The growth of Indian general insurance is on a springboard, having taken-off to a much higher level, the kind of which it has not seen before. In recent years, the Government has been the biggest catalyst with its mass personal accident, life insurance and weather insurance schemes. We may see a similar thrust in the universal health sector as well.
All this augurs well for the industry and all those associated with it. However, the effort here is to focus on one of the key trends that will shape the way insurance is transacted from product innovation to distribution to managing claims and loss control measures. Yes, the attempt here is to highlight the role of the digital revolution in the GI industry.
The Customer: Non-life insurers will find it difficult to engage with customers whose needs and habits will have changed. A large chunk of customers will be tech savvy and willing to transact online. Customers will have access to more information than ever before and will demand products that are simple and accessible as they will have become accustomed to getting in other sectors. Cover will become increasingly commoditized and decisions over its purchase will be driven by price and service performance, validated by social networks.
Not many non-life insurers will be able to meet these demands. Our traditional focus on risk, ratings and products means that our understanding of our customers may lag behind the advanced techniques being developed by the Internet and telecommunications businesses. Comparisons with other sectors highlights that there will be no way the GI industry can manage its customer experience through limited integration between channels and the lengthy form-filling needed for claims and policy issuance and adjustments. In the connected world one customer ID should suffice to access all customer information and validations.
The Distribution: Companies that have customer ownership and behavioral insights will drive value in the distribution of insurance products. More customer-centric companies, including the data-rich and tech-enabled entrants such as new age technology-based retail, e-commerce and NBFCs will enter into different areas of insurance. Google, Amazon, Facebook, electronic payment banks and electronic retailers all have access to huge databases and customer information, apart from being cash-rich. They also have a considerable brand name and presence that will enable them to get a foothold in the distribution of health insurance and other GI products. Insurance companies will have to forge partnerships with these companies to improve their distribution without opening brick and mortar offices.
The Digital Route: Insurance companies will have to adopt the technology route to manage their customer needs. They will have to take the digital route to improve customer experience—the whole cycle of getting quotes to policy acquisition to policy servicing to proactive claims identification, assistance and processing. A large part of business transacted today will be done the digital way in 2020. Companies will have to change fast to meet the needs of new age customers and also lower their costs, a prerequisite to being a good trustworthy insurance partner. The world will move from a transactional to a more relationship-based economy. The digital metamorphosis of the industry will include some of the following characteristics:
- The Internet of Things refers to a network of physical objects that contain embedded technology to gather information about specific objects and also has the ability to transmit information vehicle telematics, home technologies and wearables. We will have connected home technologies: smart thermostats, security systems, self- driving vacuum cleaners. Insurers need to analyze their customer data and identify their needs and risks. Wearable electronic devices will help us in better-understanding customer health risks and serve them better. Mobile apps will become more prevalent. These will help monitor the health of customers and reduce healthcare spending. These apps help customers in many ways, including prevention of diseases, monitoring of health on a continuous basis, support for treatment, and chronic disease management. Using mobile apps, today’s customer can maintain a healthy life and lower healthcare spending. The Internet of Things (IoT) will have its implications on claims servicing as well. Using big data, insurance companies will have improved their claims-processing capabilities. IoT improves turnover time for initiation of claims by tracing the exact location and cause of loss. The early warning system can reduce the frequency and severity of losses. We will be able to identify and report events in a fast and effective manner. Claim assessment, too, can be automatically assigned based on the performance of the adjuster and complexity of the claim. The technology will also usher in an era of transparency and will help in minimizing frauds which otherwise would have gone unnoticed or been detected after a long time, with the culprit getting enough time to get away. This represents a fundamental transformation of the insurance industry business model from ‘reactionary’ (addressing claims after the fact) to ‘preventive’ (addressing risks before they happen). This is important because all stakeholders are now better informed about potential hazards in a more cost-friendly ecosystem. Specifically, this is good for consumers because they will benefit from lower premiums. This is also good for insurance companies because it will lower costs through claims.
- We are living in the age of big data. High value, high velocity and high variety of information will enable insurers to make better decisions by providing new insights into the needs and habits of customers both from underwriting risks and managing claims. We will have increased use of digital and aerial imagery which will be used to view property for inspection purposes as well as for claims. The details captured will be in real-time, far more accurate and useful for underwriters. We have seen extensive usage of drones and aerial technology in the rural insurances, which have helped underwriters to calculate the yield better and do more accurate pricing. In claims, wherever there is difficulty in entering the area, especially during catastrophes and major losses, the aerial route helps in a big way.
- Auto insurers will have moved towards usage-based insurances. A large number of them have been promoting telematics which will become cheaper to procure, and gives many advantages both to the insurance companies and the customers. Two concepts of ‘Pay as You Drive’ and ‘Pay How You Drive’ will have taken the industry by storm. In the first concept, the customer does not pay an annual premium based on the vehicle’s cubic capacity and other parameters.
The customer pays premiums based on the distance travelled, which means the person who drives less pays a lower premium as compared to someone who drives more. In the ‘Pay How You Drive’ model, the concept of paying premiums depends on your driving habits—safety and how well you drive will have a direct co-relation to the premium you pay. Moreover, vehicle theft detection systems and other value-added services can be integrated with telematics to improve customer and vehicle safety. An even more revolutionary development will be driverless vehicles. Some countries have already started pilot runs and very soon public transport in some cities will move to driverless vehicles. With the increased usage of digital technology, we will encounter a new wave of claims for cyber-attacks. Almost every day we will see claims for theft of data, and financial misappropriation of unheard of magnitudes; and we will see insurance companies devising better cover for customers to get protection. Cyber risk insurance may become almost a mandatory cover for all insurances.
The speed of change will define the position where an insurance company will be three years from now. These companies will only remain relevant through adoption and use of smart technology to automate key customer-facing processes, improving efficiency and making it easier for customers to use. It is crucial that insurers engage the ever-more ‘digitally savvy’ consumer, as customers are increasingly going to apply their digital research and purchasing habits to insurance. Only those companies that seem to better understand why their customers are buying from them get greater loyalty and greater satisfaction.
Ritesh Kumar, Managing Director & CEO, HDFC ERGO General Insurance Company Limited writes this piece for FICCI-BCG publication ‘The Changing Face of Indian Insurace’