17 March 2021

How Can Legacy Providers Compete With Insurtech Startups for Digital-First Consumers?

Customers’ expectations about shopping have changed. With the rise of online retailers, customers have become accustomed to researching, comparing and buying essential products and services online. Today, customers expect P&C insurers to make information and coverage available digitally.

Insurance companies are responding to this change in customer expectations, but slowly. An analysis by McKinsey, performed in 2020, found that 20 percent of top U.S. insurers have invested in digital business, write Simon Kaesler and a research team at McKinsey. Meanwhile, insurtech companies are stepping in to provide the digital experience customers want.

Staying ahead of insurtechs doesn’t require incumbents to beat them at their own game. Rather, it requires a clear understanding of customers’ digital expectations along with attention to relationship-building and the cultivation of digital environments.

Understand What Drives Customers to Go Digital

“Traditional insurers that want to contend with digital players must be keenly aware of how the market is changing—and how their competitors are responding,” write Kaesler, et. al.

The COVID-19 pandemic has resulted in many customers adopting digital-first approaches to acquiring insurance and other needed products and services. “Many customers who did not previously interact digitally have now gone online for shopping and other activities, making it easier for insurers to drive digital adoption,” write Bain & Company’s Mário Conde, Andrew Schwedel and Tanja Brettel.

In reviewing the digital efforts of several leading insurance companies, Conde, Schwedel and Brettel found that the most successful insurance companies are already investing in digital assets with the goal of prioritizing customer ease of use.

“For instance, [leading insurers] are 1.7 times more likely than other insurance companies to have a cutting-edge website and customer service portal. They are 2.8 times more likely to offer instant online approval or rejection of an application for auto insurance,” they explain. Those insurers also use more digital channels, on average, including broader adoption of social media, mobile apps and video.

Insurers adopting these digital tools to reach customers are doing so because they’re aware that customers increasingly expect a digital-first or digital-only option for buying insurance.

“Customers are seeking quick, simple, customized and affordable coverage, and they don’t want to compromise for a less-than-exceptional customer experience,” writes Guy Goldstein, CEO at Next Insurance.

Implementing digital tools simply for the sake of having them, however, may not attract customers. In fact, it may have the opposite effect. That’s because customers aren’t interested in technology for its own sake. Rather, they want tools that make the process of researching insurance and purchasing policies easier for them, says Sean Ringsted, chief digital officer at Chubb.

Adopting technology simply to have it isn’t an effective solution for insurance companies, either. Rather, Ringsted recommends that insurers set clear goals, then choose the technologies that will help them achieve those goals.

By setting goals that focus on meeting customer needs and expectations, established property and casualty insurers can help bridge the gap between their offerings and customers’ desire to communicate seamlessly via digital channels.

Build Partnerships

Insurance companies have built decades or even centuries of experience in the business of insurance. To remain at the top of their industries, these established insurers must continue to focus on insurance. As tempting as it may be to launch new tech ventures, technology is not insurers’ primary area of expertise, nor should it become their primary focus.

Rather, a focus on building partnerships can help insurance companies focus their efforts. By understanding customers’ needs and expectations, insurers can embrace the necessary partnerships to meet customers where they are, building retention and loyalty.

Building Insurtech Partnerships

“Partnerships between InsurTechs and incumbents are a growing trend, and for a good reason — it is often a win-win proposition,” writes Tal Daskal, CEO and cofounder at enterprise-grade no-code development platform EasySend. Incumbent insurers bring existing customer relationships and related data to the table, while insurtechs offer cutting-edge technological knowledge and solutions.

Startups that focus on digital-first approaches from the beginning have several advantages over incumbent institutions, notes Sergiu Negut, cofounder and EVP at automated financial technology platform Fintech OS. “They are very good at the customer experience and this is because they have no technical debt,” says Negut. Insurtechs aren’t required to juggle legacy systems, and preexisting information silos don’t force them to adapt their approach to customers or products.

Established P&C insurers and insurtech startups are embracing partnerships because both sides have realized that neither one can transform the insurance industry entirely on their own, writes Dan Epstein, CEO at ReSource Pro, an insurance operational solutions and services provider. Rather, the combination of insurance experience and technological innovation is required in order to bring the entire insurance industry into a digital-first world.

During the next decade, the insurance industry could see $600 billion in revenue growth and a 25 to 35 percent improvement in combined operating ratios, writes Chris Maiato, principal at EY Bermuda. To reach these goals, insurance companies will need to build “strategic partnerships creating tailored offerings and unique go-to-market programs,” Maiato notes.

Enhancing Agent and Broker Relationships

Partnerships with insurtechs can help incumbent insurers improve their digitization goals. These partnerships are not, however, the only one insurers will need to cultivate in order to offer a consistent value proposition and ease of service to customers.

Improving brokers’ and agents’ ability to reach out digitally is essential as well. Improved agent and broker connectivity is particularly important for commercial insurers, who do much of their connecting to customers via agents and brokers, write Graham Boffey and fellow contributors at KPMG.

An outstanding digital experience for customers will struggle to provide maximum value to either the customer or the insurer if other methods of contact, like working with an agent, are still confusing, complicated or slow. “The customer experience must be consistent with the insurer’s value proposition all the way through, no matter how it is accessed,” write Boffey and the KPMG team.

By building the right relationships with insurtechs, agents and brokers, insurance companies can offer customers the digital experience they expect.

Leverage Connectivity

Customers’ expectations about buying insurance in a digital environment are shaped by the evolution of digital tools and applications that make research and buying simpler in other realms, like retail.

Yet customer-focused technology, like smartphones, chatbots and mobile apps, are not the only digital tools that evolve quickly. Recently-developed digital tools are also available to help insurance companies build digital ecosystems. These tools can also help insurers meet customers’ expectations when it comes to a digital-first or digital-only relationship.

Some digital tools make it easier for insurance companies to interact with customers and with partners without having to overhaul their existing computer systems. “With the use of software such as front-end layers or API gateways, for example, fast iterations can be implemented at all direct interfaces to customers without having to intervene in the existing IT,” writes Sascha Langfus at Avenga.

Microservices offer another way to build tools that attract digital-first customers. Microservices help insurers adapt various web-based applications to meet their own needs or even build new applications that can operate easily within the same digital environment, writes Ayan Sarkar, vice president and global head of insurance at Go-To-Market. Like APIs, microservices improve communication between various computer systems, offering a seamless experience for customers even if the legacy systems collecting, analyzing and storing data remain somewhat separate from one another.

One way insurance companies are addressing increased competition from insurtechs is to build their own digital ecosystems. When customers connect to their insurance company via the digital ecosystem, they also get access to related businesses that may be highly relevant to them in that moment.

For example, a customer seeking homeowners insurance may also be able to connect to home inspectors, alarm installers and other related professionals through their homeowners insurance company’s digital ecosystem.

Building ecosystems allows insurance companies to diversify their own business and to offer a more comprehensive, easier-to-use experience for customers. Yet “it also makes their business a lot more complex,” writes Michael Douglas at applications platform OutSystems. Attention to seamless connectivity for customers, agents, brokers and ecosystem partners is essential to ecosystem success.

As digital-first approaches continue to become the norm, insurance companies will feel increasing pressure to improve the digital experience they offer customers. “Insurers have no choice but to upgrade the digital experience on four counts: cull the bad and avoidable volume, put the customer in control through better self-service tools, reduce unit costs and digitize sales,” write Henrik Naujoks and fellow partners at Bain & Company.

“The new normal is digital access,” Sarkar notes. By understanding customers’ expectations, insurance companies can set goals to meet those expectations and marshal their resources accordingly.

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