Poised for Growth: Accelerating the Digital Agenda for Insurers
Now more than ever, insurance companies are keen to leverage digital opportunities to boost efficiency and competitiveness, improve the customer experience and harness data more effectively. These are not discrete ambitions, but a way to support their evolving strategic priorities as they anticipate and respond to wider macro trends, industry disruption and shifts in customer expectations. Banks must step up to meet their insurance clients’ changing demands, and accelerated investment in their digital initiatives.
Elias M Xilas,
EMEA Insurance Head, Treasury and Trade Solutions, Citi
The Industry Context
Insurance companies are being challenged to achieve sustainable growth by transforming business models and leveraging emerging technologies to mitigate risks and respond to changing customer demand. At the same time, wider megatrends pose strategic challenges and opportunities (box 1).
In conjunction with these megatrends a number of other industry and digital economy factors are driving new strategies and priorities and leading to the digital transformation of the insurance industry. These include the ever-increasing pressure on margins; the growth of the digital economy that is leading to a boom in ecommerce and changing customer expectations; new competition from digital natives and bigger technology companies; and emerging technologies that can help traditional insurance companies harness the power of Big Data.
Traditionally the insurance industry has been protected by strong entry barriers such as stringent regulations, hefty capital requirements, underwriting expertise and large agent distribution networks. However, emerging digital economy forces are eroding these barriers, giving rise to new entrants and challenging the incumbents to respond. Enabled by digital technology and opportunities for real-time exchange of data and transactions, insurance companies are exploring opportunities to complement, or even transform their value proposition, as well as expanding into new markets and segments. They are refining their digital strategies to reduce costs, increase efficiency and agility, and respond to changing customer, industry and regulator demands through consumer e-commerce models and data-driven customer interactions. And they are introducing innovative new products such as micro-insurance, usage-based or on-demand policies, insurance-as-a-service, peer-to-peer and new solutions to support the fast-growing sharing economy.
COVID-19 accelerated these trends, and reinforced the digital imperative. While visibility and control over cash became more important than ever. The need for more agile, consumer-friendly digital collection models, and rapid reconciliation and allocation of incoming flows also became apparent. In addition, traditional claims payment methods, such as cheques, were no longer viable, with many insurance companies fast-tracking plans for digital claims processing. Meanwhile, in a heightened risk environment, with elevated cybersecurity and fraud threats at a time when business continuity plans were in place, automated processes and controls, digital signatures and streamlined connectivity became essential.
The urgent need for the insurance industry to embrace e-commerce models has intensified. Technology helps insurers find and acquire customers, offer instant quotes, educate customers on options, collect payments, and process claims quickly. E-Commerce can also help incumbents meet the growing expectations of their customer, while mobile technology can deliver access to new customers. Amongst the key e-commerce models emerging in the insurance industry are:
- Direct B2C Insurance: Customers are increasingly purchasing insurance directly online at the Insurer’s website without a traditional broker/agent
- Insurance marketplaces: Digital brokers can provide links directly to a variety of insurance companies. In addition, some P2P Insurance marketplaces are emerging
- Platforms with Complementary / Plug & Play insurance add-ons: For example when you buy flights on travel websites, they can offer customers travel insurance as an add-on
Insurers must also begin to look at how they can leverage the vast amount of data that is available to them. Leveraging this data will allow insurers to develop deeper and more personalised relationships with their customers. Already this has opened up opportunities to a number of Insur-Tech start-ups to create business models around personalised insurance products that are contextual, usage based and tied to the behaviour of customers.
Box 1. Megatrends affecting the insurance industry
- Challenges to globalisation. The rise of nationalism and protectionism can inhibit access to new markets, and create higher barriers to doing business in existing markets.
- An outward-looking China. China’s expanding influence is creating new competition in the insurance industry. China is projected to be the largest insurance market globally this decade.
- Stressed monetary and fiscal policy. Budgetary pressures, modest economic growth and high debt have been massively exacerbated by COVID-19. An extended period of low interest rates is a constraint on monetary policy, and has severely impacted the profitability of the insurance industry, driving the need to adopt new technologies to reduce costs.
- Climate change. The transformation of production, transport, energy and agriculture creates new opportunities for insurers; however, it is also estimated that the average global annual cost of insurance claims from natural disasters has increased eight-fold since 1970, a trend that is likely to continue.
- Infectious disease. The Covid-19 pandemic has highlighted the continued threat of major social and economic disruption.
- Cybersecurity risks. Ongoing, and rapidly evolving, cyberthreats to nations, institutions, businesses and individuals create enormous and fast-changing challenges for insurance
Driving success through ecosystems
Major changes are taking place across economies, societies, and industries. As it relates to industries and businesses, new business models are emerging, incumbents are being disrupted and infrastructure is being virtualized. And new ecosystems are emerging.
With new business models, ecosystems and new players emerging, competition has never been greater. To stay relevant in this environment it is clear that insurers need to accelerate their digital transformation by embracing technological developments and finding the right strategic partnerships in new emerging digital ecosystems. Insurer should explore opportunities to complement, or even transform their value proposition through integrated ecosystems that extend from end-to-end across a customer journey.
This shift has the potential to be transformational for insurance companies that can develop an ecosystem mindset, accelerate innovation and harness data to deliver an excellent customer experience. Insurers can forge partnerships both within and outside the industry to extend their reach to new client segments, improve the customer experience and create customer loyalty. By embedding insurance claims into the healthcare value chain, for example, people get better treatment more quickly, whilst streamlining and accelerating cash flows to those providing their care. In transportation, insurance has an important role to play in facilitating new and shared mobility models.
Meeting the digital imperative
With long-standing relationships and expertise in the insurance space, a large global footprint and expanding solution set, Citi is well-positioned to support our insurance clients’ strategic and operational priorities, augmented with active partnerships and collaborations with innovative Insur-Techs. Citi’s insurance-specific strategy is aimed at meeting our clients growing digital challenge and longer-term strategic objectives. We have digitised claims payments by replacing paper processes, supporting instant, card and alternative payment methods, and optimised connectivity. We have streamlined premium receipts through Citi® Smart Match AI enhanced reconciliation and cash application, leveraging our virtual accounts, and rolling out our Spring by Citi® card acquiring capabilities. And we continue to help insurance companies optimise liquidity with cash visibility and concentration whilst exploring Insur-Tech collaboration across Tech Enabling, Digital Brokers and Full Stack Insurers. (figure 2)
Figure 2. Meeting changing needs in the insurance industry
Life, Disability and LT Care, Annuities
Auto & Home, Travel, Specialty, Commercial
Medical, Dental, Expat
Brokerage, Risk ,HR, Beneﬁts, Consulting
Reinsurance, Captive Insurance
New technology and the evolving digital economy present big opportunities for the insurance industry. Insurance companies can re-imagine existing products and develop new insurance solutions while venturing into untapped markets and addressing unmet demands. Driven by ongoing Digital Economy factors, the insurance industry is now facing its Digital Tipping Point.
While the industry is moving quickly, every insurance company is pursuing a distinct strategy depending on their digital starting point, key markets, product differentiation and business culture. Citi’s Digital Policy, Strategy and Advisory practice draws on our global institutional experience, content and intellectual capital and our wide range of banking solutions to guide clients on leveraging new technologies and business models to achieve sustainable growth and productivity, and mitigate the risk of disruption. This involves working closely with our clients to develop a digital roadmap with frameworks, diagnostic tools, case studies and data analytics helping identify opportunities for digitization.