“Digital” is coming: what should traditional insurers do

About 97% of insurtech companies in the life and health insurance industry are technology firms and distributors. Bain & Company reveals what traditional insurers can do in response

From 2010 to 2017, the number of insurtech companies in the life and health insurance industry almost tripled. Most of them are not actually insurance companies, that is, companies that enter into insurance contracts and do underwriting. 59% of insurtech life and health insurance companies are technology firms that provide equipment, software and analytics for the insurance industry, and 38% are distributors, including online comparison resources or marketplaces.

The success of insurtech companies in an industry known for complexity and obscurity can be attributed to their simplicity, transparency, and “digitalization.” They are able to provide customers with products that are easy to understand, compare, purchase and use, and this poses a competitive threat to traditional life and health insurance companies with their complex products and processes, inflexible and outdated technologies, and poor customer experience.

Most insurtech companies sell technology solutions, not policies. They provide insurance companies, other insurtech companies, and brokers with hardware, digital platforms, software, and analytics that help with underwriting, marketing, distribution, pricing, and claims processing. Xeddco’s InsuranceDrip platform, for example, automates routine social media posts for agents, helps them understand customer interests by analyzing browsing habits, and alerts them to interesting policy sales opportunities. Other insurance companies are implementing advanced analytics to predict customer behavior. Aureus Analytics uses data from insurance companies and external sources to assess the likelihood of a policy renewal and better target customer retention. Many technology providers offer more than one solution for insurance companies across all segments of the value chain:

• about 60% offer marketing and distribution solutions, including buy/sell solutions and simplified client interfaces;
• about 40% sell equipment and software that help insurance companies optimize their work with insurance claims;
• about 20% offer analytics-based product development and pricing solutions.
• Only 11% of technology providers provide services directly to consumers.

For example, the Irish company Hublio provides a robotic advisory service that connects policyholders, brokers, advisors and insurance companies through open APIs. Users can view all of their policies, identify coverage gaps, and contact providers for information and advice.

Insurance marketplaces mainly offer consumers the opportunity to compare offers from different insurance companies in real time, evaluating coverage options and prices. Their main value to consumers is transparency, allowing customers to quickly compare the terms and prices of policies offered by competing insurance companies. Few – less than 10% – also offer traditional non-digital services. Insurance marketplaces have already successfully eliminated intermediaries in a number of industries, in particular in the sale of air tickets and rental housing, and have seriously changed the auto insurance market in some countries (for example, in the UK).

In terms of services offered, insurance marketplaces can be divided into three categories:

• comparison sites that offer a full range of life insurance and health insurance products, including travel insurance and auto insurance (for example, PolicyBazaar in India);
• marketplaces that offer only life insurance collect information from different providers on life insurance and universal life insurance policies (for example, Life Ant in the USA);
• marketplaces that deal exclusively with health insurance (for example, Maria Health in the Philippines).

In some cases, marketplaces also offer a simplified policy buying experience, although they are highly dependent on the requirements of specific insurers, provide recommendations, allow customers to view all their insurance policies in one place. Digital marketplaces tend to follow traditional revenue generation models, receiving a commission from insurance companies for each policy sold.

Most insurtech distributors deal primarily with retail sales, although some also cater to corporations and small and medium businesses. Business needs for life insurance and health insurance are often much more complex than the needs of individual customers, so in this case, the digital marketplace model is much more complex.

Insurtech life and health insurance companies are using digital tools to reduce paperwork and improve the customer experience: buying policies, managing coverage, and filing claims. Some insurance insurtech companies are developing new business models – ecosystems of insurance and non-insurance services. Thus, an insurtech health insurance company not only allows clients to pay for medical services, but also helps them with doctor appointments and prescriptions, and gives healthy lifestyle recommendations. For example, the German insurtech company Ottonova offers clients online consultations with therapists, healthcare management tools and a paperless process for handling insurance claims.

Starting an insurtech insurance company is a difficult task for an entrepreneur because there are many barriers to entry in the life and health insurance industry:

• high degree of regulation;
• many markets are dominated by a small number of established players;
• many traditional insurance companies offer a wide range of complex products, each containing many options and possibilities for change; customers are accustomed to relying on the services of live agents, rather than websites, applications or chat bots;
• underwriting insurance policies requires capital and expertise in insurance statistics;
• some insurtech companies specialize in specific client segments, such as the self-employed or low-income clients, but most still target a broader market segment.

In some aspects, insurance insurtech companies follow the traditional business model, that is, they underwrite policies and receive insurance premiums, but they do this not independently, but through the hands of traditional insurers or reinsurers.

The main difference between insurtech and traditional insurance companies lies in distribution channels and value propositions for customers. Insurance insurtech companies tend to sell directly to consumers through websites and apps rather than through agents or brokers. There are exceptions: for example, Singapore Life works with financial advisors to sell complex products such as universal life insurance.

While insurtech players account for a minimal share of the industry’s total profit pool, they need to overcome regulatory hurdles, distribution difficulties and consumer skepticism. However, large sums insured and attractive profit funds in life insurance and health insurance will attract more and more new players.

In shaping their growth strategies, the priority for many of the leading life and health insurance companies is to go simple and digital. They must implement advanced analytics to better understand and serve their customers, and find new ways to use their distribution channels, which is their main advantage over insurtech companies. For example, some insurers narrow their focus to specific customer segments, recognizing that in such a competitive environment they cannot offer everything to everyone. Others position themselves as an ecosystem of services that includes non-insurance offerings (like fitness club memberships and health advice).

To remain competitive, traditional insurers should take the following steps.

1. Simplification and digitization

Traditional players need to simplify complex products, identify customer problems and find new solutions for them, and create a seamless customer experience in all channels of interaction with users.

2. Making the Most of Your Distribution Benefits

Traditional players have large-scale distribution channels – agents, brokers and financial advisors. Companies must capitalize on this advantage while adjusting to the coming changes in the distribution landscape, where marketplaces and direct-to-customer insurtechs will play a major role.

3. Working with marketplaces

Marketplaces are becoming one of the main distribution channels in life and health insurance because they have the potential to rid the insurance market of intermediaries by turning insurance companies solely into providers of underwriting expertise and capital, and controlling the customer experience and a significant portion of the profit pool. Insurance companies need to think about how they will work with marketplaces while improving their own customer experience and cost competitiveness.

4. Implementing advanced analytics

Using data and advanced analytics, insurtech companies are exploring underwriting that used to be the exclusive expertise of traditional companies. Insurance companies have already begun to create “factories of the future” based on advanced analytics, which are engaged in the modernization of operations and customer experience.

5. Innovation and ecosystems

Simplifying and digitalizing existing products and processes is important to improve the digital experience, but the real change in the industry will come when companies develop new and innovative business models such as ecosystems. Traditional players can lead the development and development of ecosystems, building on existing relationships with business partners and providers.