Staying relevant – how can the insurance industry adapt to the 21st century?

The insurance sector has changed quite a bit over the past years; however, it is currently undertaking its biggest ever transformation – the shift towards a fully personalised approach towards the consumers, and usage-based insurance (UBI) as a prominent example of that shift.

Insurance has a reputation of being slow to change. Being burdened by legacy technology, the sector has lagged behind many other industries. InsurTech has helped change this by enabling insurers to transform the way they operate. Carriers understood that the path for their future growth is in adopting new technologies that will ensure they operate in a faster, dynamic and personalised manner. However, challenged by outdated tech and complex internal operations, insurers are limited in their ability to adapt to market changes and varying customer needs at the pace of the market.  In recent years, InsurTechs have built solutions that legacy insurers can seamlessly integrate to offer their own digital services driving rating, pricing and personalisation in real time.

This has all led to what Udi Ziv, CEO at Earnix, sees as the greatest shift in the industry. “The insurance industry is facing what I would say is the biggest transformation ever,” Ziv said. “The industry is looking to address the problem of how they can offer fully personalised and dynamic products to meet their customers’ expectations, regardless of whether the insurance customers are consumers or businesses. At the same time, they need to combat the threat of new players that are coming up with different ways of delivering insurance.”

The insurance industry is taking a page from Amazon and Netflix and leaving the traditional way of providing insurance behind. As a result, consumers have started to question the way they interact with their insurance provider and the one-size-fits-all offers they are given. Over 70% of UK insurance customers feel their customer experience of firms has stood still for five years, according to a recent survey from FintechOS. Ziv explained that people now want insurers to personalise their offers, rather than relying on a generic approach. “While the concept of UBI has been around for a long time ago, it was mainly used for young drivers and the riskier drivers. But during the pandemic there was high demand and almost a revolution of consumers basically saying – enough is enough.”

The Covid-19 pandemic, and its accompanying lockdowns, meant most people stayed at home. Despite their cars being stationary in the garage, they were still paying the same insurance premiums. Many started to question why they had to pay so much when their car was in no risk of damage. “As a carrier, if you’re not providing usage-based insurance to your customers, you will lose these customers,” Ziv said.

Once the pandemic is no longer an issue and Covid is nothing but a memory, consumers won’t suddenly want to go back to the old way of insurance. “UBI is here to stay,” Ziv explained.

While the move towards usage-based insurance begins with the desire to pay less, if the carrier can offer personalised products that match the consumer’s exact needs and in real time, they will be willing to pay a premium for the service. The full potential of UBI is not simply about getting lower premiums, the “win-win” for carriers and consumers is using the technology to provide personalised insurance, proactively engaging with the consumer and offering what they need, when they need it.

Finding the “magic pill”

Carriers have started to offer UBI insurance to their customers out of necessity. But there is a risk some are still missing the bigger picture. Ziv explained that firms should not just be implementing the services just so they can say they do. This requires not simply giving customers a cheaper policy because they drive less but looking holistically at the relationship with the consumer. This could include exploring personalised bundles and add-ons, such as roadside assistance coverage, or even simply informing a policyholder if they are about to exceed the mileage of their package.

The demand from consumers has changed rapidly and insurers are at the point of playing catch-up to stay relevant. This leaves them at a disadvantage. They need to quickly launch UBI solutions that can intelligently analyse vast troves of data, though implementing an entirely new full-stack piece of UBI infrastructure is costly and will take a long time to get in place.

As a result, companies are looking for a “magic pill that would enable their current infrastructure to fully operationalise UBI to the point where they can provide sophisticated and personalised offers to each individual,” Ziv said. Unfortunately, many insurers are in disbelief that this type of solution is possible. “We’re seeing it with customers who are saying there is no way this can be done on top of our current infrastructure in a few months.”

Earnix, which reached a $1bn valuation earlier in 2021, is that magic pill solution. Its platform enables an insurer to implement a single end-to-end solution that boasts the full spectrum of all the different disciplines needed to fully operationalise data and personalise offers, with UBI as an example. It’s cloud-based products function across product personalisation, telematics, pricing, and rating while using AI models, all in a single end-to-end solution. At the helm of this are advanced, AI-powered analytics providing accurate risk assessments and an automated real-time rating engine providing prices instantly, speeding up time to market.

“Fully operationalising UBI means taking the full journey within the same single solution. Otherwise, a carrier will have to integrate different products from different vendors, each doing one of these things [telematics, pricing, personalisation, and engagement], which is a nightmare. Doing it separately will take six months to market versus a unified solution which can take a couple of days to market”, said Ziv.

As part of its efforts to ensure firms can implement a holistic UBI solution, Earnix acquired the assets of an AI-powered telematics provider – Driveway Software. The deal enables Earnix clients to make use of intelligent telematics to improve risk modelling, pricing, and rating.

The future is UBI

The market for UBI is growing rapidly. The market is expected to grow at a CAGR of 29% to be valued at around $190bn by 2026, according to research from Acumen Research and Consulting. Ziv holds the same sentiment, simply stating, “UBI is the future of insurance.”

Auto insurance has been the main segment to capitalise on the benefits of UBI, but as the technology becomes more widespread, so will its use cases in other areas of insurance. For example, home and health insurance are prime targets for the technology. Ziv has seen more insurers leverage data from a connected health monitoring device, such as a FitBit, which is used to impact prices of health insurance – the healthier lifestyle they have, the better the premium.

What is special about UBI is that it helps insurers become proactive. By connecting with a health device, the insurer could inform a policyholder of a health issue they are not aware of or how their current lifestyle is increasing the probability of certain conditions.

UBI is only in its beginning stages of implementation and will continue to get bigger. Ziv described the technology as bringing the insurance space into the 21st century. As traditional insurance firms look to different ways to respond to the rise of new InsurTechs players, they should see this development as a big opportunity. Those who successfully adapt can continue to stay relevant for the next century.

Ziv concluded, “Some people ask me, is this Doomsday for carriers? I say the opposite. I think it’s an amazing opportunity when done right. This is actually the insurers’ ticket to a very successful future.”

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