The insurance industry is well aware that digital transformation is coming, even if some CIOs can’t really say what their individual companies will look like at the end of it all. In a survey of thousands of C-level execs around the world, insurance came in among the top five industries that are most likely to see “moderate to massive” digital disruption within the next 12 months. Only 20 percent of business leaders felt that they had the talent they needed to transform the enterprise, though. Here’s a closer look at what’s coming next in the exciting new era of software-defined insurance companies.
The Growth of the Insurance Model
The basic business model of the insurance industry hasn’t changed much since Edward Lloyd opened his coffee shop for seafaring folk in London in 1688. In the decades after Shakespeare passed away, Lloyd’s of London became a hotbed of intelligence on which ships had been seen where, how they fared on the open sea, and how likely they were to come into port with a healthy profit. The management at Lloyd’s created marine underwriting, insuring the riskiest of enterprises at the time.
In the three centuries or so that followed, insurance spread out to cover risk in many aspects of life, but the business model stayed constant. Actuarial experts with specialized knowledge on consumer and business risk assigned fees, and intermediaries made recommendations to customers. Now that era has come to a permanent close.
The web, mobility, and social media have introduced new sources of truth for the modern consumer. Comparison of side-by-side alternatives are instantaneous and comprehensive. Mobile device apps have ratcheted up expectations for insurance services that are autonomous, fast, and simple. In many cases, recommendations from networks of friends and family have replaced the insurance salesperson entirely. Just as web-enabled airline websites devastated the travel agency industry, software-defined insurance companies are sinking the ancient insurance business model.
How Online Insurance Simplified Complexity
One of the earliest software-defined insurance carriers, Esurance, opened its web-based car insurance services in 1999. It solved the problem of the time-consuming quote process that tended to end up with non-comparable policies.
The biggest innovation of Esurance was to break up the policy into components that could be added or removed by the consumer, moving the locus of information control out of the hands of the insurance agent. Many other companies followed, competing on capabilities of their websites. By the time Allstate bought the company in 2011, Esurance was valued at $1 billion.
The next generation of insurance tech transferred greater information control into the hands of the consumer. At the same time, it gave insurance carriers better information to use in assessing risk and establishing premiums. This took the form of:
- Mobile apps that allowed simple account management tasks, tracked repair updates, and offered answers on insurance-related questions. These were always-on and available whenever the consumer had time, instead of during business hours.
- Greater processing power and big data analysis allowed carriers to crunch more data in less time.
- Web-based tracking provided customer data that was funneled to email for lead generation.
More and more, the essential core-value proposition of many insurance companies subtly changed from writing the most accurate policies to offering the most customer-centric brand. Geico became the nation’s number one insurance advertiser, betting $1.18 billion in ad spending on its brand. For Geico and Progressive, this kind of branding has paid off, but others in the same vertical have not seen the same kind of results. The larger carriers have consolidated their market dominance through better tech.
How Insurance Companies Are Becoming More Like Software Companies
In many ways, almost all companies are now considered software companies to some degree. Thanks to software, here are a few of the ways that innovative insurance companies are more agile than ever before:
- Policy overview: Most companies have a secure sign-on area of the website or in the app to review policy details. Because of the fluid identity of online viewers, it can prove difficult for companies to definitely identify all the policies of a single individual or family.
- Mid-term adjustments: Policies normally don’t change over the coverage period, but sometimes a change is big enough to affect the price. For example, the change of a ZIP Code, or even different streets in the same neighborhood, can change the price of coverage.
- Loss notification: Many apps allow customers to begin a claim up to a certain point. This is one of the biggest areas for developers to focus on in terms of responsive AI that can ask the right questions.
- Checking claim status: Most insurance companies have a place to check the status of a claim, but it is usually a field that must be updated manually, so it is not always current. Many times, the information isn’t sufficient, prompting a call for clarification. This area deserves more attention for automation and back end integration with other stakeholders in the claims process.
- Directory assistance: Some insurance apps add value by providing information tangentially connected to insurance, such as a garage finder for car repairs.
Still, a survey of U.S. policy holders found that only 39 percent said that their insurance providers communicated with them along their preferred channels, such as SMS, email, or mobile apps.
The Next Wave of Insurance Tech
In many ways, mobile devices were merely the first step on the way to the rapid adoption of wearables. It’s no wonder that many insurance companies are already looking for original ways to provide value across the tiny screens of wearables.
According to 2014 survey data by Strategy Meets Action, nearly a quarter of U.S. insurance carriers (22 percent) reported they are already developing a strategy for wearables. Claims assessments, risk management, and data collection for telematics are three of the primary use cases for wearables and other emerging technologies like IoT.
Along those lines, an insurance company recently conducted a test of a Google Glass-type technology for claims adjusters. Video and images of the accident site were transferred directly from the field adjuster to the catastrophe division for faster claims processing. In the future, augmented reality can provide two-way data streams for adjusters in the field and their co-workers at the back end for more accurate decision-making in real time.
New Languages for Insurance
Many people still think of programming for insurance in terms of mainframes, COBOL, and Pascal. While there are legacy IT pieces still out there, insurance today is about enterprise development, mobile apps, and the cloud. In fact, many mainframes are making the complex transition into de facto cloud data centers running the latest Java deployments.
The impact of the modern stack is clear in the fact that Java, Python, and C++ still reign as the top choices for enterprise development in just about every industry. Java has many enemies in the coding world, but it still leads for large-scale deployments. Surprisingly, .NET is another leader, identified as the number one preferred enterprise development platform in a survey by Forrester.
The expanding volume and velocity of data is also creating a need for insurance developers proficient in R, Julia, Hadoop, and Scala.
The Problem With Millennials
At the same time insurance companies are planning ways to make the best use of emerging tech, they are also trying to adapt to the life preferences of the largest purchasing block in the population today.
On the plus side, millennials are more than two times as likely to buy insurance online, according to the latest Gallup polls. Twenty-seven percent of millennials are comfortable with online purchasing, compared to 11 percent for all other generations. Overall, 74 percent of the total population purchased a policy after talking to an agent. Because of the growth of AI chatbots and the availability of streaming video, millennials are likely to possibly do more without agent interaction in the years ahead.
On the negative side, millennials represent the largest number of customers who are actively disengaged (27 percent) or indifferent to (42 percent) their insurance carriers. That’s a recipe for greater churn and engagement wars among insurance carriers. The primary way that carriers are looking to improve that engagement is through better customer experiences.
Gallup suggested that messages related to performance and security appeal to the millennial’s concern for protecting private information. Simplified flow for completing coverage changes was another way that millennials gauge performance.
How Insurance Companies Can Improve The Customer Experience
As more insurance companies adapt to the latest hardware and software, they are discovering a corresponding need for optimization and performance monitoring to deliver on the promise of the technology. Customers have come to expect peak performance, reliable stability, and uptime. This can be especially difficult because many insurance carriers still operate using a mix of legacy and custom development applications.
AppDynamics’ application performance management for the insurance industry is tackling challenges like these head-on, before they put a drag on the customer experience. These systems can’t be productive without careful attention to performance, usability, and availability. To end users, the digital experience of their insurance provider has an effect on their perception of the overall brand.