What’s the next chapter in digital transformation for insurance companies?

There’s an enormous amount of attention around the ongoing development of digital insurance. But despite all the headlines, we’re still very much at the start of digital insurance’s multi-billion-dollar story.

Figures from McKinsey Research show that in 2020 the addressable European market for digital insurance was worth USD 210 billion. The research predicts it will reach almost USD 500 billion by 2030. So, just how are we going to get there?

I’m confident that the traditional insurance market is ready for change. This is because digital insurance, and digital transformation for insurance companies, offer such clear and significant benefits to all stakeholders. These range from large brands and their customers to insurers, technology providers and specialist partners.

Digital insurance offers a better customer experience, more tailored and flexible cover, lower distribution and administration costs, faster time to market for new products and increased value.

In comparison, traditional insurance policies, which according to Swiss Re and McKinsey research, still account for more than 40% of the market, don’t always offer the same flexibility and can require more interactions when it comes to making mid-term adjustments or claims.

Digital insurance has already proven its ability to provide immediate, one-tap, flexible policies, which are tailored to people’s individual circumstances, on a 24/7 basis. Now it’s time to take this potential and use it in a wider range of mainstream products that serve a larger number of policyholders.

So, what’s the next step in accelerating the transition towards digital insurance? While the end product – insurance cover – is similar, the fundamentals of traditional and digital insurance are very different.

I often compare it to the difference between electric and combustion engine cars. They look similar and they both get you from A to B – but lift up the hood and they’re totally different. Each relies on contrasting technology and distinct manufacturing expertise. Looks, as they say, can be deceiving.

The same is true for traditional and digital insurance products. The data used for both varies enormously. Collecting, authenticating and analysing the data points needed to price and then modify digital policies demands different skillsets to those used for traditional policies based on previous claims experience and other static metrics.

Designing and bringing digital insurance policies to market requires IT and data analytics expertise, blended with more traditional actuarial insurance skills and claims management know-how.

It is such carefully crafted combinations that enable, for example, digital insurers to curate millions of customer data points and automate the underwriting of 20-year life insurance contracts for more than 95% of customers*. This is a far cry from the manual approach to traditional live cover that is still prevalent in the market.

So, how do they manage the transition to digital in a staged progression without losing ground to new start-ups or undermining their existing portfolios?

And for retail brands looking to expand their offering into insurance, how do they pick the right partner to help them deliver an attractive and effective customer proposition?

In my opinion, collaboration and partnership are fundamental to success in the digital market.

At the moment, traditional insurers have huge banks of customer, claims and risk data. But they have challenges around developing the distribution platform required to administer digital insurance and worries over how it interacts with their existing model.

Insurtechs have limited amounts of insurance data, but they have expertise in the technology and platforms required to manage digital propositions. Most insurtechs also lack the resource to invest in these platforms at a level that will accelerate their development dramatically.

Global technology companies have the capital resources and technology expertise needed. But they’re not used to working in the insurance market where customer engagement remains low and there are operational challenges to overcome around regulation.

For example, tech giants such as Google have made numerous announcements about their intentions in the insurance space, but there has been little subsequent detail on exactly how they’ll operate and what they’ll offer.

Similarly, retail brands seeking to offer embedded insurance products to customers don’t have the sector expertise to deliver it for themselves, and so many ideas remain on the drawing board. 

In my experience, organisations in different sectors have realised that collaboration will provide them with a faster and more efficient route to market and there are already significant partnerships in place. More will follow – and quickly.

Collaboration in itself will not guarantee success and our experience at iptiQ points to a number of factors that need to be in place to generate market traction and growth.

First, it must be easy for partners to work together and onboarding processes have to be swift and seamless to ensure a positive experience. We aim to complete this process with the digital interfaces used by stakeholders in a few weeks, rather than months, when setting up a new partner on our distribution platform.  

Second, is the need to design tailored and customer-centric propositions. For example, if a partner wants to offer a digital car insurance product, we work to integrate data about the safety features deployed in each make and model of car, to enable more relevant and specific pricing. Or in life insurance whereby our proprietary underwriting platform, Magnum, allows us to sell an insurance policy under 5mins in over 75% of cases. 

Third, the customer journey needs to be seamless. Is insurance embedded naturally into the process and do you have analytics capabilities to enable you to refine the proposition continually? For example, we've embedded insurance into the vehicle rental process for Goboony, a peer-to-peer campervan rental platform. The added functionality helped them increase rental business by more than 40%. It materially affected their commercial proposition, highlighting the impact digital insurance can have. 

Finally, you need to be able to design and deploy new covers quickly. Retail brands are quick to change and evolve their products and associated insurance cover needs to match this pace and deliver new products or add-on covers as required. We can create very targeted general life insurance, and non-life products and deliver them in a matter of weeks using our API-first approach. Before the advent of digital insurance, it was more usual for product development and delivery to take much longer, may I add, even years.

The pace of change will be rapid in the coming years. But my experience of working with a wide range of partners has shown just how transformative digital insurance can be – both for the brands providing it and the customers that it protects.The pace of change will be rapid in the coming years. But my experience of working with a wide range of partners has shown just how transformative digital insurance can be – both for the brands providing it and the customers that it protects. Digital transformation for insurance companies offers new ways to connect with customers and new ways to deliver services for partners.

That’s what I’m so excited about the USD 500 billion potential for digital insurance in Europe. It’s a huge opportunity and I believe that iptiQ, backed by Swiss Re’s capital strength and almost 160 years of risk knowledge has the ability to help partners unlock a slice of the market for themselves.

*Source: Swiss Re Magnum