Insurers have begun capitalising the potential of technology to address rising customer demands and expectations. Where the major task has been customer acquisition and servicing for the insurance industry, technology has made it easier to manage the sourcing by way of interactive machine learning and artificial intelligence tools. Today, digital services offer convenience, choice and comparison. The financial services industry, including insurance, is also making efforts to tap this space. Life insurance, traditionally sold by agents, is available for online purchase, often at lower prices. According to a report by Boston Consulting Group (BCG), total digital market size for online insurance in financial year 2015 was Rs.1,000 crore. Life insurance (new business premium) was worth Rs.350-400 crore; motor insurance (gross written premium) Rs.300-350 crore; and health and travel insurance (gross written premium) of Rs.150-200 crore. The overall online market for insurance sector stands at around 1% for both life and non-life segments. In life insurance, term plans are the most bought product online, while in non-life, it is motor, health and travel insurance. The market has grown six to seven times in the past six to seven years, according to estimates by BCG. In the past half a decade or so, powered by the increasing penetration of internet and smart phones, technology companies are dramatically disrupting industry after industry. Customers have started expecting the same quality and speed from all service providers, including insurance. There are many major developments that have compelled insurers to bring in fresh focus on technology:
Retail financial services businesses tend to have thin margins. Profitability is, therefore, dependent on driving efficiencies. With a large component of the expense structure residing in distribution costs, improving distribution efficiency is centre-of-plate for most organizations. Thanks to rapid digitization and increased online consumption, most financial services firms are competing fiercely for a larger share of the online pie. An increasing number of customers are buying insurance online. Credit cards and lending products, too, have attractive offerings. The number of people operating their bank accounts from home is growing rapidly. For the consumer, buying online offers enormous convenience. With the advent of price-comparison sites, they are also able to make more informed decisions on pricing and features of comparable insurance or loan offerings. Manufacturers and distributors are able to reduce cost of acquisition and also provide an elegant buying experience to their consumers. Agency penetration is also strongly correlated to the presence of life insurers’ offices. There are many districts in the country with populations well above 100,000 but having no life insurers’ office, suggesting a role for digital channels being able to reach these areas. But the overwhelming consumer need is for creating a better experience using the Internet and mobile devices.
WHY DIGITAL DISTRIBUTION?
We must not forget that insurance remains largely a push product and physical distribution modes in a country like ours cannot be completely whisked away. A digital insurer may be someone new, but the market today is more suited for a blended or ‘phygital’ approach. While the availability of internet has improved, risk-protection products like insurance cannot be all sold digitally. Digital distribution is best for tailor-made products suited for savvy customers. This is the reason why traditional distribution and service channels are likely to be around. Many services, and sale processes are now technology-based. For instance, paying premiums, making a claim, and tablet-based sales processes in which the agent keys in relevant information in the tablet and the system recommends suitable plans. The digital platform has standardized the sales pitch and product features are communicated to the customers in a manner that is easy to understand. This also leads to more and better information for the customer. On the flip side, though, there is the perceived hassle of numerous verification checks that are carried out by most companies. These telephonic and physical verifications of documents and customer credentials tend to peeve many prospects even though they appreciate the underlying necessity for doing so. The financial services industry tends to be tightly regulated. Additionally, the nature of these products lends to frequent incidences of attempted fraud, which typically occur through impersonation or misrepresentation of personal and financial information. Frauds impact not only the personal savings of a targeted individual but an organization’s profits as well. Therein lies the dilemma on the trade-off between customer delight and prudent fulfilment.
TECHNOLOGY ADOPTION:
Digital is undoubtedly playing an important role in many customer interactions and agents’ efforts. Channels, changing role of agents and use of aggregators are important areas for insurance distribution when it comes to digitization. Various channels for delivering insurance products are being digitized, thereby increasing efficiency and reducing turnaround time. Advisory services related to risks and claims, which are increasingly being sought by customers, are being delivered through digital platforms. Insurers are increasingly using technology to deliver sales and services to younger consumers in a simplified and seamless manner. Moreover, the adoption of technologies has also simplified the otherwise complicated insurance products and services; thereby helping customers in making smart choices. The world is changing at a fast pace and understanding ever-evolving customer needs is imperative in serving effectively and efficiently. This can be done with the implementation of technologies like mobility, video streaming facilities, internet of things, big data, artificial intelligence and machine learning. Adapting to the digital format holds value for the insurer and the customer. The entire experience, from buying to making a claim, can be made smoother. The solution lies in integrating data, harnessing technology and a forward looking governance mindset. The digital advertising spend which was estimated to be around Rs 9,266 crore at the end of 2017, would be about 16 percent of the total ad-spends in the country that is pegged at Rs 59,000 crore. In terms of total spend, banking, financial services and insurance led the digital ad-spend in 2017 at around Rs 2,022 crore, followed by e-commerce, according to the report Digital Advertising in India 2017.
REGULATORY INITIATIVES:
The Regulatory Authority’s drive to create an e-repository that digitizes physical insurance policies is also an important initiative that will help in better contactability, reduce the need for repetitive know-your-customer (KYC) processes and bring down operating costs. While considerable progress has been made, there have been too many instances of a step forward only to take two back. Central Registry of Securitisation Asset Reconstruction and Security Interest of India the e-repository of property data, is another progressive idea that has not received support from many quarters. Policy administration could be a lot simpler as customers would have self-serve options giving them the ability to amend personal details a lot more seamlessly or re-allocate portfolios on investments linked to their insurance policies. Some of these are already available but fulfilment can involve multi-step authentication. In the re-insurance leg, too, straight-through processing can be facilitated and electronically captured data can be used in all legs, from underwriting to issuance to claims. The benefits of digitization therefore extend to each phase of the business cycle with perceptible value addition. In most cases, the resources and bandwidth allocated seem to be a function of conceivable end-use in the near term. The medium-term impact on financial inclusion, transparency of monetary transactions and fraud prevention is seemingly not being taken into account. As a first step, there needs to be a super regulator of sorts to identify and scope the data sources to be covered. There is little or no harm in privatizing many of these activities as is the norm elsewhere. In certain cases one will be guided by internal security considerations. But many other records can be centralized and eventually integrated. With the spurt of online gaming sites, for example, e-authentication is carried out in numerous European countries to prevent under-age gambling. Ad spends on social media stood at 18 percent at around Rs 1,668 crore, with the least being spent on display ads that has 16 percent share with total ad spend being Rs 1,483 crore.
DIGITAL PLATFORMS OF INSURERS:
Internet being a given to the millennial, research studies have proven that these high-income individuals strongly prefer platforms that allow them to interact at their own pace. But digital platforms of most insurers today are designed to cater to conventional consumers, and are still reliant on toll-free call centres to provide sales and customer service. On-demand technology platforms are vigorously building service infrastructure, optimizing operations, logistics and technology; and customers want similar levels of technology-led service experience from other services as well. With constant pressure on margins, most insurers look at technology to bring in automation and drive operating efficiencies. Staying with insurance, if data sources were integrated, it would permit insurance companies to offer a much wider bouquet of products given that a significant part of financial underwriting could be carried out through surrogates. The essence of risk management in insurance is predictive modelling, i.e. the ability to predict future outcomes on the basis of historical trends. Often, the constraint can be over-reliance on internal data sources or unreliability of other options. As insurers have access to more and more validated external data sets, they will distil out useful information and build it into their pricing models through nuanced segmentation.
TECHNOLOGY HAS GAINED MOMENTUM:
The use of technology has gained momentum during the year with the industry exploring and implementing technological advancements such as Blockchain, telematics and internet of things, among others. Especially in motor insurance and health insurance, customers are empowered to self-survey the loss and to file claims instantly using their smart phones, and insurers can immediately assess and settle the claims. This has significantly reduced the claim settlement time from days to minutes and provided value not just from an efficiency standpoint, but also from a time and convenience perspective for customers. In travel insurance, the usage of Blockchain has enabled disintermediated claims processing using machines providing much higher customer convenience, whereby customer’s claims are proactively initiated by the insurer and settled instantly in a span of few minutes. With the help of telematics and by offering connected devices fitted into cars, insurers are helping the customer get a better understanding of their driving behaviour for efficient fuel consumption, to navigate road conditions and remotely monitor the vehicle’s location. In the future, the motor insurance premium could also be directly proportional to the performance and usage of the vehicle. Many insurers have also introduced chatbots leveraging on artificial intelligence to ensure 24/7 customer support and provide instant digital solutions. This may lead in time to automated underwriting enabling insurers to issue customer policies instantaneously with a much deeper understanding of information about customers.
COMPETING WITH INTERMEDIARIES:
Intermediaries continue to play a vital role in insurance sales and many customers seek their counsel especially while contemplating complex or big ticket risk covers. Data integration will help reduce their coordination costs, both during the sale process and during subsequent service delivery. Several progressive intermediaries are proactively building a wider digital footprint for themselves through effective use of social media. As digitally acquired information gets more sanctity, it will help intermediaries broaden their access and improve productivity. The insurance industry will also move from a product-based approach to a dynamic consumer-based approach and move beyond offering annual policies to customised short-duration plans based on the customer’s requirements. It will usher in a set of challenges as traditional portfolios such as motor insurance may undertake a change with the push to move to electric cars and the gradual global shift to autonomous cars. With an increasing number of cyber attacks last year, Indian consumers are also likely to opt for new-age risk offerings such as cyber covers, apart from corporates. Lack of appropriate infrastructure and reaching out to the interiors of the country in a cost-effective and sustainable manner remains a challenge. The insurance industry, the regulator and the Government need to work together to bring out affordable universal insurance schemes to ensure that benefits reach to every citizen of the country. While digitisation is a great tool to change perceptions about insurance, that alone will not be the sole means to the end for insurers in India. Human intervention will continue to play an important role in our country. It is estimated that by 2020, three in every four insurance policies would be influenced by digital channels during the pre-purchase, purchase or renewal stages.
TECHNOLOGY POISED FOR CHANGE:
The insurance industry will also move from a product-based approach to a dynamic consumer-based approach and move beyond offering annual policies to customised short-duration plans based on the customer’s requirements. It will usher in a set of challenges as traditional portfolios such as motor insurance may undertake a change with the push to move to electric cars and the gradual global shift to autonomous cars. With an increasing number of cyber attacks last year, Indian consumers are also likely to opt for new-age risk offerings such as cyber covers, apart from corporates. Additionally, with the listing of some large insurers, we will see a greater focus on profitability which will lead to better risk selection and reduction in discounting and price wars in the insurance industry. This in turn will ensure that insurers can focus on innovative customer-centric products and services and spreading insurance into the hinterlands to extend the financial security net to the masses and further drive the Indian insurance industry’s reach and growth story. Lack of appropriate infrastructure and reaching out to the interiors of the country in a cost-effective and sustainable manner remains a challenge. Insurance in India has a very old history, going back to about 1800, yet the benefits of insurance are still to reach the masses with retail penetration for non-life insurance standing at just 3-4 per cent. While privatisation of the industry in 2000, the entry of new private players, and a series of regulatory efforts has stimulated competition and innovation in products and distribution, a lot needs to be done to address the issue of low retail insurance penetration. The insurance industry, the regulator and the Government need to work together to bring out affordable universal insurance schemes to ensure that benefits reach to every citizen of the country. As the nation moves towards a digital cashless economy, the insurance industry is poised at the cusp of a digital revolution as it looks to automate and provide intelligent solutions through its entire value chain and interactions with customers.
THE PRIMARY BENEFITIARY:
The insurance industry will be one of the primary beneficiaries from the growth of Internet of Things (IoT), telematics, wearable tech, all of which are set to become affordable and popular. Insurers are integrating with IoT-based businesses to gain access to intelligent data about their customers. This data will empower them to categorize consumers into segments and provide them personalized and dynamic pricing. For example, customers who are proven safe drivers, or take good care of their health, will be given additional discounts vis-à-vis other customers. Insurers are working on various models that will leverage the growing smart phone penetration in India to create a viable and comprehensive health care insurance product. App-based consumption can also help steer consumers to curated network clinics, ensuring seamless, cashless, and paperless claims. Insurers will further make their investments on artificial intelligence to bring in deep efficiencies in underwriting as a function. For instance, machine reading and learning will ensure that medical test reports for proposals are instantly read, digitized and exceptions auto-flagged to the underwriter. This will reduce the turnaround time for the underwriting verdict after medical checks from the current average of 1 week to 1 day. Customers are provided round-the-clock support using chatbots. Through online customer accounts, customers will be able to make changes in their policy, increase or decrease coverages, make renewal payments, and request cancellations, completely replacing paperwork in these post-sale services. Apart from providing claim status updates on their apps, insurers are increasingly empowering consumers to pre-inform about a cashless claim on their app, so that there is faster admission in network hospitals. Insurers will also introduce paperless reimbursement claims.
E-COMMERCE BASED SALE:
The digital businesses in India in the current shape and form depend too much on contact centres for conversions. Brands today are spending significant marketing money to attract relevant traffic to their portals, and then they spend again to drive conversions. The current online purchase journey, the proposal form, and the questions are a near-exact replica of the offline journey. However, it’s a known fact worldwide that consumers have widely different expectations offline than when they are online. Insurers will have to build mobile-first purchase journeys with smarter proposal forms, which are integrated with data platforms (e.g.Aadhaar, income tax, and health care platforms). Being cost-effective, pure digital distribution will open up a new ‘sachet’ category of low-ticket insurance products. While these will have high demand, they may not be viable for distribution through the traditional agency channels. Given this compelling need, the insurance industry will play catch-up in coming years by using technology as the focal point to change the way they market, interact and service. Insurers are already using apps to improve customer experience. Soon we will see further improvement in claims experience, while continuous control over fraudulent claims also improves. The recently launched Unified Payments Interface (UPI) will open up innovative premium collection models. For instance, insurers will be able to use UPI—it works both on smart phones and regular phones—to send renewal payment requests through text messages. Customers can simply click on the message received, tap a few buttons and make an instant renewal payment.
DIGITAL INSURANCE START-UP ACKO:
Amazon — which has been linked with an Acko investment since the start of year 2017 — backed lending start-up Capital Float has led a $12 million funding round for Acko. The deal takes Acko to $42 million raised to date. Acko was founded in late 2016 by Varun Dua, one of the co-founders of insurance comparison site Coverfox. With Acko, Dua is taking a deeper step into insurance with a digital-only business aimed at disrupting the $10 billion industry in India by leveraging the growth of internet access in India to democratize coverage and develop more relevant products. The company got off to a good start when investors pumped $30 million into it last year, before it had even acquired a license to offer insurance. Acko has covered the traditional space of automobile insurance policies, and a newer category ‘internet economy. Acko has gone after big name partnerships in its pursuit of internet economy deals, which Dua said primarily consists of e-commerce, ride-hailing and travel site-focused products. In April, Acko launched passenger insurance for Uber-rival Ola’s ride-hailing service, which covers riders for obvious items like minor accidents, and eventualities like missing a flight due to traffic delays. The insurance claim system is built into the Ola app to simplify the process for users. Acko has covered more than 10 million Ola trips so far.The company is likely to work with Amazon around e-commerce coverage — the first focus of which will be around gadget protection — although nothing is set in stone yet.’
DIRECT IMPACT:
In many developed markets, creditworthiness and customer authentication is done online by linking up with numerous data sources such as enriched credit information, motor vehicle or social security records and property ownership information. Many of these data sources are in safe custody of private operators and can be accessed simultaneously. In India, we may see the following direct impacts:
- A digital avenue helps insurers save on various operational costs. This can be passed on to customers in the form of cheaper policies online. Usually, brokerage for term plans is around 30% of premium while for unit-linked insurance plans, it is 5-10%. The premium difference between offline and online is 35-40%. Even in auto insurance, the difference is 15-20%.
- The other advantage of the format is speedy sales service and increased efficiency. Customers are able to get timely and accurate updates on modifications in their policies. This, too, has increased cost efficiency. Technology enables standardization and improves quality of responses and services.
- Another significant advantage is elimination of chances of fraud and mis-selling, especially by an agent or distributor. For instance, if a customer bought a policy through an agent, and premium is paid in cash, the agent may not deposit the money. Or, an agent may force the customer to churn policies or buy a new one just so she can earn the hefty first-year premiums. But when someone buys a plan online, the premium goes directly to the insurer.
- All online applications are tested for vulnerabilities and customer payment information is routed through payment aggregators, hence, no credit and debit card data is stored with insurers.
- There are various benefits of holding electronic policies—no physical damage or loss, know-your-customer process is simplified and it is possible to manage multiple policies via a single platform.
- A major complaint against insurers is that once a policy is sold, the customer is forgotten. Social media has changed that to an extent. Most insurers have Facebook and Twitter accounts, which are a platform to receive complaints and to promote new products or features. As a practice, insurers ensure that customer queries received on business days are responded to within 30 minutes across Facebook, Twitter or other online platforms. Such interactions have the potential to make the grievance redressal system easier.
- Many insurers have developed their own apps. For example, ICICI Lombard General Insurance Co. Ltd has ‘IL Insure’, through which customers can buy and renew products in motor, health and travel categories. Bajaj Allianz Life Insurance Co. Ltd. has developed an app called ‘Life Assist’ and it helps users view policy details, claim status, net asset value updates, and fund value. One can also get an income tax certificate for any year since the policy inception using this app if you need it to claim tax benefit.
- Health insurance claims is another segment that is seeing the benefits of digital innovations. For example, Remedinet Technologies Pvt. Ltd provides a system through which health insurance claims are processed on cloud-based platforms; data is exchanged and processed between the hospital and the insurance company. The errors and delays are reduced and the process is more transparent as you can see the data on the platform with timestamps and history. With such technology in place, cashless claims get passed in 3-4 hours while reimbursement claims take up to 4-6 weeks.
- With the help of telematics and by offering connected devices fitted into cars, insurers are helping the customer get a better understanding of their driving behaviour for efficient fuel consumption, to navigate road conditions and remotely monitor the vehicle’s location.
- With an increasing number of cyber attacks last year, Indian consumers are also likely to opt for new-age risk offerings such as cyber covers, apart from corporates.
The online insurance industry today is at a nascent stage and is expected to grow significantly with the business coming from outside of the top 30 cities. Today more product innovations happening in this space, with the regulator’s new guidelines on web aggregators. Mobile commerce will grow to become an important platform to watch out for. Insurers will leverage this platform in a big way and reach out to customers. Technology, without doubt, will drive innovations in customer service. Insurers would also continue to leverage technology to deliver superior customer service and increase penetration levels in the country. In the past two years, this platform has already proved to be a game-changer for the insurance industry in India. The insurance industry must adopt an approach which is a combination of both. They need to provide omni-channel access, have empathy, and touch elements through its physical presence and employee network on a people-to-people touch basis. Insurers will in this process not only transform the customer experience; they will also create many jobs and opportunities. With rising medical inflation and hospital charges, health insurance has become a necessity for not just the urban population but as well as for those living in the vast interiors of the country. The year has seen some significant changes in the crucial aspect of distribution of insurance products. The regulator’s step to allow health insurance products to be also sold through point-of-sale persons is a significant step in that regard as it will allow insurers to deploy more distributors on the ground to spread health insurance farther. In another significant step, the role of motor dealers has been recognised by the regulator and in a landmark step they have been brought under the regulatory purview. Motor dealers can get registered as Motor Insurance Service Providers now, which will further bring ease in distribution and better service for the customers, with greater choice. The challenge before firms in moving away from an agent-based model to a digital one is that they need to ensure that “transparency and clarity of information aspects are highlighted and communicated” properly through the digital means to make a difference. In the long term, the agents and the middlemen might “just go away”. According to the report titled “Insurance @ digital–20X BY 2020”, though better pricing is a key reason for buying online, convenience and increased transparency are critical factors as well. BCG predicts that the life insurance annualized new business premium is poised to grow by 2-2.5 times by 2020 to Rs.1.25-1.5 trillion, with renewals expected to grow to Rs.5.5-7 trillion. The non–life insurance industry will grow by around 3-3.5 times from its current size to Rs.2-2.3 trillion. Online sales are bound to grow even faster than this.
The insurance industry is facing major technology changes that can make the consumer experience simpler and more intuitive. These changes create major growth opportunities for insurers and innovative third-party providers that will be able to adopt an agile business model. Insurers that reinvent their consumer engagement models digitize distribution and operations, and embrace big-data analytics will lead the industry. When choice is provided, buyers assume that their interests are put ahead of the insurers. But that is not always true as agents that sell multiple products, represent insurers. In many of the newer distribution entities such as Insurance marketing Firms (IMFs), Common Service Centres (CSCs) and web aggregators, it is not immediately clear whose interest comes first. This anomaly should be corrected by having one of two simple distribution models: either be an agent and sell one insurer’s products or be a broker and follow open architecture. All intermediaries must fall into one of these categories. There also needs to be a product-wise distinction where only licensed brokers can follow open architecture on commercial insurances, which are more complicated than individual products. While digital formats bring in cost efficiency and safety, a feature that probably trumps the other two is convenience. Lastly, one needs to have a progressive governance mindset. Unless numerous regulators and government ministries accord the necessary sanction to electronically obtained confirmations, any initiative will come a cropper. Paperless authentication will actually prove more credible and secure should organizations be permitted to build the appropriate safeguards. It will also permit a wider segment of the population to be insured or banked given their enhanced ability to provide validated information about themselves. The end result of converging each of these steps will be a more efficient financial services industry, better service levels for consumers and also a healthier services ecosystem. Expectations are rife for greater adoption of essential ML for higher automation and to assist in simplifying delivery mechanisms in 2018. Growth in the sector has also led to an upward spiral in applications using Big Data, automation, and AI. Digital can play a role in each and every part of the insurance ecosystem and consumers will increasingly look to buying and even maintaining their policies online.
Author
JAGENDRA KUMAR
Ex. CEO, Pearl Insurance Brokers
