Modernizing the insurance transaction

Much has been written, spoken, blogged and vloggged over the last few years on the importance of innovation in the insurance space. Many sites, organizations and conferences have been established to address this issue and it is a hugely important topic. The insurance sector is often recognized as a sector that is slow to embrace change. It is often seen as an oil tanker, solid, reliable and purposeful, but perhaps not as nimble as one might hope. Meanwhile the markets by which property and casualty insurers aim to serve are rapidly changing and moving much faster. Risk is changing, and the frequency and severity of major loss events continues to increase.

The result is that the insurance sector risks falling out of sync with the pace of change in the markets it serves. Fortunately, we are in the early stages of an industry shift toward modernization. However, is the shift happening quickly enough?

This need for innovation is being driven from the two sides of the economic supply chain – both supply and demand forces on insurance are influencing the speed with which the industry will adapt and embrace digital technology. Operational and event trends are also impacting the need for how quickly insurance should modernize.

Supply and demand

The supply side – What’s on offer…?

Let’s look at the supply side first. There is a rich level of competition that exists in the insurance sector from new entrants to traditional providers, but it’s been a soft market for many years. In response, insurance companies are establishing service offerings, which will allow them to differentiate – the supply side.

However, the supply side of insurance is often price and premium focused. Cheaper insurance resonates with most buyers, so additional differentiators must be found.

Insurers are now also offering innovative solutions, such as access to consultants and experts to help policyholders through a loss event. Providing help to their customer following a loss event is important, especially to the SME market. These companies don’t always have the contact network or in-house resources available to tackle an insured event compared with larger organizations. They also may not have the balance sheet strength and cash flow of a larger organization, so even a small loss event can be a huge blow for the company.

The cyber market is a perfect example of a newer, less traditional insurance market with both innovation and the potential for significant loss impacts. In this sector, the SME market continues to see loss events, such as ransomware, which can impede or even sever their ability to conduct business, leading to cash flow issues. Policyholders are looking to their insurance providers for fast, effective assistance following these events in the form of professional help and a financial safety net. Consultants are made available to help, but improving speed and efficiency in the claims process through modernization will enhance these offerings even further.

The next big effort needs to be in the modernization of the commercial insurance claims process. Other areas of insurance, including homeowners and auto, have innovated much of the claims process, so the concepts and capabilities are already in play.

Commercial insurance customers are looking closely at business partners who can offer a quick claims process so that (assuming a covered loss) their cash flow resumes as soon as possible. The small and medium size business owner is likely contrasting the claims process with their auto or homeowners claims experience.

Modernization of the buying mechanisms appears more advanced in the commercial insurance market than the claims process. Insurers seeking success in their efforts to differentiate will need to modernize claims management, offering fast, effective and digitized claims resolution to meet insurance buyer expectations.

The demand side – What do insurance buyers want…?

That’s pretty easy to explain – in short, buyers want a covered loss event and a quick, pain free settlement. Obviously, it’s not as easy as that. There’s insurance contract language and the actual event specifics to be considered. However, the policyholder doesn’t necessarily see it that way and can overlook the details.

Setting aside any discussion of coverage determination, getting to the settlement is a process ripe for modernization. The demand for a quick, pain free settlement continues to increase, so much so that parametric triggers and other innovative insurance coverage are being more frequently discussed, especially within the SME market.

The insurance consumer is seeking engagement in the insurance transaction which is similar to other day-to-day, week-to-week transactions and experiences – the demand side. This is natural evolution and is starting to be referred to as the ‘Amazon effect,’ the increased expectation that day-to-day transactions will have the speed, efficiency and transparency often seen when buying a product or item through Amazon. Other transactions are similar, and customers are starting to set benchmarks against which other experiences are measured. The positive experiences we have in our daily lives, we naturally seek to replicate in all aspects of our life. We look at what works well, and consider where else it should be applied. Similarly, we look at the negative experiences and hope for improvements.

Many daily transactions are already heavily, perhaps wholly digitized – think retail, banking, travel, reservation systems and even consumption of media – television and film. Think of how you navigate through a typical day. Even before COVID-19 began keeping us all at a distance from “normal” actions and activity, many transactions had become digital. Education and general working practices are now following this digital trend, driven by the challenges of coping with a global pandemic.

The expectations for people buying and using insurance will be based on these day-to-day experiences – so the demand for digitization continues to impact the insurance sector. In addition, the next generation of insurance consumers are coming from a background of full digitization where most of their experiences have been digital ones, or at least digitally enhanced.

For consumers, that digitization means speed, ease, efficiency, transparency and being more directly in control with “on demand” access – handling of a claim when they wish, submission of documents when they wish, completing an event fact pattern when they wish.

Handing over increased control to the consumer in the insurance space perhaps drives a certain level of anxiety, given the traditional way claims have been handled. Nevertheless, it’s a demand driven modernization that is needed.

Mapping the future

On both the supply and demand sides, some key fundamental issues remain. While the use of technology is aimed at creating opportunities for speed and efficiency, it cannot be at the expense of accuracy. Thus, the technology deployed must be built on solid concepts, a strong foundation, claims experience and strong analytics.

As wide area damage situations continue to be a major part of the insurance sector, the need to modernize the insurance process is repeatedly being brought into focus. For the insurance companies, there is a balance to be found between how to control claims management expenses while still providing the right level of speed, efficiency, and accuracy being demanded in the claims process. However, these improvements will result in great customer service and customer satisfaction, along with service differentiation. Modernizing the process will be a step towards finding this balance.

For more information on these topics, or to learn how Baker Tilly’s insurance industry specialists can help, contact our team.