The Next Big Digital Disruption: Building Empathetic and Integrated Insurance

Since settling into agrarian societies and specializing our labor activities, humans have recognized the need to mitigate risk through diversification. Risk protection, the roots of modern insurance, is evident as early as 2250 BC in the Babylonian maritime business, with merchants paying lenders a premium to guarantee to cancel a loan in the event of a lost (or stolen) shipment.[i]

The modern era of insurance evolved as those exposed to common risks formed into groups to aggregate, price, and eventually sell the risk to investors. The internet first brought new ways to search and research insurance policies, and now the digital era is utterly transforming how consumers are able to manage and pool risk, as well as their expectations of processes and the overall experience.

From the global ecosystem of insurtech startups, we have identified five major themes that are at the leading edge of industry transformation:

1: THINK CUSTOMER, NOT PRODUCT

Digital functionality has proven to be a major catalyst for total customer-centricity across all industries. A corporate’s digital face is now the essence of customer relationships, and excellent experiences are required for customer retention. This means that understanding customers and their needs is a necessary capability for all businesses.

Customers increasingly want comprehensive coverage, not ad hoc product selection. Pushing products onto customers doesn’t work anymore. Designing products and services around customers is the way to win. A great example of this is Policy Genius –  rethinking insurance and insurance shopping from the consumer perspective. Their free, online Insurance Checkup Tool will identify gaps in coverage and present product options as well as a ‘to do’ list to address these gaps.

2:  GET SMART WITH DATA

Analytics are critical to digital success. The growth of internet connected devices and sensors is projected to reach 50 billion by 2020[ii]. This will have a significant impact on the availability of real-time information – a trend often referred to as ‘big data’. Insurers who can exploit this information for better pricing, underwriting and loss control will have a distinct competitive advantage over their peers.

More data means improved risk modeling and more accurately priced policies. Driveway.ai demonstrates this well, using a smartphone’s accelerometer to collect telematics data, rate driving skills, and then sell this information to insurance companies.

3: IF YOU’RE NOT MOBILE, YOU’RE NOTHING

An essential component of a consumer-centric experience is full integration with the devices and platforms customers use the most. However, mobile has to be just one part of a seamless, omni channel experience. It doesn’t replace other channels, it enhances them – consumers may start the search on the bus or in the waiting room, but then complete the transaction from our laptop on the kitchen table.

If insurers are dedicated to investing in integrated mobile functionality and delivery channels, they will likely see costs go down as a result. For example, quicker registration and automated interactions will drive down administration costs (as well as offering a less bureaucratic customer experience). Well executed mobile and social media experiences can also reduce the cost to acquire and retain customers.

Snapsheet is building a white label, claims experience - allowing drivers to use their usual behavior on their phones to submit and receive claim information. A central capability is allowing drivers to take pictures of their damaged cars at the scene of the accident, and immediately upload them for appraisal and claims processing.

4: TAKE PART IN THE SHARING ECONOMY

Peer to peer business models are popping up around the world. The central thesis relies on the power of community and belonging and the trust this breeds. That is, when you share risk with people you know (even if just virtually), the incidents of fraud decrease, as do the number of claims. Fewer claims means lower premiums for the insured and lower administration costs for the insurer, and social network dependencies means lower acquisition and retention costs. Additionally, peer to peer models often incur lower acquisition costs.

Companies pursuing this model are building slick, customer-focused, data-driven insurance systems – like Lemonade, which recently launched in New York City. Lemonade is challenging some basic assumptions of the industry – namely the antagonistic relationships that can develop when denying your customers claims is a source of revenue. Instead, they take a flat fee for their services, and return the portion of unpaid claims to the members of the pool.

5: WELCOME TO THE AGE OF CUSTOMIZATION

Across industries digital capabilities allow companies to collect massive amounts of data and reorganize in terms of micro-experiences. The more data collected, the more insurers can tailor policies (and therefore prices) to individual risk profiles.

This includes an expansion of typical insurance products, with a focus on experiences – often called “insurable moments”. Slice provides customers with on-demand micro insurance for any event or activity, while Sure provides micro-duration life insurance coverage during single airplane flights. Finally, Trov catalogs and tracks an inventory of your belongings, with the ability to insure, sell, donate or share things through your phone. Insure any item in your inventory for any amount of time with a simple toggle on and off.

These types of micro-insurance remain relatively unexplored, posing a direct challenge to the traditional sales and  distribution models of insurance. They will continue to evolve, as the impact of larger trends – such as work preferences (freelance, customized) and the shared economy – continues to unfold.

What Next?

 The insurance industry is certainly ripe for innovation. Many of the institutional stalwarts are over 100 years old, and have demonstrated minimal capacity for innovation over their lifetime – and are currently unprepared to adapt to these impending realities. And these leading trends are only the beginning of the potential rapid transformation of the insurance industry as it figures out how to offer a more empathetic and integrated service.

Can we help you think more about these trends and their implications? If you’d like to talk through challenges to understand more about the industry transformation, please get in touch with me at clare.seekins@marketgravity.com.

[i] The Evolution of Insurance, https://www.sas.com/storefront/aux/en/spslvncy/62823_excerpt.pdf

[ii] Global Digital Insurance, 2015. Bain & Co. Report.


Contactless is killing savings

It’s time to introduce some pain into payments

The best new business propositions we develop hang off an unresolved tension between opposing needs or desires.  “I want a girlfriend but I can’t be bothered to leave my sofa” – hello Tinder.

In banking, customers have a pressing need to save money, but are constantly presented with easier ways to spend it. UK contactless transactions per month trebled in 2015. Yet customers tell us that contactless makes them feel out of control. They miss the time they had to hand over hard cash. But what’s the difference? It’s all money isn’t it?

Well, no. Contactless removes a ‘decision point’, where the customer has to stop and think about whether this is money they should save or spend. So how can you insert more ‘decision points’ in retail banking to help the customer save, without affecting convenience?  You could give customer electric shocks each time they’re faced with the temptation to spend money – that’s what first direct’s savezap does.

https://www.youtube.com/watch?v=CIxYUKzZwe8

Well it was a good April Fool’s gag…

But here are a few ways you might really approach it:

Split up big sums of money into smaller lumps which consumers can relate to. Or partitioning, in behavioural economics. This Wired article describes how, when people are obliged to open several smaller packets of crackers rather than eat from one large bag, they generally eat fewer crackers. They have to stop and think before they open each new bag. In banking, seeing the split of spend by category follows the same principle: tell someone they’ve spent all of the salary this month and they’ll most likely shrug. Tell them they have spent 25% of it improving their castle defences in Clash of Clans, and they are more likely to take a hard look at themselves in the mirror.

Make small sums seem as important as big sums. Yes, the old adage of ‘look after the pennies’ is very true. Fact is few people do it. Behavioural economics tells us we are less likely to save small amounts like a £10 scratchcard winning than bigger ticket items like a 10% end of year bonus. But that £10 is money which can be saved – the customer needs help to understand that. Like tracking daily progress towards a pre-established savings goal. That £10 might make all the difference to a daily goal.

Minimise the mental separation between purchase and payment. Credit cards separate the joy of a new purchase from the pain of having to remove money from your bank account – often causing horrors at the end of the month. The new move towards ‘predictive’ banking (as touted by Atom) is starting to tackle exactly that problem: showing you how spending behaviour today will affect your future balance (like the amount of interest you’ll earn).

Give customers a chance to think twice. Pension reform now gives customers the freedom to spend a proportion of their pension early. ‘Cooling-off periods’ are proven to reduce projection bias (the thing which convinces you ‘my future self will want this Ferrari just as much as I do now’). One of our clients, Standard Life, has introduced a 2-step process, whereby there is a week’s gap between the first call and completion of the withdrawal. In the interim, Standard Life can provide information on all of the implications of withdrawing, such as the impact on future income.

Try it. A little pain can sometimes be a good thing.

Market Gravity can help you turn an idea into a breakthrough proposition.

Get in touch with Andrew to find out how.

andrew.cowley@marketgravity.com

 


NEWS: Challenging the challengers

Market Gravity’s Paul Bowman shows banking industry how to act like a challenger.

The banking industry is facing a challenging time as established high street banks attempt to re-find their niche in the marketplace and keep up with today’s fast-moving digital trends. The new breed of challenger banks is turning banking on its head but Paul Bowman from Market Gravity believes big banks can also bring their offerings into the digital age by embracing new, disruptive technologies and changing their ways of working to think and act like a challenger.

Paul, partner and Edinburgh managing director at the proposition design consultancy, will present at the RFi Group Global Digital Banking Conference on Thursday 16th June along with Helen Page, propositions and marketing director at Clydesdale Bank and Yorkshire Bank. He will outline why a traditional long term strategy is no longer relevant and how organisations need to think in weeks, not years. His presentation will cover the concepts of proposition sprints, mission culture and empowering people, learning how to pivot and how to encourage progress over perfection. He will discuss a breed of ‘new challengers’ and explore how bigger players can combine their experience and heritage with innovation and technology to stay ahead in this competitive marketplace.

Market Gravity demonstrated how this is achievable on its work with Clydesdale and Yorkshire Banking Group on the launch of B – a customer-design-driven current and savings account that works within a smart app. B is a UK first and promises the fastest account-opening process and a host of features designed to enhance customer engagement and retention. Existing customers can make the transition into mobile banking and younger, tech-savvy users will be attracted by the new experience.

Helen Page will discuss the importance of digital banking to the future of retail banking and how listening to customers and offering new, fresh approaches can help to drive new digital banking experiences.

The RFi Group Global Digital Banking Conference takes place on Thursday 16th June at The Banking Hall, London. For full details on the conference, visit the website.

Read the story on how we helped Clydesdale Bank and Yorkshire Bank create B to become a new challenger.

Want to become a new challenger?

Paul and the Market Gravity team can help you become a new challenger.
Get in touch to find out how.

Email Paul Bowman