Dear insurance experts,

Several InsurTechs will go up in smoke soon. That’s my opinion.

Why?

Many InsurTechs focus only on the customer relationship in conjunction with new business. On the one hand, that’s good for the consumers (e.g. policyholders, insured), when they search for insurance and want to buy a policy. On the other hand, that’s just a part of the process chain in insurance business.

Of course, it’s important and valuable to take care about the customer relationship. Consumers like to get insurance quotations easily – in particular, if these quotes are understandable, need-based and well-priced. They also want to purchase policies quickly and comfortably.

More and more consumers make use of digitized need analysis, guidance and advise, especially if they don’t know their needs or feel uncertain about various insurance products and options, which appear very similar to them.

The websites and apps of many InsurTechs are intuitive and please the consumers’ visual tastes. Their texts, pictures and graphs make insurance easy to understand and to buy. That’s useful and reasonable.

Overall, this approach is a very good starting point regarding digitalization, which goes in the right direction. But it’s insufficient to increase the efficiency regarding end-to-end processing significantly and sustainably – if the entire process chain won’t be addressed at the same time.

Although, changes of existing policies are much more important with regards to digitalization compared to new business – in many countries.

In Germany consumers are used for decades to adjust existing insurance policies according to changes in their life (e.g. relocation, marriage, child birth, buying a house or another car, completing a study, moving up the career ladder). There’s no need to cancel the existing policy and issue a new one. Instead, it’s possible to change a policy in many aspects (e.g. increase or decrease the sum insured, replace the insured object through another one, change the risk address, add or exclude a coverage, a clause, or an insured person).

Even in-force business administration systems that are more than 20 years old support these changes and settle them correctly, often in a highly automated manner. In contrast to their impressive capabilities, only well educated policy handlers have access and are able to use these legacy systems. A high percentage of these dinosaurs is designed like ‘Fort Knox’. Only very few insiders can see and touch the gold. All others, especially the owners, ‘must’ trust that there is high value inside.

A lot of policy management systems don’t comprise any APIs or web services. Thus, it’s unaffordable to put an intuitive website, which is tailored to consumers or intermediaries, as a pleasant user interface in front of such a system, or to integrate it with an appropriate app, which would make it easy to use via smartphone or tablet.

Hardly any insurance company exposes straight-through self-services for policy changes yet. Missing openness is one of the most important reasons why there are almost no intuitive web pages or apps that enable consumers to process a change of an existing policy autonomously and directly. In Germany, BiPRO pursues a standardization of appropriate processes and web services, while facing tough challenges regarding policy changes and claims handling. In addition, BiPRO concentrates on the collaboration between intermediaries and insurance companies, which brings only indirect benefits to the consumers with some delay.

For insurance online-shopping … means new business .. you will find tons of well designed web pages and apps, developed by insurers with direct-writing experience or by InsurTechs that act like aggregators, brokers, or financial advisors. That’s fine, but I see them just as modern insurance intermediaries. From a holistic perspective these InsurTechs contribute with a small added value.

A consumer still has to write a letter, email, fax or chat to apply for a change of an existing policy. At least, he or she must phone an intermediary (e.g. agent, broker, bank) or a call center representative of the insurer and explain the change. Guess what many intermediaries or call center agents have do after such a call or chat? They must write an email to a policy handler, who has access to the policy system and will carry out the requested change.

The entire handling of a claim or benefit case, including the involvement of the consumer, has the highest importance and impact regarding digitalization.

The variety of process steps and affected parties can be very complex, when a claim or benefit case occurs. Even if a consumer can easily and quickly purchase a new policy through a web page or an app, the ‘usage’ of an insurance coverage can be challenging for all involved.

Whether an insurance product is perceived as simple from the consumer’s point of view, is really apparent in the event of a claim. Moreover, this event reveals the actual degree of digitization. The number of paper-based forms or letters, which must be submitted physically to the insurer, is still very high – often caused by the fact that there is no commonly accepted digital signature or security certificate, independent from the quality of scanned or photographed documents.

InsurTechs that enable digitalization comprehensively, considering the entire process chain, will be successful.

The consumers’ expectations will raise more and more, if they can analyze their needs, get quotes or issue policies online and self-reliant. Thereafter, such a ‘digital consumer’ expects the same convenience and speed in case of a claim or when he or she wants to adjust an existing policy.

Those InsurTechs which do not digitize all the processes deemed important by the consumers will be defeated. Digitalization of new business won’t be enough to survive in near future.

InsurTechs that cover just a part of a comprehensive process, which can only be completed today through manual intervention from other experts (e.g. policy handlers, claim specialists) or by exchange of paper-based information, will get obsolete as soon as the process can be digitized as a whole. This kind of digitalization will happen within the next five years – in different countries.

Best regards,
Jochem

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    1. Jochem Schueltke Post author

      Hi Christopher,

      Exactly the article you mentioned I forwarded to several colleagues a couple of days ago. Artificial Intelligence is going to affect the insurance business significantly within the next years.

      The more inbound documents (e.g. forms, letters, faxes, chats, emails, laboratory results, certificates) and photos or videos (e.g. x-ray photographs, magnet resonance or ultrasound images), can be interpreted correctly by a ‘machine’ and converted into structured information … considering legal rules (e.g. insurance-specific terms and conditions) … the less manual work will be required

      • to ‘understand’ these documents and
      • to check their content (semantic) against a particular insurance policy, which is based on product-specific and individual rules (e.g. insured object or person, sum insured, limits, deductibles, included perils and risks, clauses).

      These interpretation and validation activities still consume a high portion of the working time in insurance business – not only regarding claims management or handling of benefit cases, but also regarding risk assessment and underwriting (e.g. new business).

      Thus, I am sure that AI is going to increase the automation in insurance business in near future, simply if the implementation of AI will be cost-efficient. That’s industry 4.0 in white-collar work.

      In this context, I am convinced that 1st class software development and technology ‘alone’ won’t be sufficient, but the combination with business and legal knowledge will be key to make commercial success out of this shift.

      Regards,
      Jochem

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