Technological innovation is deeply changing the economic and social fabric at all levels, making baseline scenarios changeable and more liquid and asking companies a dynamic and proactive response in order to successfully compete on a global scale.
A great diffusion of technological instruments, able to simulate human behaviours, is also expected in the near future; this will significantly affect organisational and business models.
This will lead to a radical innovation in the ways interaction is carried out with all stakeholders in supply chains, which are becoming more and more diversified and characterised by automatised and shared processes. The competitive scenario is changing, due to the entrance of new operators or operators coming from different sectors into the various markets, thanks to the common digital base. Digital technology deeply impacts insurersā existing business models. This is clearly a challenge, where the key factor is the speed at which insurers will be able to take advantage of the technological innovation , without suffering from its effects.
The growth in the digitalisation process of the insurance sector can be considered as the result of many concurrent factors, which are attributable to the technological development on the one side, both in terms of size and quality of Internet infrastructures and connection opportunities and in terms of usable applications, and attributable, on the other side, to the change in customersā attitude, which sees the entrance of digital nativesā generation and an increasing willingness to use virtual channels, especially after having tried them for services other than the insurance service. It is also to note that conjunctural factors have been reducing profits and driving insurers to search for cost reductions, reaching also for digitised processes, be they productive or distributive.
The increasing digitisation of insurance industry raises issues about strategy, risk, market and organisational structure, workforce, and cultureāissues that, in the final analysis, require the full boardās careful attention. Like the technology itself, insurersā understanding of the impact of digitisation is evolving rapidly and is destined to deeply modify the whole financial and insurance ecosystem, impacting all points along the insurance value chain, from underwriting and risk management to distribution and claims, and consequently reshaping the competitive landscape and customer relationship . Information Technology devices are essential not only in the productive and distributive processes, but also for a more efficient and effective setting of the decision-making process and organisational structure.
Many technological innovations can affect insurance business models, which can be used both in the back end and in the front end. We are here referring to the blockchain technology , to the artificial intelligence, to robo -advisors and other systems of record for the core insurance business and its support. Digitisation helps insurance companies in designing new products and in calculating the prices of new and existing products. Digital technology changes the quality and the ways data are analysed, on the basis of which the risk assessment is carried out, thus allowing insurers to better profile the customer in order to determine the risk pool.
Within the scope of distribution, however, many new technologies are evolving, offering new options for consumer interaction. Technological innovations, which are applied in the insurance delivery process, permit insurers to interface with customers and to offer a rich multichannel, multidevice digital customer experience.
Digital technology , breaking down entrance barriers, is encouraging new entrants into the insurance sector. Notably, in recent years there has been a sharp pick-up of high-tech start-up firmsāor InsurTech āparticularly in personal lines and distribution. The InsurTech development should represent a threat for traditional companies, from Big Data analysis to digital devices, from personal interactivity to home automation systems development. However, a drastic disintermediation of insurance companies, which would imply a strong innovation of business models from incumbents , does not seem to show up in the shortāmedium term. The majority of digital competitors, at least at the moment, is not in a disruptive position, and is rather in an enabler position: thanks to their technological competences, they can facilitate and improve the efficiency of the traditional insurance business. Incumbent insurers and InsurTech start-ups have much to gain from their collaboration. InsurTech start-ups and incumbent insurers have complementary strengths, with InsurTech offering better value for money and timely and efficient service, and insurers offering superior security, brand identity, and support for personal interaction.
The trend to digitisation is most notable on the services side of distribution. The new digitised technologies and the new habits of customers bring about major changes in the ways insurance services are offered and used by customers. Digital platforms and systems create direct channels with the user, increasingly reducing the need for intermediaries like agents and brokers .
If, on the one side, the new technologies reduce the personal contact with the customer, on the other side they permit, especially for less complex products, to increase the frequency of contacts with the latter, thus offering the possibility to increase the customerās loyalty.
Insurance companies are accelerating the shift to a radically different delivery model to make their services more available to customers, attributing an increasingly important role to technology in the majority of interactions. This will have implications for insurersā business models, in the way they interact with their customers and the nature of the products and services they provide.
Surveys highlight that in many countries the traditional intermediaries still represent the main distribution channel of insurance services. This happens especially for services with a higher added value and a higher level of complexity, for which the personal contact or the advice of agents or brokers are essential. In these areas, technology is being applied to improve the efficiency and effectiveness of agents and brokers . However, many consumers want a seamless shopping experience anytime, anywhere. They are more self-directed in their insurance decisions and want to interact with their agent across a full range of channels: in person, through mobile devices, by phone, Internet, and video conferencing, when researching and buying insurance. To this end, the development of robo-advisors , which use artificial intelligence to formulate automated advice and recommendations, could facilitate a further e-commerce penetration into insurance, and also reduce operational costs.
Traditional players will also have to reach for the digital interaction, if they want to maintain a relationship with more evolved customers, without overlooking, in this respect, the expectations of the so-called millennials , who represent future customers. These consumers represent the first generation in history that are strongly familiar with digital technology and spontaneously know its communication codes. Their experiences with the ever-present online and app-based consumer environment influence their expectations for purchasing insurance. This is a fundamental change in the nature of insurerācustomer interactions.
In this respect, it is necessary to point out that the increasing automation of innovative distributive channels, if not used in an interactive way, contributes to a progressive depersonalisation of the insurer/consumer relationship. It is also important to highlight that certain circumstances, such as the increasing competition among insurance institutions, as well as the economic-cultural evolution of the customers, contribute to increase the mobility of the latter, thus also reducing the intensity of the insurance relationship. A clear example is represented by price comparison websites, which provide consumers with more information on products and costs, often selling a product directly, with no agent or broker involvement. This increases choice opportunities and the likelihood of switching from one offer to another, thus reducing the customerās loyalty, as convenience judgments are increasingly expressed on the basis of technical-economic reasons, and less on the basis of emotional factors.
The transformation of consumption patterns towards the digital economy leads to the need to modify the traditional ways insurance services are provided, as well as the consumer engagement model.
Insurers who fail to meaningfully differentiate their offerings will suffer from a lack of consumerābuyer engagement, give up business to competitors, and leave themselves vulnerable to disruptive entrants. Slow-to-adapt incumbents who insist on viewing their products as commodities, competing only on price, will not be able to succeed against those able to adopt a buyer-driven approach, learning how to attract and retain customers through brand differentiation and customer-centric capabilities.
It is therefore necessary to seek a continuous improvement in the communicational approach with the reference market in order to try to renew and innovate, where it is possible, the customer relationship to increase customer loyalty and retention.
The book is divided into six chapters including the Introduction. Chapter 2 aims to analyse, on a prospective basis, the most relevant issues relating to the changes, the opportunities, and the challenges posed to insurance managements by the use of new technologies, with a particular focus on the most significant aspects of the distribution of insurance products also from the regulatory point of view, in the light of the imminent entry into force of Insurance Distribution Directive (Directive 2016/97/EU) which, in an innovative way, sets up Product Oversight and Governance arrangements and product governance obligations since the moment of the product design.
Chapter 3 highlights the disruptive phenomenon of the diffusion of the InsurTech start -ups , trying to focus on the genesis and the peculiar characteristics; it ends focusing on which should be the strategic response levers of the incumbent carriers to the digital transformation perspective of the entire business model.
Chapter 4, after analysing the peculiar characteristics of the delivery system of insurance services, focuses on the study of the distribution channels of a technological nature that have a greater degree of innovation in the insurance sector, deepening risks and opportunities.
Chapter 5, in the light of the depersonalisation of the customer relationship due to the spread of the technology, focuses on the importance of direct marketing and effective social media strategy to improve the relationship between company, channels, and customers.
Chapter 6 reports the results from a survey conducted on a sample of insurance companies located in Europe and USA to test the main features of their websites distribution, highlighting their di...