically simplify complex work steps through digitization. This requires an agile and pragmatic approach. In a rapidly growing FinTech market, speed is required in order to remain competitive in the long term.
→ Read our interview with Stefan Butzlaff on Swiss Life's digital strategy in Germany
The trend that the wishes of customers dictate the direction has increased further in recent years. Policyholders transfer their experiences from other areas of life, such as convenient online shopping, and adjust their expectations of insurance providers accordingly.
The great importance of digitization for the insurance industry, both with regard to internal processes as well as to end customer business and service, is also shown by the growth in investments in this area: In 2019, insurers spent around 4.7 billion euros on it and thus 4, 5 percent more than the year before. A record high. (Source: GDV)
Challenges in the insurance industry: Legacy IT drives up costs and makes innovations more difficult
One of the biggest challenges facing the insurance industry when it comes to digitization is the IT landscape that has grown over time in many companies. Practically all insurers are affected by this (with the exception of young insurtech companies). Insurance companies have always quickly discovered new technologies for themselves. And it's not a paradox that that is exactly a problem today. An example: A lot of modernization work is necessary so that a broker can visit his customers with an iPad instead of the file folder.
For a study in 2013, Bain & Company determined: "Worldwide, more than two thirds of property and life insurers are still working with systems from the 1970s and 1980s." A lot of extensive modernization work has been done to date. But the structure and organization of many of these so-called “backend” systems still reflect complex business organizations, and data silos are still common.
The IT systems from the first phase of digitization pose problems for providers today:
- Firstly, policyholders at the digital interface (the front end) to their insurance providers often have to grapple with complex solutions - dominated by backend processes - instead of being able to concentrate exclusively on their own needs. This is exactly the opposite of the user experience that customers otherwise experience online.
- And secondly, technology projects in large companies generally take a very long time, often years, because existing systems have to be maintained and supported and changes represent a major challenge. The newly developed solutions are often out of date before they even go live.
As a result, many customers perceive their insurance as immobile and not very customer-oriented. Despite all investments.
This is how the digital transformation in insurance works
The short innovation cycles in the further development of web technology, which always gives users new opportunities and raises their expectations, are offset by very long development cycles in the integration into existing infrastructures.
Long runtimes for technology projects are the rule, especially in corporations with complex IT landscapes that have evolved over time and typically fully utilized IT and specialist departments.
It is often overlooked that it is not only the technology that is used by customers (smartphones, browsers, etc.) that is rapidly developing. Of course, new enterprise solutions are constantly emerging in order to be able to offer current trends to the broadest possible group of users quickly.
Using software such as front-end layers or API gateways, for example, fast iterations can be carried out on all direct interfaces to the customers without interfering with the existing IT. A bimodal approach that combines stability and innovation.
With the use of software such as front-end layers or API gateways, for example, fast iterations can be implemented at all direct interfaces to customers without having to intervene in the existing IT: A bimodal approach combining stability and innovation.
→ Find out more about how a bimodal IT approach can accelerate digitization
Four key factors for success
What should a roadmap for a digital company with a consistent customer focus look like? Four key factors determine success and are the basis for planning:
- Radical customer focus
- Short time to market
- High transparency
- Unrestricted support from the executive suite
The need for customer orientation (1.) requires quick implementation (2.) and transparent communication with customers and employees (3.). This cannot succeed without the - not only financial - support of the board level (4th).
The importance of digital insurance distribution
A study by the German digital association “Bitkom” from 2019 suggests that the digitization of insurance sales is well received by German customers: more than one in two (55%) has already taken out an insurance product online at least once. In the target group of the under 30-year-olds it is even significantly more (65%).
The study of 1,003 people aged 16 and over, which is representative for the German market, also shows how important personal contact still is: a full 92 percent of all insurance policies are not taken out online, but still through an intermediary.
Nevertheless: In Germany, the “online deals are in the fast lane”, as the specialist magazine “AssCompact” wrote in 2019: Although the deals in the office are still ahead at 38%, the purely digital business already accounts for 35% of the total volume . However: 23% of all deals are done in a private environment with the customer, through brokers, agents or consultants. With a total of 61%, the personal conclusion is still way ahead of online sales. How can this then be “in the fast lane”?
To find the answer, you have to look at the individual products separately. The top 5 insurance products that were concluded online in Germany in 2019 were all simple, standardized products: travel cancellation, motor vehicle, legal protection, international health and accident insurance. Only two more complex products can be found in the top 10: BU (8th place) and private old-age provision (10th place).
Complex products simply require more explanation and often individual advice so that customers can understand and buy them. The human insurance professionals are still ahead of the automated digital distribution channels in this regard. But that will change the better digital assistants or AI systems become and the more “digital natives” join the customer base for insurance products. If the established providers then do not want to lose market share to new, purely digital competitors, they have to rethink and expand their existing online insurance offers.
Three tips for more customer focus in digital sales
- The customer is the starting point for all developments: The needs of the customer should be at the center of all new solutions for the customer interface - not the internal processes of your company. An optimal customer journey for your customers is the goal for every digital sales channel. Check your approach and your projects to see whether this is reflected there.
- Transformation works better from the outside in: Many large insurers want to start transforming their business processes and products from the inside out by modernizing their corporate culture, their internal processes and their basic IT infrastructure. It is better to turn the process around and start the change to a digital company at the interface to the customer. Because a change from the outside to the inside leads to success much faster with complex organizational structures.
- Early feedback prevents undesirable developments: Digital solutions should not be developed “to the end” in silence, but rather set intermediate goals that are presented and tested, internally or publicly. At the beginning there can be a “Minimum Viable Product” that only fulfills the minimum requirements, but on the basis of which the project management can check the user acceptance for the upcoming product.
→ Read more about digitization in insurance sales
The role of brokers in digital sales
What role will brokers still play in the digital interaction with providers and customers in the future? Will sales soon be exclusively digital? Not so soon. In an interview, Dominik Groenen, founder of the German InsurTech start-up “flypper”, said: “In our opinion, the focus exclusively digital’ ignores the actual interest of the vast majority of customers. ”
From a sales point of view, we don't live in the digital age, but in the customer-centric age: the focus is on customer requirements, not technology (this is only a means to an end). Digitization offers brokers a real opportunity to spend more time on their core task: building trust. Because correspondence often devours a lot of time these days - e.g. policies, applications, changes have to be checked and sent - the focus is now on person-to-person contact. Digitization does not mean that people no longer have a task. Rather, the tasks change with increasing digital transformation.
Brokers continue to be an important asset for insurance providers. Now it is a matter of going into the digital future together - and not allowing a competitive situation with online sales to arise. Just like the end customer, the providers must therefore bring their brokers closer to the advantages of digitization:
- Sales support: Not only “tablet instead of file folder”, but also through the digitization of internal processing processes.
- Digital products instead of digitized products: Insurance products are also subject to trends. Those who cannot offer “cyber insurance” today are missing out on business.
→ Learn more about the role of brokers in digital sales
Customer request and technical challenge: bundled products
Brokers can do what the software of many insurers cannot: offer customers individual bundled products. They can do this because they listen carefully and quickly recognize information relevant to the upsell. This is still a challenge for digital systems, and last but not least, insurance products are often so monolithic that it is not possible to combine individual components into an offer.
Both sides, customers as well as providers, want a customer journey that could look like this:
Erika Mustermann has bought a new bike that she wants to insure against theft. She selects an insurer via a comparison portal and ends up in their online contract section. Now the insurer already knows that the potential customer is a cyclist. With just a few additional data, he can calculate whether it makes sense to offer accident insurance or even to offer household contents insurance in which the bicycle is also insured. All protection services are bundled into an individual package for Ms. Mustermann with a short term. The customer only needs to make one deal.
Implementing this customer journey is a technical challenge and therefore still a long way off for most providers. Above all, older IT systems in the backend, for example for risk calculation, are not designed to receive data from the frontend, process it quickly and return a result directly. But there are solutions for this that enable the connection of a wide variety of (including historical) systems.
→ Find out more about the opportunities and challenges of bundled products
Success stories: And it works!
The efforts of the insurance industry in digitization have often been smiled at. The old corporations were considered too cumbersome to keep up with the young fintechs. A doomed scenario was drawn up: In the future, traditional insurers would become pure “infrastructure providers” who would provide services but would hand over sales and thus contact with their customers to the new online platforms.
However, this has not come true. There are many examples today of how insurers have quickly and successfully taken important steps in the digital transformation.
HDI company digital
Offering a fully digital online contract for simple products such as liability insurance is mandatory today. The freestyle, on the other hand, is complex insurance that requires more individual configuration effort - such as commercial insurance. This is exactly what the HDI has successfully managed: “Firmen Digital” is an online portal that maps the entire process, from the application to the finished policy.
The portal is an important component in our digitalization strategy. It was important to us to integrate the new technology seamlessly into our IT infrastructure. Thanks to Firmen Digital's online calculator, we can also significantly reduce the complexity of the advisory process for commercial insurance. This creates transparency for our customers and supports our sales partners.
“Firmen Digital” works with visualizations of the protection services, automates many processes and also creates a consultation protocol according to the IDD standard. The implementation was achieved with the help of a special API gateway that connects a wide variety of data sources (e.g. a company directory) to the front end.This is how dark processing succeeds without affecting the existing IT.
→ Read more about the success story of HDI Firmen Digital
Digital insurance distribution is only the first step. You can win customers here - but those who buy online do not want to manage offline. The next logical step is therefore to set up customer portals that enable the self-administration of all master and contract data around the clock. Swiss Life Germany has tackled this project and successfully managed the relaunch of the customer portals from Swiss Life Select, tecis, Horbach and Proventus.
The Avenga predecessor company “Sevenval Technologies” has supported Swiss Life Germany since 2015 in sharpening the digital strategy and implementing it for the individual companies in the group. Today Swiss Life Germany works with Avenga:
Avenga has already supported us in a large number of successfully completed projects for the digital transformation of our company. Avenga convinced us with the fast and efficient implementation of ideas. We are therefore looking forward to further intensifying our partnership.
Large parts of the implementation were the responsibility of the Sevenval team at the time. See a video interview from 2019 with Sascha Langfus, member of the management of Avenga Germany:
Future trends for insurance
Digital technology is being developed further at breakneck speed. Many are just small steps, but some technical ideas become industry trends. Blockchain, AI and big data applications, for example - every major insurer deals with these topics.
A quick look at three major trends in the insurance industry:
Blockchain for insurance
Blockchain technology with its advanced cryptographic techniques for verifying transactions is considered a “game changer” for the insurance industry. The blockchain, for example, forms the basis for convenient and secure access for all parties to the distributed data of a contract at all times.
In this way, insurers, brokers and customers can always trust that they have exactly the same information - and nobody can change it unnoticed for their own benefit. For the first time, the blockchain enables a truly secure “single point of truth” for all parties involved, which creates lasting trust and lowers both operating and transaction costs.
Blockchain-based insurance systems can massively simplify claims processing, especially in the event of severe or catastrophic events. You can reduce the workload of insurers and brokers handling large volumes of documents from claimants, appraisers, attorneys and experts.
Big data for insurance
With increasing digitalization, the amount of data and the number of data points are growing faster and faster - and their intelligent use has long become an existential question for insurers. The technology for collecting, storing and processing data is so advanced today that providers can fully concentrate on evaluating the results: New customer segments can be discovered here as well as insights into customer needs, ideas for new products and services or ways for targeted marketing.
These are all prerequisites for remaining competitive, managing fact-based risks and developing targeted services and products that are specially tailored to the needs of your customers.
Artificial intelligence for insurance
Artificial intelligence (AI) is a key to efficient and consistent customer service. According to an Accenture study, 74% of consumers are willing to seek advice from an AI. The right solution for this could be a chatbot that accepts, understands and correctly processes customer inquiries around the clock.
Operational efficiency can also be improved through the targeted use of AI: the automation of processes, the management of huge amounts of data or the analysis of damage reports are classic tasks for an AI.
Insurance fraud can also be contained with AI, as suspicious customers can be identified more quickly and countermeasures initiated earlier. Biometric AI can, for example, be able to recognize images and faces with high accuracy and uncover suspicious factors in the shortest possible time.
→ Get to know other future trends from the insurance industry
Insurtech startups: role model instead of competition?
Those who start into the “digital age of the customer” without technical legacy will find it easier in many ways to be up to date with the latest technological developments. A few years ago this was considered a threat to the market position of the established insurers, but they also have a decisive advantage over the newcomers: They have a large customer base and have the means to present their customers with new services and products. More and more often you will find what exactly that could be at Insurtech's startups.
The startup Lemonade, for example, shows what speed means today: The digital insurer enables immediate conclusion via app or website, with easy-to-understand questions, within 90 seconds. The “Zero Everything” tariff option excludes all deductibles and future price increases. Damages are usually settled within three minutes. That is the speed that customers expect in the digital age.
Or Trōv, an “on-demand insurance platform” that offers its customers insurance protection for around 10,000 specific products with a simple and user-friendly “mobile-first” approach. All “micro-duration” insurance cover that has been taken out is stored in the app and can be switched on and off with a swipe.
The liability heroes have accomplished another feat: They offer extremely focused products and strive for a positioning that can be explained in one sentence and appeals to a clearly defined target group. If the customer can already tell from the brand name which services are to be expected, this is an optimal introduction to a focused insurance solution.
→ Find out more about these three examples from the world of Insurtech startups
Digital Insurance Distribution Whitepaper
Traditionally, insurance products are explained and sold to customers personally. But that has changed radically in the past decade. The corona pandemic has just shown many insurers their "digital limits" when suddenly direct customer contact was no longer possible. Find out in our free whitepaper how insurers are mastering the challenge of winning customers in the digital world and retaining them in the long term.
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