The business of insurance is to define, evaluate and mitigate risk. But risk is becoming less predictable, and customer expectations for the purchase and delivery of insurance are changing. That puts added pressure on the industry to appropriately assess and cover risk, while also taking advantage of the growing opportunities that result from changing global markets, led by the rise in wealth in developing nations.
Editor’s Note: This article originally appeared on the Global Association of Risk Professionals (GARP) web site.
Furthermore, new risks are emerging. Cyber insurance is a primary example, as the cost of cyber crime takes a toll on businesses. It’s been estimated that cybercrime will cost the world $6 trillion in 2021, up from $3 trillion in 2015, and can cause significant disruption of operations. The wider costs from cyber risk are not merely from direct costs — incident response, data recovery, and fines or penalties from falling afoul of compliance requirements — but also the intangible costs, such as loss of reputation, loss of intellectual property and damaged customer relationships.
Advanced technologies such as autonomous vehicles and vaping are further shifting the nature of risk for insurers, raising new questions about liability and how insurance risk should be assessed. Natural disasters and market uncertainty over how often, when and where these will occur have taken a heavy toll on the industry.
All these issues introduce questions that have not existed before. They require new strategies to respond to these market dynamics and point to the critical importance of insurers accelerating their digital transformation.
Next steps to better risk management
To better mitigate risk in a complex, evolving and increasingly customer-centric environment, insurers need to begin with better customer engagement. By using big data to develop accurate predictors of risk, insurers can dramatically reduce the number of questions posed to consumers, thereby simplifying the transaction process.
Insurers must also build a more comprehensive offering for policyholders by, for example, providing value greater than pure indemnification. At a minimum, this should encompass risk advice and mitigation, as well as contract management after a claim. More progressive digital strategies might include extending core offerings to related markets, such as the global travel market.
Other important steps for the insurance industry include embracing simplicity and transparency across the business, for example through artificial intelligence (AI)-enabled customer servicing.
The changing nature of risk ultimately requires breaking away from the old business model, which was typified by limited customer interaction, short-term buying cycles for life policies and the deployment of outdated, poorly integrated technology.
Into the future
Many insurers recognize the challenges they face and are making concerted efforts to adopt a more compelling and sustainable operating model. Many are investing heavily in redesigning the customer experience, for example offering pay-as-you-go insurance or insurance pooling.
Some are tapping into sensor technology to provide real-time data designed to change behaviors, reduce risk and build stronger relationships with customers. An example is the partnership between Cocoon and Aviva, in which Cocoon provides an AI-powered home security system that learns about the house and its occupants and then sends an alert when an unusual pattern is detected. The objective is to not only reduce risk but also improve engagement between the insurer and the customer, since people typically engage with their AI home security systems daily.
Crucially, insurers must build new and deep partnerships to stay relevant and grow market share. Partners have to be truly integrated, able to consume services seamlessly or offer their services seamlessly back to insurers. Platform-based services are expected to become commonplace in the industry, which will make it easier to offer multiple combinations of services to improve the customer experience.
As risk becomes more fluid, insurers must make certain they are positioned to thrive, progress and respond to customer demands through progressive products and services and a well-defined digital transformation strategy.
Phil Ratcliff is vice president and general manager, Global Insurance, at DXC Technology. He is responsible for defining and implementing insurance go-to-market strategies and plans, managing the global industry P&L, and leading the development and commercialization of DXC’s portfolio of insurance offerings.