The traditional insurance business model is going to fundamentally and permanently change from what was invented in the Lloyd’s coffee shop in 1668 and which has been the basis of insurance ever since: Risk Mitigation via Indemnity and minimising interactions with customers.
The next 10 years will see unprecedented change in the insurance industry. Traditional insurance companies selling and servicing the old style product model are being replaced by IT enabled, risk management companies selling profitable, long term contracts for valuable services delivered as RMAAS (risk management as a service).
The experience of other industries offers a stark warning to the insurance industry: banks suffering death by a thousand cuts from tech companies in payments, cards, lending and now open banking, show the way it will go. Even software is sprinting to a cloud based, software as a service (SAAS) model. The most outstanding feature of all of these markets is the move from product to service based models.
In Digital Insurance, insurtech companies are increasingly seizing control and ownership of distribution and customer engagement. And, as technology reduces claims, which in turn reduces premiums, the size of the traditional risk mitigation market decreases exponentially. If insurers do not replace this revenue stream with risk management fees and services, they will wither and die.
Traditional just-in-case insurance will survive, but only as the bedrock for customers contracting for long term RMaaS relationships with innovative insurers. These insurers are increasingly leveraging data from IoT devices and applying powerful AI capabilities to combine just-in-time risk warnings through true omnichannel interactions on an unprecedented scale. The quality of protection delivered through risk warning services and suggested solutions will be the most important differentiating factor for any insurer in future and therefore will be key to business growth.
All of this requires insurers to already have a 360 degree view of their customers and automated, guided processes driven by rules based systems and true omnichannel engagement platforms, not the siloed multi-channels 96% of insurers operate today. On top of this they need new systems of data detection, analysis and response to create an “Always-On Brain”, constantly monitoring and acting on the flow of performance data and orchestrating decisions which are at the very least proactive but more appropriately pre-emptive – responding before customers even know they need it.
These technologies already exist and are successfully being exploited by many of Pega’s market leading customers in other industries to move to a service model, generate strong, long term customer relationships and secure their revenues and profits in the digital age. How long before the insurance industry catches up?
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