The Silver Lining In Insurance

The silver lining in insurance post-COVID-19: a new business model

At the height of COVID-19, the most pressing business challenge was operating remotely. Thanks to technology, insurers could respond, and for the most part, effectively work from home. Now, the sector faces a new crisis: the unknown. We are far from overcoming COVID-19 yet and planning for the future is near on impossible – but what insurers do know is that they need to be prepared for change.

The urgency created by recent events acted as a catalyst for faster executive decision-making and action, driven by the need to protect people and maintain business continuity. The period ahead will challenge business leaders further to make rapid (and often difficult) decisions. Whilst technology will continue to be the enabler, trust, co-creation and a data-led approach will be the key ingredients towards successful transformation and a shift from protection to prevention.

Data is king

Data is core to a “predict and prevent” model. It holds great importance and is becoming more and more integral in the industry. And with an explosion of digital technology, real-time data is becoming increasingly available to analyse water pressure, personal fitness, how we drive, the status of machine components and much more.

The common approach to insurance is that customers purchase policies and nearly immediately forget about it… until an accident happens. Customers now ask far more questions with the majority related to COVID-19; a common example of late has been eligibility for money back on car insurance. This trend was confirmed when Admiral automatically gave

customers a £25 car insurance refund over lockdown.

It is a key example of how data points – like a reduced risk with fewer cars on the road – can create a more agile model to benefit customers. Using data to predict potential incidents and damage means insurance companies can reduce the likelihood and severity of losses suffered by their customers and, consequently, improve their operating ratios and prices.

Ultimately, how insurers use this data will be key. While there are huge opportunities available for the insurance sector to utilise data in effective ways, taking advantage of the volume of information requires refocusing activities and implementing technologies, such as automation.

Scrap legacy models

Access to risk data is essential in allowing insurers to establish trust with their customers and help businesses themselves with long-term profitability. Yet, many insurers fail to reap the real benefits.

Insurers sell a policy and a customer commits with the hope that it will never be used – after all, using it means there has been an accident or loss. When the insurance model is traditional i.e. when it is a “repair and replace” model premiums are based on historical data. That being said, an insurer claiming to be a digital innovator using such a model is only making the purchase and claims process “easier”.

KPMG recently noted that they had seen an increase in the volume and use of customer data, as well as customer interaction increasing and improving during COVID-19. Since the outbreak, it seems attitudes towards the power of data and technology have been shifting, so the question is – how can insurers make the shift permanent?

Well, the technology to facilitate a radical shift away from traditional methods exists. The powerful combination of Artificial Intelligence (AI), automation, IoT and analytics means insurance providers can introduce “smart policies”, thus making the move to a “predict and prevent” model.

Emerging data sources can now be leveraged to provide a continuously updated view of underlying risks and, as a result, insurance providers can make dynamic future projections and develop fairer pricing models.

Take natural disasters, for example, where insurers play an important role in minimising the loss caused through damage. By working alongside other technology providers, governments, local councils and environmentalists, insurers can warn customers in advance.

Clear and concise data from environmental agencies can not only deliver fairer home insurance policies with premiums based on factual data, they could in this case play an important role in helping to save lives. There is no way to stop a hurricane, but if you can plan for it, the likelihood of recovery is far greater.

A force for good

Ultimately, when the insurance industry combines data and technology, it goes from providing the reimbursement of losses and damages to predicting and preventing losses from happening. A transition like this would be a holistic one, as it would not only benefit the insurance industry, but society too.

Insurance has traditionally been an unwanted purchase, particularly when prices are high and customers question the value for money. But a smart, calculated approach is a good way to build strong foundations of customer satisfaction and trust. Ensuring risk is measured based on a continuous stream of data, rather than old or historical information and predictions, benefits the insurer, organisations and wider population.

As insurers emerge from the disruption caused by COVID-19, they must reflect on how technology helped them make the leap into a future of predict and prevent models.

Manan Sagar, CTO for Insurance at Fujitsu

Source: 1 https://www.theguardian.com/money/2020/apr/21/admiralcar-insurance-refunds-coronavirus-lockdown-claims 2 https://www.fintechmagazine.com/fintech/customerexperience-and-digital-insurance-under-covid-19