Insurance Article, The Insurance Times 2022, The Insurance Times March 2022

INSURANCE PRODUCT DEVELOPMENT IN THE DIGITAL WORLD

ABSTRACT

Product development is the skeleton of insurance industry and developing new products is not a mere supply-demand situation, but it is rather identifying which product will best serve the needs of today’s increasingly demanding insurance customers.

Insurers are determined to make every moving part of their business serve the customer, and what this means in concrete terms is that every division of the business has a contribution to make towards the creation of customercentric products while trying to address a certain business problem or planning new revenue streams for the organization.

Typically, new products are built with the customer in mind and more ‘benefit-rich’ it is, the easier it is to push on to the customer. In order to create more value for customers, Insurers are focused on building products which aligns with artificial intelligence, cybersecurity, IoT, digital analytics etc. Nowadays, Insurers are rapidly investing in Disruption and Digital Innovation, but they are failing to recognize that the root, which supports the same, is Product development.

There are many external forces to the insurance company like economic trends, the agendas of independent agents, the activities of competitors, and the expectations and price sensitivity of the insurance market, which directly affect the premium volume, and profitability of the product.

In order to adapt to the external forces, the base structure of a product is crucial. However, if the base structure is not modified, innovations will not happen. The companies have to be more inclusive and flexible in the base structure, which can accommodate innovation.

Product diversification is a key factor, which leads to creation of creative and innovative products. Only true experimentation will create product diversification and sometimes it can lead to failure. Nevertheless, investing in these failures can bring a new product into the market. Therefore, the steppingstone of innovation is product development.

The insurers who coagulate innovation in product development tends to lead the market. Moreover, business in a VUCA world where change is the only constant, is transforming the business world because of economic, political, technological, and environmental forces. Therefore, constant and rigorous innovation is the only way to secure and defend a competitive edge, which helps in realizing new revenue opportunities needed for sustained profitable growth.

The new era of Insurance with digitalization should start with innovation, which embodies multiple layers of creativity, requiring an understanding of the heart and voice of the customers, which is an essential component of insightful decision-making across business disciplines.

The best practices that help shape innovation activities serve as a critical tool with respect to product development. Speed, Adaptability, and Risk protection are the key areas expected by the customers in a digital world. The strategic and tactical plans articulated by management to pursue competitive advantage, sustainable organic growth and profitability is backed by clearly stated guidelines for innovation andensuring that not only profit is attained but customer satisfaction is also achieved because of the innovation. Thus, insurers can attain attention of customers of different industries towards their model of product.

INTRODUCTION

Digital technology is transforming the end-to-end value chain. Digital transformation is taking place throughout the entire industry value chain – from sales and distribution, to product development, underwriting and claims management.Insurance industry is undergoing a perfect storm; changing customer demands, advancement in technology, increases in data, the impact of natural disasters, shifting demographics and evolving regulations are just some of the factors that shake the roots of the industry.Customized insurance products are released using technologies such as Internet of Things (IoT), artificial intelligence (AI) and big data. Car insurance products linked with individual driving habits and mileage through IoT devices have been unveiled.

Customers want more from theirinsurers, be it, corporate customers or consumers. They all now expect the speed and elegance to digital retail conducting business with“when they want, where they want” using channels of their choice. Customers are increasingly focused and able to compare offerings and prices with competitors in an instant.

Technology is creating a wealth of new possibilities; the advent of Big Data creates opportunities to insurance to make use of unprecedented insights into the end customer’s life, property, health, wealth and behavioral patterns using artificial intelligence.

This allows insurers to swift through this data quickly and efficiently enabling more personalized approaches to risk management, reduce liabilities and lower premiums in return. The ability to access data faster than ever before also allowsinsurers to the settle claims more quickly.

In the past, a common strategy of insurance players was to wait for the competitor to move first in order to see whether a new direction was successful or not. But thatstrategy does not work in this disruptive environment with new competitors outside insurance space. All these changes have given rise to new players with new ways of working and competitive business model.So, asInsurance can turn into a very different market in the future; how can insurers navigate change and achieve success is the question.

In such environment, it is important to learn fast asestablished players will find ways to bemore versatile, it is essential to think like a disrupter and act like a Startup while maintaining a clear focus on the customers.

In times of rapid change, it is hard to separate facts from fiction. Whereas it is easy to learn by the latest trend and to blindly copy, what the competition is doing.However, following the market is not the answer; the most successful companies across industries understand that they need to build a strong distinctive identity that allows them to carve out their own market position rather than reacting to a market that has been created by others.

Creating such a strong identity occurs only by adding value to your customers in the future, focusing on building the few differentiating capabilities that will allow you to deliver that value better than anyone else. Once the capabilities that the organization needs to excel is identified, then developing a capability agenda to achieve that goal is the next step. It is important to consider how quickly organization can build the new capabilities and by when insurers need them to be advanced and integrated.

Nowadays, more focus is on “Building capabilities organically or acquiring them from a company or Partner with the technology players”. Being very clear about these specific capabilities, allows insurers to align the entire organization on what truly matters to the customers and build a powerful engine of growth.

Disruption has already begun and not everyone will succeed in it but rather, it is the players who have the courage to commit to an identity based on what truly differentiates them will have the opportunity to shape the insurance industry of the future and those are the players who have realized need of Innovation in Product Development.

In a highly competitive industry, which is traditionally not known for innovation; changes in demographics, technology, channels, and business models are creating significant new opportunities for insurance companies to defend market share and increase revenue as well as margins.

The need to innovate, and to do so quickly, is now deemed critically important by 88 percent of insurance companies. However, innovation can come in different forms; insurers can reach across business lines and functions to build teams specifically focused on product innovation, using shared incentives. This may help raze the siloed models currently in play throughout the industry.With digital technology and data redefining the market’s entire value chain, customer touchpoints are shifting to mobile channels; while standardized products of the past are transforming to customized or new niche products that reflect customer needs. Furthermore, the industry is expanding its scope of services by leveraging its connection to relevant industries such as healthcare.

CUSTOMER SERVICES AND PRODUCT DEVELOPMENT

The insurance industry in general, and those targeting the small commercial segment, seem to be coming to terms with this new reality of product innovation. Many insurers are reconsidering outdated product-driven business models to meet customer experience–driven market expectations.At a time when exceptional client experience is pervasive throughout most other industries, customer-centricity, speed, and flexibility are becoming essential in insurance product development.

Many companies such as Bajaj Allianz, ICICI Lombard raise the level of customer expectations for products and services that are convenient, fast, and personalized, the insurer of the future will likely need to follow suit. And, for all intents and purposes, that future is now.

There are various factors which creates hindrance to product development such as time to market and agility remain slow and unwieldy for insurance product development, due to cumbersome regulatory oversight, legacy infrastructure, business unit and functional silos, and long-entrenched processes and culture.

The challenge could only increase as the rate of digitization accelerates, consumer expectations keep rising, and traditional borders between lines of business continue to blur. This is happening rapidly throughout the world. The Real transformation remains slow, even though the focus on modernizing product and service development appears to be high.

With new risks emerging, and traditional coverage requiring updates to stay relevant in the evolving landscape, the need for more rapid product development transformation seems to be intensifying. Many companies are obsessed with coming up with the next Uber for their industry.  For that reason, they are overly focused on disruptive innovations, meaning new products or services that completely upend existing markets or create entirely new ones.

Insurers are likely be tasked with eliminating or minimizing friction throughout their business models, processes, and infrastructure. This could require revisions to the industry’s traditional ways of doing business, such as the potentially onerous and difficult-to-understand application process small business owners may face when trying to obtain a policy.

Instead, insurers should evolve toward creating a more seamless, customer-driven experience that incorporates tailored options and services, which is already table stakes for most other industries. The method of focusing over traditional ways must be changed. Insurers will likely need to eliminate or minimize friction throughout the value chain, from product design through deployment and customer engagement, to respond to customer needs and market opportunities more nimbly and effectively. Making these changes would require internal multifunctional teams to work more seamlessly.

Firms might also need to align themselves with external business partners, such as data vendors and service providers, as ecosystems of product and service offerings become more integrated.

While product development and modernization initiatives may be implemented in tandem or in succession, ideally, they should be prioritized in line with a firm’s overall strategic focus. However, it is not always necessary to come up with a grandiose silver bullet idea in order to innovate.

In fact, these kinds of projects are high risk and have a low chance of success. This means that these projects are often dreamed about and debated internally but may never actually get off the ground.

The industry found out that customers are no longer buying products and services; they are buying experiences that products and services provide. But in the small commercial insurance segment, there are still wide gaps between what could be done and what is being done to make the shift to a product development framework that enables customer experience–driven modernization.

The way of thinking towards must be changed. The flow should start from customer to company which has been identified by Deloitte. To attract the skill sets necessary for product development modernization, insurers should find ways to vastly elevate their appeal to make a career in insurance more relevant and attractive to innovative and tech-savvy individuals.

This could start with initiatives to modernize the company culture. Leaders can demonstrate a commitment to innovation, diversity, and social impact through related incentives and career development opportunities.

If handled successfully and holistically across the organization, these efforts can help convince those with cutting-edge skill sets that a career in insurance can immerse them in an intriguing, exciting, diverse, and innovative world of risk solutions. The rapid growth seeking companies are well known of the fact that disruption is spearhead to their success.

The figure explains about clearing the minefields obstructing each phase of the product development life cycle—from concept to development to launch monitoring—they can clear the path toward a future customer experience–driven state. Depending on a carrier’s tactical plan and budget, minimizing such friction may be as broad as launching an entire technology system overhaul or as targeted as aligning with one or several third-party vendors to exploit innovative technology capabilities.

The way of finding each thread to customers is the right way to initiate the digital innovation in product development. Insurer must identify their potential ways of achieving that thread.

The insurance industry has traditionally been a producer of products, with the bestselling ones providing competitive advantage. This is graduallychanging, as the consumers are demand a more flexible approach to their challenges, and this resulted in thelaunch of more service-based products.

 Nevertheless, creative and new products pave the way to target specific needs. Such products will always be required, as insurance companies will need a futuristic outlook while working in the present market.

INNOVATION LEVERAGED BY TECHNOLOGY

Insurance companies in India are highly data intensive but not much effort is being put in converting them into actionable business intelligence which is today’s requirement in the era of big data analytics and the artificial intelligence which is of utmost importance globally.

Insurance Industry is the perfect fit when it comes to application of artificial intelligence looking at the sheer intensity and the amount of data collected. Application of AI is changing the outlook of insurance business with the use of multi-variates like Machine Learning, Natural Language Processing and Robotic Process Automation to begin with.

There are four technologies having a major impact on the insurance industry:

  • Blockchain
  • IOT
  • Artificial Intelligence
  • Big Data
  • Spatial Intelligence

  1. Blockchain

With the distributed ledger technology (DLT), details are recorded in multiple places at the same time, ensures that there are fewer chances of identity theft or fraud, this helps better customer experience, and ease the policy buying process.

With the automation of policy buying processes such as validating records, etc. reduces acquisition costs but also reduces the turnaround time.

  1. IoT (Internet of Things)

IoT devices, sensors, and telematics are on the rise in the insurance sector.  Especially wearables, sensors embedded in vehicles along with advanced analytics helps insurers inrisk-based assessment which can help price policies based on authentic data in real time and model the policies as per the customer’s profiling. A remarkable example would be Drive Smart by Bajaj Allianz for the auto insurance sector, which is a telematics device.

  1. Artificial Intelligence

Employing Artificial Intelligence has brought betterment in claims handling and management saving the insurers millions preventing the fraudulent claims using AI Algorithms.

A pioneer in using AI for their process is ZhongAn, which is China’s first online-only insurance technology company, which leverages technology to “simplify insurance, price risk more finely and distribute cheaply to a mass market via the internet.”

  1. Big Data

Use of technology has been helping insurers to improve their risk assessment, product pricing, customer acquisition, settle claims, and attain profitability in a better and faster manner. Big Data has helped to identify subrogation opportunities sooner with help of text analytics by which the insurer’s loss expenses can be minimized, and loss recovery can be maximized.

  1. Spatial Intelligence

Spatial Intelligence in Insurance industry’s context is location-based risk assessment, underwriting, quotes, claims and client network segmented based on demographics. In simple terms, the insurer can better predict the claims, liability by using spatial analytics, which can help the insurer to have; holistic view of the data for better understanding and quick response that will result in speedy customer service. This also results in better analysis of their historical data for underwriting, more accurate reserving as and minimize the leakages in fraudulent/ exaggerated claims.

INSURTECH AND INNOVATION

‘Insurtech’ is a term used for technology-led companies that have revolutionized the way the insurance sector. Insurance companies leverage new technologies to provide insurance solutions for an increasingly digital customer base.

As per the McKinsey Panorama Database Report, majority of the insurtechs are focusing on innovation on their distribution channels and there seems to be a focus on improving pricing by innovations.

 

CUSTOMER ENGAGEMENT INNOVATION

Gamification is on the rise where the insurance providers have started adopting this practice where they simplified the entire process and made insurance seem fun and informational for their customers.

It helps to form an emotional bond with the customers and at the same time easing the policy acquisition process and ensuring understanding of the same to the customers.

Taking the example in case of an Auto or Life insurer for policy acquisition or policy servicing, gamification can be used to guide the customer in their buying process for comparison where they the customers can rate their risk on a scale based on their need analysis and through this process, the customer can be given options on the products suitable for them which can help improve customer experience and brand awareness.

Taking the example of Pacific Life Re, they have used gamification for the policy buying process with a click to gather format. Essentially such data collection formats will take the customer around 30 seconds for each screen and within the 3 minutes, the customer will be able to purchase the product.

Customer Engagement is crucial for the insurer as both brand awareness as well as the sales is directly impacted. Innovation and investment in this is a definite need for an insurer to increase their market share.

CHALLENGES INHIBITING INSURERS

Insurers who are seeking to accelerate the pace of product innovation is facing many challenges including the difficulty of forecasting customer demand; the barriers posed by regulatory compliance; and the need to set prices at the right levels. The challenges faced by insurers are:

  • Unable to identify Customer Needs: Many insurers are lacking the understanding of comprehensive needs; or, if they do understand the customer, they fail to integrate these insights into the product development process.
  • Overloaded Portfolio: Nowadays many insurers are focusing on low priority initiatives to clog their innovation and development pipeline, straining company resources and blocking the progress of worthy ideas. Some products are developed despite a lack of impact and business value.
  • Market Risks: Very few insurers test product innovation during development, exposing themselves to the risk of failing to understand market realities. Sandbox testing has created a major impact.
  • Technological Risks: At many insurers, outdated legacy systems inhibit innovation. They are focused over traditional methods which are out of market. Even after products are developed, there is a failure to consider needed go-to-market capabilities and the likely response of other partners in the ecosystem, as well as competitors.
  • Inefficient Governance: Insurers get bogged down in nonvalue-added activities and in waiting for decisions that should be made quickly and easily. Poor governance makes it hard to assign responsibility at various stages of the innovation process.
  • Resource Constraints and Revenue Generation Constraints: Some insurers have the wrong people assigned to innovation and product development, while others fail to cross-train people, making it difficult to scale critical capabilities. Key resources can become overloaded, creating bottlenecks in the process.
  • Culture and transparency: Not every company has the right incentives in place to encourage and reward innovation. Employees are quick to determine which behaviors and activities are rewarded and which are ignored, or worse.

RESULTS AND DISCUSSION

The focus over innovation must be from the customer side. The achievable target state would embrace a combination of many, if not all, of the friction-busting tactics. It will not be a destination, but an ongoing journey. In the future paradigm, insurers could deliver:

The techniques of Seamless distribution can be done by aligning with adjacent industries to help stream alternative data, which would enable ease in distribution by prefilling information, as well as more personalized, seamless underwriting and pricing. It also requires partnering with InsurTechs to form digital online distribution capabilities for small businesses and intermediaries inclined toward self-service. Main purpose of Building proprietary digital online distribution capabilities, while continuing to provide coverage and service advice is also important.

The reach to customers is important which can be offered by joining or creating third-party alliances for access to real-time data exchange through the Internet of Things (IoT) devices and sensors to add value by providing more frequent and meaningful client touchpoints, joining or creating ecosystems that enable sensor technology and other services to shift underwriting focus from risk coverage to prevention, enhancing customer experience and value for both consumers and insurers.

Each product should provide the essential result. So in order to get that result, it should be streamline. It can be achieved by proper Product life cycle. It requires implementing technology infrastructure upgrades, either on proprietary systems or by aligning with third parties, for agility and speed-to-market. Product life cycle correlates with making intentional changes to modernize culture and attract pioneering and innovate talent and diverse skill sets and collaborating between functions, lines of business, and third-party business partners for crossover products and seamless interaction. The method of leveraging modular product structures to increase ease and transparency for customers and facilitate more efficient product launch, maintenance, and enhancement capabilities improves the final product.

A personalized/user-based experience and coverage can be achieved by employing advanced technology, through proprietary systems or by aligning with third-party providers, to offer service everywhere, any time, though any channel and building upon modular product structures to provide tailored products and services based on client-specific needs and expectations for an ideal customer experience. The focus on relying on cross-business line, cross-functional, diverse skill set SWAT teams to quickly and flexibly create or revamp products and services that customers will value creates a brand image too.

Due to the Covid-19 pandemic, governments have cut interest rates to the lowest levels in history. This raises concerns about the profitability of insurers, calling for insurers to search for new growth engines and achieve operational efficiency. Asian markets, with its high economic growth rates, population sizes and low financial accessibility, means high growth potential for insurance. Digital transformation is likely to progress more rapidly in Asia, due to the region’s demographics and mobile penetration levels, which will offer potential new customers. How insurers respond to this paradigm shift – to a technology-based digital economy – through their own digital transformation, will determine the competitiveness of future insurers.

As the technological innovation happens across industries to create an optimal client experience, success-driven insurers can no longer remain locked into 20th-century product development capabilities. Insurers must knock through long-standing challenges and transform in line with the constantly evolving marketplace for producing their company standards in this highly competitive environment.The emergence of ICT-oriented platform companies and Insuretech will trigger digital transformation and competition within the market. Insurers and market players must redefine customers and markets to address with this competition. In this digital age, customers interact with insurers on their own and become active managers of their own risks and lifecycle assets – rather than taking in advice and services passively.

While utilizing customer data linked to relevant industries like healthcare and delivery services, insurers should provide new products such as on-demand products at reasonable prices and optimize the customer experience.Additionally, digital transformation in a company’s value chain and within the organization should be considered. This includes collaboration with platform companies or Insuretech firms to secure continuous customer channels and data utilization capabilities.

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