The demand for personalised insurance products and services looks set to continue growing. Can insurtech providers rise to the challenge?
2022 is set to be the year insurers realise their potential in the small business market which has been underinsured. This development will be powered by a tailored, behavioural approach and based on ecosystems and partnerships between incumbent insurance providers, technology firms and others.
Demand is increasing for tailored cover in areas such as business continuity, cyberthreat, pandemic disruption, and event cancellation policies. The pandemic has reminded many small and medium-sized enterprises (SMEs) of the importance of cover in these areas.
Providers that offer smart, personalised products and services will increase their competitive edge in 2022. A growing influx of insurance technology providers (insurtechs) are already offering such highly personalised products, increasing opportunities for partnerships.
Redesigning for SMEs
A report from KPMG says business interruption insurance is an acute example of the need to re-design products and services that work for SME customers. Despite its enormous potential value to businesses, penetration is low in this market. But KPMG’s research shows personalisation is a key way to encourage more uptake.
To achieve this, companies need to connect their front, middle, and back offices, from product and service deployment to sales, distribution, policy administration, claims and underwriting.
They will also need to exploit data through artificial intelligence (AI) and machine learning to predict and meet customer needs. For example, internet of things (IoT) and sensors can provide insurers with real-time data and insights through a firm’s supply chain, allowing proactive insurance solutions.
Another effective route to bespoke service will be to unbundle general liability and business insurance policies, to provide more modular options that align with specific professions and sub-industries. This allows customers to build bespoke packages around the cover, features and price that suit them.
SMEs’ need for customisation makes this space ripe for insurtech interest in 2022. Increasing funding will allow tech firms to explore exciting new opportunities in this market.
According to McKinsey, insurtechs are also increasingly ready for partnerships with incumbents following staggering growth in the tech sector and a growing crop of innovative opportunities. Emerging personalisation capabilities using telematics, AI, big data, aerial imaging, and claims automation have become more prevalent.
Partnerships with insurtechs will therefore continue to increase and flourish, supporting innovations in personalised product designs - for example, using telematics to reward safe driving of company cars and health data to reward healthier lifestyles among staff.
Expert view – behavioural insurance becoming critical
So far, many insurers' efforts to personalise products and services have been limited to demographic segments rather than individuals, so have been less precise.
2022 will see providers tooling up in the data war, with powerful analytics delivering more accurate tailoring. The data that can enable personalisation is already rich and growing, but providers will increasingly collect information from customers and prospects’ social media accounts, website cookies, smart devices, telematics and internet of things devices.
Chris Holland is professor of information management at Loughborough University and co-director of the Technology Driven Next Generation Insurance (TECHNGI) research group.
He said a key area of development in 2022 will be behavioural insurance, based on the collection of high-volume, high-granularity data. This enables companies to shape services to extremely specific segments.
“Behavioural insurance is interactive, so for example, in motor insurance it gets involved in the data ecosystem measuring things like driving score, risk mitigation,” said Holland. “It tries to influence customer behaviour, such as to drive more safely or be healthier.
“However, behavioural insurance is in a rapid growth stage and there is a technological discontinuity that gives opportunities to new entrants. Experimentation is more important than segmentation and the battle is for data, not just customers.
“Incumbents have to defend their position by adopting new technology rapidly. New entrants must either partner with an incumbent or spend lots on marketing. It’s a huge opportunity for insurtech.”
Holland highlighted the pioneering work of Chinese insurer Ping An in using AI and big data to connect insurance with broader financial services, predicting that this will be the future direction for the UK market. Working in an ecosystem creates opportunities for vertical integration where you can exploit data synergies across traditionally separate market sectors, he added.
There are challenges, however, because personalisation requires more detailed data collection and intervention in customer behaviour, raising issues of surveillance and privacy. In the shorter term, the UK will focus more on applying narrow AI on discrete stages of the customer lifecycle, enabling lower costs and better service.
But you cannot achieve thorough personalisation with just your own data, so you must integrate with the ecosystem, said Holland. He agreed that the SME insurance sector is ripe for development in this new world of tailored, behaviour-based cover.
“Because there are so many very small SMEs, there’s a rich set of data to enable greater innovation with a very low cost to serve,” Holland concluded. “It is important for established providers to pivot their strategies and embrace new markets. If they fail, it creates an opening for new entrants.”
But those that can develop deeply personalised offerings can gain significant competitive edge with much more meaningful, long-term customer relationships.