The digital revolution in insurance

In recent years, the insurance market has significantly evolved. We have seen new and innovative insurance products developed covering risk relating to new technologies such as drones, connected cars, smart home solutions, and other AI based products. Meanwhile, technological developments have led to modification of existing insurance processes and improved efficiency, applying various digital tools such as the use of APIs and machine learning to improve efficiency. Rachel Hillier and Andrew Mazeika explore.

Digitisation takes a whole raft of different forms, including application of chatbots, the online reporting of claims and early fraud, litigation and total loss indicators, online scheduling of workshop and adjuster appointments, remote damage assessment, and improved transparency on claim status through centralised communication.

The need for these developments will come as no surprise given the relentless customer value-driven approach adopted by insurers. Insurers are increasingly looking to Insurtechs to meet the desire of customers for a faster, more intuitive, and more transparent process throughout the whole customer journey.

In the typical insurance customer journey, two areas are of particular importance in respect of customer satisfaction, namely policy inception and the claims process.

The policy inception stage represents an important element of the overall customer experience and harbours a number of potential risks for insurers. Complex coverage details that include specific exceptions, and a journey that affords limited opportunities to communicate with insurers, create barriers for customers and impediments to the smooth flowing of the process. A smooth buying process is crucial to customer satisfaction. Digital features such as online chat functions have helped remove these barriers and streamline the process to the benefit of customers. The extent to which such innovations can be used to replace traditional methods is limited by regulations, which require insurers to provide customers an Insurance Product Information Document (IPID).

The IPID is designed to assist customers understand what they are buying by requiring insurers to set out key features of the policy. The need for an IPID has hindered full automation of the process due to the granular details which must be included within the document. Each of these elements may be difficult to sufficiently communicate through the medium of an automated system, particularly where the consumer has questions or does not fully understand the policy terms.

There is also a requirement under ICOBS 6.1.6B for firms to ensure that the level of appropriate information provided to a customer takes account of the complexity of the policy and the type of customer. It would be very difficult to show that this rule in particular has been complied with where a single generic approach has been coded into a chat bot to deal with all customers of a specific product. In spite of this challenge, some insurers such as Lemonade are successfully navigating these rules whilst employing AI.

The more significant of the two processes is the claims process, which represents the most important interaction of any insurer with its customers. The claims process has historically been a point of frustration for many consumers, who often experience significant delays and excessive ‘red tape’. As part of the push for end-to-end digitisation of the insurance offering, insurers have focused on the claims process in order to tackle these challenges, developing numerous features to enhance the process, such as Cover Genius’ claims assessment platform and Claim Technology’s automated claims services.

The development of intuitive online tools to shift transactions from claims handlers to intermediaries or directly to the customer are one such feature. Examples include online portals for registering first notification of loss, online self-scheduling tools for claims adjuster appointments, online chat with claims handlers, and easy-to-navigate FAQs (such as those published by Hiscox and AXA). Given the availability of claims handlers and agents at any point in the process, customers are given the best of both worlds, through rapid online transactions and direct human interaction where desired.

Automating systems such as receipt and invoice verification as well as implementing systems for automatic reimbursement as soon as the receipts and invoices have been verified is another such feature. These measures have the effect of saving time and reducing the manpower needed for the claims process. Ageas is one of the insurers leading the charge in this field, with an AI system implementing end-to-end assessment and estimation of vehicle damage.

Digital claims status tracking empowers customers with the ability to keep abreast of where their claims are within the process and monitors developments without delay or obstacles of more manual processes, such as calling/writing to insurers to request an update. This facilitates customers’ desire for a transparent process.

The application of processes discussed above help improve fraud detection, reduce leakage and third-party exposure, reduce claims handling expenses and supplier cost. Customers have seen improvements in customer experience, improvements to efficiency, claim handling accuracy, a reduction of the time and overall cost of the processes.

The pace and impact of digital developments is only increasing, with promising new technologies on the horizon, which are likely to yield ever more efficient and smooth processes and further reduce the cost of premiums for policyholders.

Despite the promise of new technologies, challenges are visible on the road ahead. Within the claims process, the novel digital solutions on the market address different aspects of the process, but the market is lacking a single unified claims solution incorporating all these elements together.

Future Considerations

Looking ahead, challenges are also prevalent in respect of newer insurance types, such as cyber insurance, which suffers where there is a lack of historical data, a lack of ability to predict the future of cyber risk, the possibility of large cascading loss, uncertainties among market participants about what is specifically covered under such policies and legal battles over fundamental issues. These challenges are heightened by constantly evolving criminal efforts to overcome cyber protections, and the difficulty for underwriters to appropriately define the policy conditions which should be included within policies.