13Average liquid assets of the participants in the underlying research are about €60,000 which is ca. 150% of German average; participants in the middle column of the table own approx. €71,000, right‐hand column on average €267,000 [15, p. 218 f.]; the European average of liquid assets is estimated by the authors at approx. €50,000.
14Additional research shows that those who move banks or at least open new accounts have a higher income and are younger than average, can rather be found amongst real estate owners and more often have a secondary bank relationship [15, pp. 225–227].
15Face‐to‐face conversation or by phone; following questions asked to sub‐group looking for better investment alternatives for assets, according to above Table.
16Corresponds to top two out of six possible entries. It should be also reported that just about 27% (bottom three out of six possible entries) do not regard personal advice as important; two thirds of those inform themselves online, 64% quote that they suspect advisors to ‘only sell’ a product, and 52% imply that advice is never objective.
17With assets under management of USD 2+ billion, Personalcapital is ranked number three by assets under management in the United States, after clean‐play robo‐advisors Betterment and Wealthfront; Personalcapital’s valuation is not disclosed [26].
18Independent financial advisors, operating e. g. in Germany under a license according to § 34 GewO/trade law (‘Finanzanlagenvermittler’).
© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_34
34. The Digital Insurance – Facing Customer Expectation in a Rapidly Changing World
Michael Cebulsky1 , Jörg Günther2 , Peter Heidkamp3 and Falko Brinkmann4
(1)KPMG AG, Düsseldorf, Germany
(2)KPMG AG, Frankfurt, Germany
(3)KPMG AG, Cologne, Germany
(4)KPMG AG, Hamburg, Germany
Michael Cebulsky (Corresponding author)
Email: [email protected]
Jörg Günther
Email: [email protected]
Peter Heidkamp
Email: [email protected]
Falko Brinkmann
Email: [email protected]
34.1 A Rapidly Changing World
The announcement by two companies that they will in future make common cause provoked a furore in the summer of 2016: Allianz, an insurance group with a history dating back almost 130 years and a stock market value of around 60 billion euros, will in future exchange staff and expertise with Rocket Internet, the start‐up studio that is barely ten years old and that is valued on the stock market at around 3 billion euros. How extensive the co‐operation will be remains uncertain, but the intention of Allianz’s chief executive officer Oliver Bäte is clear: he wants to force the organisation of his company to become more agile so that it can meet the challenges of the future [1].
Quicker workflows, lower costs, more cross‐selling, greater proximity to the customer – is there an insurer who is not pursuing these goals? For example, according to the KPMG study ‘The Insurance Innovation Imperative’, 60 per cent of insurers see process optimisation and the use of technology as offering the greatest potential in the next two years. The journey to that destination traverses an extensive realignment of the business model, the break‐up of data silos in the company and the comprehensive digitalisation of processes. Only in this way will it be possible to recognise customer needs swiftly and to develop and market bespoke products for specific target groups.
Anyone facing a decision to make a major purchase or enter into a contract will generally visit company websites to inform themselves of the terms and conditions or browse comparison sites. The importance of these sites is growing enormously. Take Germany as an example: on YouGov’s BrandIndex, which checks and monitors the perception and recognition of 60 major online brands, the leading German brand, behind international players such as Google, Facebook and Wikipedia, is Check24. Established in 1999, the portal presents the tariffs and rates of the most varied of companies – from energy suppliers to insurers – and earns money on each contract entered into between the users and the service providers [2].
It is not just consumers who are gaining greater insights into what is on offer. Service providers, too, are acquiring ever more information about customers – current as well as future customers. The traces that consumers leave behind on the Internet allow user profiles to be created, likes and dislikes to be identified, patterns of behaviour to be forecast. Companies such as Google, Amazon and Facebook are pioneers in this field and transform this information into revenues that run into the billions. Their business models have changed fundamentally the way in which products (and advertising) are sold and turned on its head the balance of power in whole industries (retailing, media).
Successful digital business models score points with their transparency, speed and proximity to the customer. This is also true in the financial services sector, which has lagged several years behind, but is now being seized by digitalisation: direct banks are winning market share at the expense of classic financial institutions thanks to their favourable cost structures (and competitive offers). Fintech companies such as Wealthfront, Betterment (both USA) and Nutmeg (Great Britain) have recently introduced automation into the investment business.
So what about the insurance industry? Is the revolution in full swing here, too? Price comparison sites such as Check24 in Germany and The Zebra in the US attract customers with comprehensive overviews of rates and prices on their web pages and are in the process of revolutionising the brokerage business.
Peer‐to‐peer providers such as Friendsurance (Germany), Guevara (Great Britain) and Lemonade (US), are redefining the collective, as they bring together policyholders in small networks that provide mutual support in the event of a loss – which lowers the premium.
Health insurers are using technical innovations such as health wristbands to track the behaviour of policyholders and to generate new products and premium models with the help of the findings they provide.
The speed at which new digital products are coming onto the market has accelerated enormously. Processes and structures that have taken years to build are increasingly giving way to agile models where the time from conception to market launch sometimes takes just a few weeks.
For insurance companies, this development offers a massive opportunity. It is not only that costs can be significantly reduced through automation. Beyond that, the wealth of information in their won systems offers the possibility of recognising the needs, likes and life choices of their target groups – and quickly proposing to customers’ attractive personalised offers. With the help of needs‐based processes and structures, these treasure troves of data can be tapped and sustainable business models can be established.
34.2 Re‐Invention of the Insurance Business
Disruptive innovations are shattering business models and even entire markets: Amazon has reinvented the retail trade, even though the company does not operate any brick and mortar stores. AirBnB has risen to become the most important service provider in the hotel industry, even though the company does not own a single hotel room. And Uber ranks among the largest taxi companies in the world, even though it only brokers journeys. The lesson: it is no longer about selling one’s own goods and services, but about negotiating between the producer and the consumer.
This is also the starting point for important aggressors in the insurance business. Comparison sites do not offer any policies of their own. They earn money exclusively by connecting customers with insurance companies. Peer‐to‐peer service providers do not (at the moment) take on the risks in their own books, but see themselves as agents for the insurance policies regi
stered with the customer. The direct link to the customer is at risk of being lost – with unforeseeable consequences for the business model. It is important here to take resolute countermeasures and to strengthen the customer’s loyalty.
Even well into the 1980s, the ‘customer journey’ in the insurance industry was simple and unassailable: the customer needed a policy, the local agent made an offer, the customer signed the policy. If an adjustment was required, the agent put forward a new proposal. In the event of a loss, the agent took care of the processing. Home visits, telephone calls, letters – no other communication channels were envisaged (see Fig. 34.1).
Fig. 34.1The customer journey – online versus offline touchpoints
Today, it is essential for companies to use social networks and blogs in order to filter customer habits and propose suitable individualized offers. It has long been possible, using the location of a customer, to send a suitable product proposal to their smartphone, which they can immediately accept by pressing a button. Detailed questions about the policy can be clarified by video chat. Telematic applications continually deliver data from the customer to the insurer, which is then evaluated and incorporated in the calculation of the premium. The insurer has to move to where the customer is: in a digital world. This is how the insurer manages to become a constant companion.
These external factors increase the necessity to act. Those who want to survive on the market will have to organise their processes more efficiently and more cost‐effectively. The resources that are freed up should be used to accelerate the conversion to a business model that accommodates the increased demands of customers. Customers who expect fairness and appreciation, high service quality and appropriate value for money. They want personalised, tailored offers. They expect short response times to communications, regardless of time, place, sales channel or device.
Digitalisation also brings perceptible customer benefits in the settlement of claims. It will be possible in future to initiate a notification of claim for example by sending a message through WhatsApp. There will be no need to fill in a form any more. Intelligent speech and image recognition will for example enable the plausibility of a rear‐end collision to be checked using the description of the course of events and photos of the damaged car (see Fig. 34.2). In particular, minor damages could be settled with more automation in more individual cases than is the case today.
Fig. 34.2Claims processing using cognitive systems
Successful innovations always follow the same motto: keep it simple! The customer is more likely to decide to take out a policy the easier it is made for them. Anyone who does not have to fill out pages and pages of forms, but simply press a ‘buy’ button in their app will be more prepared to take out travel health insurance or an accident policy. The opening of communication channels such as Facebook Messenger, which is offered by Axa for its Switch insurance offer in France for example [3], makes it easier to contact younger target groups.
A lot of customers want less ‘full service’ from their insurer and instead more ‘bite‐sized’ offers that are tailored to their individual needs. For example, the service provider Trov has recently started selling on‐demand policies for individual items such as laptops, snowboards and headphones in Australia. Using a virtual slider bar on their smartphone, the customer can decide for themselves how much the deductible – and thus the premium – will be [4].
When a customer buys a product online, the German start‐up Simplesurance, which Allianz recently got on board with, immediately offers an insurance policy to match [5].
Metromile in the US offers a pay‐per‐mile policy to car drivers who only very rarely take their cars out for a spin. The driver can take advantage of additional services through a smartphone app. For example, they can mark on a map where they parked the car and get a warning if street cleaning services are approaching and the parking space has to be vacated. In Great Britain, Cuvva offers car insurance that can be taken out for a period of just a few hours or days. The customer enters into the contract using an app – and it takes just ten minutes [6].
Health insurers grant privileges if policyholders adopt patterns of behaviour that are beneficial to their health and allow this to be tracked through a fitness wristband, for example, which enables all physical activities, sleep phases and resting pulse data to be recorded. The information allows conclusions to be drawn about customer habits as well as a personalised training programme to be developed for the insured. The progress made by the customer can be rewarded through a bonus system.
The US insurer Oscar furnishes its customers with free wristbands and additionally even offers an app that enables policyholders to talk with a doctor or to get prescriptions [7]. Even in Germany, where data privacy generally enjoys a higher priority than in English‐speaking countries, the Allgemeine Ortskrankenkasse (AOK), the statutory health insurer, and the Deutsche Angestellten Krankenkasse (DAK), the private health insurer, now subsidise the purchase of these devices [8].
The examples of the telematics tariffs and health wristbands show that customers are definitely ready to divulge data about themselves if the insurer can credibly prove that it will handle the data with care and they can derive a direct benefit. A positive selection is supported, as long as it is associated with lower rates or other benefits.
Nevertheless, the insurance companies are going to have to prepare for a discussion about the continued existence of the principle of collectivity. For example, consumer protection groups in Germany have for some time now criticised the fact that the increasing segmentation for example in occupational disability insurance is actually excluding many craftspeople from this type of insurance because of the prohibitively high premiums [9]. Something similar is happening in the area of professional liability, where midwives, for example, are finding it almost impossible to continue financing the premiums [10]. Not everything that is possible by imputation with the help of digitalisation will be feasible on the market.
The penetration of new products on the insurance market will not be without consequences for their sale. The classic sale of policies through insurance agents will be increasingly squeezed out by transactions conducted via digital channels. Direct insurers have already dispensed with a cost‐intensive network of brokers and agents today. The market shares of the direct insurers are growing especially in the area of standard policies, such as third‐party liability, motor and home insurance, which require little consultancy [11]. At the same time, classic brokers are coming under increasing pressure from price comparison website and peer‐to‐peer service providers, which connect customer directly to the insurance companies in return for commission.
The faster digitalisation progresses, the more intensively people, machines and other objects will be able to communicate with each other. The transmission of information and data in real time opens up the possibility for totally new products – also in the insurance industry. For example, Beam Technologies, a US start‐up, offers dental insurance together with a toothbrush that records data about the brushing behaviour of the owner by Bluetooth and sends it via their smartphone to the company. Someone who regularly and thoroughly looks after their tooth runs less risk of developing caries and therefore pays lower premiums [12].
The example above illustrates the fact that classic insurers on their own have little chance of exploiting the possibilities of digitalisation to the full. This will depend more than ever on teaming up with other companies – from the insurance sector or from other industries – and developing new ecosystems that enable additional points of contract with (potential) customers. 54 per cent of insurers say that their motivation for collaboration and alliances is to promote ideas and talent, while 24 per cent say it is to promote a literal speed to market.
This crossing of borders has already been taking place in similar ar
eas for several years: numerous car manufacturers offer their models in combination with motor insurance. A car insurer – Huk Coburg, Germany’s industry leader – has recently started selling cars as well. The company had already entered into co‐operation projects with partner garages, where Huk customers can enjoy benefits related to inspections, tyre services and general and exhaust emissions testing, and customer retention is now to be expanded to used car buyers [13]. It will be important to develop this way of thinking, which goes beyond traditional industry borders, and to transfer it into the digital sphere.
34.3 Fitting into the New Ecosystem
The new insurance world breaks with customs that have been handed down. Protectionist individualism, where information is partitioned to one’s own advantage, will be replaced by an ecosystem in which the partners work together for their mutual benefit. Companies that want to survive will have no other choice but to engage in co‐operative projects of this kind. The speed with which new technologies are coming onto the market and consumers are changing their preferences continues to increase. Companies will have to equally quick in adjusting to change. Sealed off from developments in other companies and industries, this will be almost impossible.
The change sounds more revolutionary than it is. Trying new things does not mean burning all your bridges behind you. Nor does it mean focusing exclusively on digital channels. ‘Old’ channels will remain important and will have to be maintained both for internal workflows and in the relationship with the customer. The customer may like to take out an insurance policy at the click of a mouse. Later, however, they may want advice and an agent to call on them at home. An app may be suitable as a sales channel for car insurance, but a complex occupational disability policy will always require more consulting time and effort. The key to success lies in correctly interpreting consumer behaviour and finding the right balance between analogue and digital possibilities for exchanging information.
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