The insurance industry is in the midst of a brutal stress test, due to the current environment. The loss of customers who become unemployed, already an issue, is likely to worsen. Some insurance products may become uneconomical. And many insurers will come under pressure to reduce their spending.
Given this fast-changing business environment, insurers need to proactively adapt. Here are 10 ways insurers can — and should — adapt their business models now:
- Include analytics-driven underwriting execution models: Many coverage areas that have traditionally required in-person visits can now be leveraged with digital data instead. For example, a life insurer could use data from a prospective customer’s medical records and other information, rather than requiring the customer to get a “live” medical exam. Similarly, a property insurer, rather than sending an inspector onsite to a potential customer’s property, could instead increase its use of owner-supplied photos, drones and AI to process images of the property using cloud-based technologies.
- Use customer data-extraction models: To gain data about their customers, insurers can offer customers new incentives, then use their data as the basis for creating new products and services. These incentives can include discounts on premiums and provide extra riders at no charge.
- Offer risk-mitigation services: Insurers can offer new services that help customers lower their risk. For example, a cyber insurance provider could not only provide a customer with coverage against security breaches, but also show that customer effective ways of protecting their IT environment. In this way, insurers can mitigate their risk while also growing revenue.
- Increase the use of parametric insurance: These products help insurers reduce expenses by paying out automatically when a specified event occurs – say, a farmer’s crop is spoiled or a political leader’s trip is cancelled – rather than requiring an underwriter to conduct an investigation. Insurers can now expand their use of parametric products by adopting new technologies such as blockchain. For example, travel insurance policies have incurred a heavy impact to the insurer’s loss ratio. But by implementing blockchain technology going forward, an insurer would have a much lower expense ratio, resulting in a more manageable combined ratio.
- Insure online purchases and returns: New policies can cover online retailers for their losses when customers return merchandise that’s broken, not what they ordered, or simply no longer desired. These policies are already quite common in many Asian markets; there, insurers are helping online retailers manage the life cycle of online purchases. Such practices deserve wider use elsewhere, presenting new revenue opportunities for insurers.
- Offer usage-based coverage: More affordable insurance products are likely to be in high demand as job losses increase and business disruption continues. One way to offer lower-cost products is to do so based on usage with help from telematics applications. For example, an auto insurer, rather than providing blanket coverage for a set period of time, could base its premiums on a customer’s actual number of miles or trips driven.
- Explore under-served and under-covered markets: New technologies can help insurers explore and enter new markets to drive new, much-needed revenue. These underserved markets can be large — for example, roughly 40% of Americans have no life insurance, and only 20% have disability insurance. But until recently, it’s been difficult to serve these markets efficiently and economically. Now that’s changing. Insurers can use AI, machine learning, IoT, blockchain, analytics and other technologies to define and execute new business in these markets, and do it profitably.
- Don’t compete with insurtechs, collaborate: Collaboration with tech-savvy startups is quite common among big banks, but not yet with insurers. Mainly, that’s because the industry’s regulations create high barriers to entry. But as insurers see a revenue downturn, now’s the time for a rethink. Collaboration with insurtechs can include partnerships, investments and joint ventures. In this way, insurers can develop new business models that don’t require agents and brokers to distribute their products. Plus, insurtechs could help traditional insurers bring new products to market faster than they could on their own.
- Become a technology provider: Some insurance industry leaders now consider themselves to be data and technology companies, not insurance companies per se. Other insurers, to restore revenue lost to recent business disruptions, can now offer customers not only insurance, but also technology Insurers are well positioned to do so, as they already possess the necessary technological know-how, mission-critical applications, IT infrastructure and data.
- Develop new products in conjunction with governments: Few property and casualty policies cover pandemics, so many early losses are being paid out by state and federal governments. But this can’t continue indefinitely. Already, governments are pressuring insurers to pick up the slack. To act proactively, insurers should collaborate with their local governments. For example, a private insurer could help a government agency by administering (for a fee) its policy payouts. Insurers can also work with governments to provide protection against catastrophic business losses that can be spread out over time and over large populations. The time to start preparing is now.
Are you ready to adapt your insurance business models or explore how the right platform or applications can prepare you for the new normal? Check out dxc.technology/insurance
Chak Kolli is the global chief technology officer for insurance at DXC Technology. In this role, he is responsible for DXC’s global insurance technology strategy and vision and helps guide clients in their digital transformations.