This McKinsey article is a thoughtful read for anyone who is interested in predicting and tracking the ongoing digital revolution. I thought it would be worthwhile transposing these trends onto insurance in Asia. This post summarises the views and ideas of The Digital Insurer and uses the framework of the 10 trends identified in the McKinsey article.
- Joining the social Matrix: Insurers will need to become passionate about educating consumers on the value of insurance and explaining the benefits their products bring. Products that have relied on complexity and lack of transparency will struggle to survive. The move to unbundling of life insurance which has been seen outside of Asia is likely to occur more quickly in a social world. Insurance agents, brokers and insurance companies will all need to manage their profiles in the digital space to achieve their own business objectives. Will a new insurance agent hired in five years’ time be able to sustain and build a customer base without using social media and digital communication?
- Competing with ‘big data’ and advanced analytics: We are seeing the use of telematics to offer good drivers cheaper car insurance and we can expect to see similar trends in life insurance – for example the data gathered in Nike fuel bands will be used to offer discounts on term insurance. Insurers in Asia will also use analytics on existing customers to improve their understanding of customer requirements and give them more targeted offers. Strangely, given the mathematical skills at the heart of insurance customer analytical skills are underdeveloped in the region – catch-up needs to occur quickly (Actuaries have an opportunity to help in this area and move into wider fields). Already we are seeing attempts to categorise personalities based on an analysis of twitter feeds as a new marketing tool to allow increased targeting – view the article in The Economist for more information.
- Deploying the Internet of All Things: More and more devices will be connected to the internet – McKinsey estimates perhaps as many as 50 billion within the next decade. Devices that people can wear and digest will transform the management of health care – and will provide an entirely new source of data for more sophisticated underwriting decisions.
- Offering anything as a service: Amazon’s move into cloud services was initially a way to monetise excess server capacity. Similarly people with spare rooms are now able to rent them out easily on-line. It is likely that insurers will benefit from this trend by purchasing these services and becoming leaner – for example using the cloud for IT and using professional call centre companies for service delivery. Perhaps the new entrants to insurance will be able to set up a global insurance company with fewer than 100 people directly employed?
- Automating knowledge work: As well as IT enabled outsourcing it must also be inevitable that technology will replace some roles that are currently performed by knowledge workers. . Examples include Digital Advisor Toolkits to support face-to-face advisors, automated engines for underwriting and perhaps even intelligent virtual insurance advisors for more routine online insurance requirements (For example Aetna is experimenting with a benefits customer service assistant called Ann – visit the site).
- Engaging the next three billion digital citizens: With India, China and Indonesia growing so rapidly and with new generations adopting smartphone technology it is reasonable to assume that Asia will be able to develop new insurance models to target these new consumers. Market size is large enough, for example, to create a mobile only insurance company that would in the process redefine how insurance is sold and experienced. It would be a safe bet to assume that the digital natives now entering the workforce will have a bias towards digitally led / digitally enhanced insurance models.
- Charting experiences where digital meets physical: The authors summarised this opportunity as one where “customers and employees come to expect interaction between heightened digital and physical offerings”. Insurance as a largely intangible product is clearly very susceptible to digitisation and in the area of claim servicing, particularly in motor, we can already see how digital is being used to help make accidents less traumatic and complicated. The traditional insurance advisor will also have to be upgraded (The digital Insurer has written extensively on this topic) – it is inevitable that insurance advisors will deliver as much if not more advice via the internet as opposed to face-to-face (and face-to-face follow ups will involve digital communication as a standard).
- ‘Freeing’ your business model through internet-inspired personalisation and simplification: McKinsey makes the observation in the article that “…customers expect services to be free, personalized, and easy to use without instructions.” This trend is providing an opportunity to the broking community who are able to establish comparison sites that provide free services to customers (quotes being the most obvious). Insurers will have no choice but to respond by building on-line capabilities for existing customers that engage, personalise, promote the clients’ insurance advisor (where one is used) and create a much more connected customer experience. This is a paradigm shift from the current operating models but will be necessary if insurers are going to be able to command a pricing premium through a superior customer service proposition.
- Buying and selling as digital commerce leaps ahead: More and more transactions are clearly going to occur on-line and insurance will be no exception to that trend. It is very unlikely that a single direct distribution model will emerge as insurance meets a vast array of needs. There will be room for a range of solution providers but my prediction would be that winning models will emerge from insurers who early on realise that they will never be able to command the digital assets available to other industries and brands. Hence partnership models will be required – and the rewards will go to those insurers able to secure these partnership and then build flexible operating models that are able to experiment and run pilots on an ongoing basis as digital eco-systems continue to evolve.
- Transforming government, health care and education: The McKinsey article discusses the major transformation that digital could bring to each of these three major areas. Insurers have an obvious stakeholder interest in healthcare and the more innovative will recognise the value of contributing towards education in securing brand awareness (one would expect more insurers to sponsor the development of financial literacy courses for example). Digitisation of healthcare records will bring major benefits to all stakeholders whilst still leaving control of information in the hands of the individual
What do you think?
Please dust off your own crystal balls and share your own thoughts on how you think these 10 trends will impact insurance in Asia and the rest of the world.
One final thought – digital is not a strategy but can be used to shape a strategy and create new business models. A series of “cool” digital apps and initiatives will only transform your business if tied to a clear operating model.
Here is the link to the original article from McKinsey again.