By Henrik Naujoks, Florian Mueller and Nikos Kotalakidis
The business of property and casualty insurance – assessing risk, collecting premiums and paying claims – hasn’t changed much since 1861, when a group of underwriters sold the first policies to protect London homeowners against losses from fire. Recently, though, the insurance industry has embarked on a radical transformation, one spurred by a series of digital innovations whose widespread adoption is just a few years away.
Seven key technologies have already begun to disrupt the industry – infrastructure and productivity, online sales applications, advanced analytics, machine learning, the Internet of Things, distributed ledger and virtual reality – and their impact will accelerate in the next three to five years, according to research by Bain & Company and Google.
These new technologies will be a boon for consumers, bringing more choice, better service and lower prices. Companies stand to benefit too, especially those that use the digitalization as an opportunity to rethink all their operations, from underwriting to customer service to claims management. We estimate that a prototypical German property and casualty insurer that adopted all seven of the technologies could increase its revenues by up to 28% within five years, reduce claims payouts by as much as 19% and cut policy administration costs by as much as 72%.
Customers now expect their insurers to offer simple, transparent and flexible products and services – all online. In Australia, for example, you can use your smartphone to snap a photo of something you want to insure, such as a bicycle; upload the picture into an app called Trov; and then request a policy for a specific period – say, a month. Trov uses available data about you and your bicycle and, within seconds, comes back with an offer. If you like the terms, you press the “I accept” button, and you’re covered. Claims are also handled online, with a rapid exchange of photos and texts.
But insurers now realize that digitalization means much more than cool and convenient apps for consumers; it is a force that is touching and reshaping the very core of their business.
Consider a car accident that occurs in the near future. Immediately following an incident, software built into the vehicles will assess the damage and notify a towing service, if necessary. Assuming the drivers are not seriously injured, they’ll use their smartphones to record 3D images of the damage and then send the data, together with the electronic address cards of all the involved parties, to their insurance companies.
In the future, insurers won’t need to dispatch human adjusters to gather facts and evaluate accident damage. Using machine learning, automated advisers will draw on virtual reconstructions of the accident and a wealth of background data. They’ll enter into a digital dialogue with customers and immediately inform them where any damage can best be repaired.
Insurers deciding which digital technologies to pursue can ask themselves a simple, and fundamental, question: Will it enhance the customer’s experience? Putting the customer first is more than a platitude. An improved customer journey – one built on ultra-precise information, greater transparency, more flexibility and simplified interactions – is good for business.
Take the typical experience of a customer calling an insurer today. It’s likely an automated answering service will tell the customer to press buttons 1, 2 or 3 for various options. With machine learning, though, insurers will be able to serve a customer much faster and effectively, without all the button-pushing. The system will instantly analyze the customer’s flow of communications across all channels, including past phone calls, letters, emails and even public social media postings. When the customer starts speaking, the computer can analyze the tone of voice, determining whether the caller is confused or angry or both. Armed with all this information, a virtual agent can assess the customer’s needs and suggest a solution.
Digital technologies will also help with claims prevention, thanks to the Internet of Things. In the future, for example, a sensor will be able to monitor a household’s water consumption patterns, detecting potential leaks and interrupting the flow before the basement is flooded, thus preventing major damage and a costly claim.
Insurers deciding which digital technologies to adopt have learned to focus on those that are most likely to both improve the customer experience and help them differentiate themselves from their competitors. In a rapidly evolving environment, companies are using test-and-learn approaches, rapidly bringing new prototypes to market and continuously improving them. Leading insurers have recognized that they need more than new technologies; they need to establish a digital culture, staffed by trained and motivated employees.
For P&C insurers battling in a fiercely competitive marketplace, digitalization is a multibillion-dollar opportunity. Using digital tools, insurers can lift profits, while delivering new services, lower premiums and an all-around better experience to their customers.
Henrik Naujoks is a partner in Bain & Company’s Zurich office and Florian Mueller is a partner in Bain’s Munich office.
Nikos Kotalakidis is the industry leader for insurance at Google Germany.