Investors are calling it the Uber of the insurance industry. New York-based Lemonade wants to change everything you know about insurance. Founders Daniel Schreiber and Shai Wininger are eager to disrupt the insurance space and are moving at lightning speed. The company was founded in 2015 and launched its IPO in 2020; they doubled the share prices on their first day of trading.
Traditional insurance companies have followed a value-based model on their ‘loss ratio’ or the ratio of claims paid by the carrier divided by the premiums they earned. Lemonade’s loss ratio and behavioural analytics strategy was the main factor that caught investors’ attention early on. Lemonade takes a flat 25 per cent fee from each premium as a processing fee. After it pays out claims, it donates any leftover money to charity. Operating on a flat fee negates the company’s incentive to deny claims, putting Lemonade and consumers on the same team. Their model seems to be a hot success. In 2020 alone, Lemonade donated more than $1.1 million. It’s interesting to note that Lemonade focuses on a young demographic, roughly 70 per cent of its current customers are under the age of 35. Approximately 90 per cent are first-time insurance buyers. To cater to this audience, they follow a no-paper, no-phone call policy where all transactions take place through an app, and all queries are answered by a chatbot.
It’s true that the insurance industry has been slow in its evolution but the pandemic has accelerated digital transformations. Along with it, it is changing the way insurers operate and deliver products that serve customers in a more personalised and transparent manner. Deloitte’s 2021 Insurance Outlook reports that 48 per cent of 200 insurance executives agreed the pandemic “showed how unprepared our business was to weather this economic storm”. The takeaway from the struggle in 2020 is evident.
In operations across insurance organisations, expense management efforts are focused on offsetting added costs incurred to respond to the outbreak and funding faster innovation to spur quicker recovery and fuel future growth.
The insurance market in the Middle East took a hit even before the pandemic. This is mainly because insurance premiums were failing to keep pace with the rising value of medical claims. Fitch Ratings warned of medical inflation at 8.2 per cent in 2019 in Saudi Arabia. In the UAE, the report warned of a struggle by insurers in generating underwriting profits due to tough competition and medical inflation, which was 12.2 per cent in 2019 — the fourth straight year it hit double digits. There is wide application for technology to solve some of these challenges in the multinationals present in the Middle East like Bupa, Cigna, Allianz, Aetna, Munich RE, Zurich, Metlife. Regional insurance companies like Saudi Arabia’s Walaa, Salama and Malath, and Al Rajihi Takaful, UAE’s Daman Health, Oman Insurance Co, Orient Insurance, Al Ain Al Ahlia, Emirates Insurance and Takaful Emarat, Egypt’s Misr Insurance, Kuwait’s Gulf Insurance Group and Al Ahleia Insurance, Oman’s National Life Insurance, Algeria’s CAAT and Bahrain’s Bahrain Kuwait Insurance – too must take note to keep changing customer behaviour at the centre of their transformation efforts. As a priority, companies will look to accelerate legacy modernisation of their core systems and cloud management. Typically, companies who see in-house tech as a challenge, look to acquire insurtech platforms and startups which have also been booming in the investor circuit of late.
According to a recent study by Cognizant, the Middle East insurance market is dealing with three pressing demands from customers; fast and personalised products, transformation in the renewal process and a simplified claim process.
Here is how technology is driving value across business functions;
Product development and underwriting
The traditional model of one-size-fits-all is being overthrown across industries and insurance is no different. Companies are now armed with more granular data about customers and market trends. Predictive analytics in insurance modelling empowers actuaries to build products that are better suited to dynamic business and market conditions while considering risk patterns.
Using data, companies are able to project costs, claims, expenses, risk and profit into the future to check viability of a product. Insurers are also using predictive analytics algorithms to offer dynamic pricing based on customer history and requirements.
ICICI Lombard offers a Pay-As-You-Use policy which uses telematics installed in the car to measure your car’s health, information which then influences premium costs. Meanwhile, HDFC Ergo’s policy offers dynamic premiums based on usage which is measured in kilometres covered per year. Dubai-based Beema Insurance openly shames the one-size-fits-all cover and encourages customers to ‘trust the math’. Beema’s pay-per-kilometer plan sets the final price based on the user’s mileage; the less you drive, the more cashback on your initial premium at the end of the year. Beema is part of Next, an accelerator program of ENOC Group and their insurance policies are underwritten by AXA.
Automation allows insurers to cut underwriting time and costs to increase profitability. China’s Ping An Life Insurance Company has an advanced risk model on its smart underwriting platform that served over 18 million policyholders in 2019 and approved 96 per cent of policies through automated underwriting, cutting average turnaround time from 3.8 days of manual underwriting to 10 minutes.
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Data across the customer journey
Millennial consumer behaviour is driving the emergence of digital-first and app-based services for banking, loans, and investment. Millennials may not seem like they are big on savings right now, but as the future audience for personal and commercial banking, it’s worth being prepared to serve this cohort. Mobile-first businesses are simply the new normal. Banking has shown visible benefits as an early adopter cutting costs, adding convenience and elevating CX. In fact, KPMG’s 2019 report called customer experience the new KPI for the insurance industry.
Market leaders are more than aware of the importance of a digital-first strategy to improve CX consistently across channels. It’s the trickle-down of responsibilities that need rapid execution. According to a study commissioned by Axiom, insurance market leaders noted their 18-month objectives to include enhancing both agent and consumer experience, creating an online presence, enabling cross-sell opportunities through omnichannel and implementing tools for data gathering and analysis. Add in operational automation for increased efficiency and the insurance sector will enjoy additional revenue through cost savings.
But simply automating repetitive tasks is not enough. Digital interfaces drive data collection which can be reinvested to offer customers more personalised journeys. Insurers would do well to integrate emerging tech like AI, machine learning, behavioural intelligence and predictive analytics when pursuing potential customers to optimise and showcase more relevant insurance products.
But while digital is a powerful differentiator, companies should be careful about growing too fast as it can lead to newer challenges. Organisations need to master data management and data engineering tasks before they can capitalise on emerging technologies. According to an EY report, there is an inherent tension between maximising insights and opportunities that can be generated from personal data and protecting individual privacy. Companies must find the fine balance between data and privacy. To maintain trust, insurers must communicate clearly to customers about what data they collect and how they plan to use it.
Research shows that privacy is a deeply personal concept that is significantly dependent on context. Regulation, by contrast, often treats privacy as a cognitive issue, regarding consumers as rational actors deciding when and how to barter access to their information. Businesses must make trade-offs and recognise that data can be a liability as well as an asset, given the costs of protecting data and the legal, reputational and financial risks associated with failing to protect it.
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A clear-cut claims process
It’s the end of paper trails. The pandemic-induced lockdown led to insurance companies and their teams adapting to a remote working set-up which acted as a catalyst to accelerating digitisation and cloud management systems. Employees at insurance firms scan paper documents into PDFs and upload them to the document digitisation software. The machine vision algorithm then runs through the PDFs and ‘read’ what they say, populating fields on a digital version of the document. It saves time, man hours and reduces lag.
Insurers are also working with tech companies to ease the burden of filing a claim and providing proof for the customer as well. Take the example of Tractable, a London-based AI company that works with insurers like Mitsui Sumitomo Insurance Company and Ageas to speed up accurate assessments of damage and validate claims in automobile policies. It works to generate instant estimates at first notice of loss (FNOL) using customer photos, and provides an estimate of the appropriate payout. Using software that compares photographs from a wide database, it can identify and prioritise urgent damage. Overall, it helps the agent to make smarter payout decisions and reduces cycle timelines.
Cape Analytics offers a similar product to insurers to help underwrite property claims using satellite-based machine vision.
There are plenty of companies working to help insurers forward in their digital transformation. Take the example of Dubai-based Felix run by insurance veteran Taline Vahanian and Edmond Husseini. Felix offers an all-inclusive broker interface, automation tech for labour intensive tasks and a quoting engine that creates instant quotes for clients. It helps agents cut down the time it takes to prepare quotes by up to 70 per cent. Another Dubai-based company Sehteq operates in the healthtech space and gives its users the chance to tailor their own insurance plans through an AI-driven platform. Sehteq integrates machine learning to automate post-sales service and claims management. Powered by an innovative evidence-based rules engine, they are able to automate up to 100 per cent of the back office work saving innumerable hours and expenses in the process. The 2018 startup has secured $3 million in venture debt led by 971 Capital and signed Dr. Hazem Al Madi As Managing Director as they expand operations in MENA.
Conclusion
The pandemic has restructured priorities for consumers. They are more concerned about financial health as a quick second to healthcare and driven to take actions towards those intentions. Insurers have an opportunity to speak to a qualified audience seeking solutions but must tailor their offerings and service to deliver products that serve these new consumer behaviours. Technology can help plug the gap. In operations across insurance organisations, technology is being leveraged to spur quicker recovery, and fuel future growth.
