How Tech has sparked a revolution for customers!
Technology is used to remove friction and transform the user and customer experience. Digital-first, cost-efficient structures are showing customers the “art of the possible” now. Emerging technologies are taking over and disrupting the business models in traditional industries.
The customer-centric culture, disruptor of so many industries, has arrived for many organizations in traditional industries, e.g. for companies such as financial institutions and insurance companies as well.
Already, hundreds of companies have appeared on the global insurance and FinTech scene.
However, it is important to understand that advances in technology do not in and of themselves constitute innovation, but are rather enablers of innovation.
As Jeff Lynn, the Chairmen at Seedrs, an equity crowdfunding platform, said on this year’s Innovate Finance Global Summit, “technology doesn’t change the underlying elements of finance” but, instead, it can “make economic reality work better for more people”.
Here are some examples of the rising importance of customer-centric cultures:
FinTech - both new entrants (broadly referred to as challengers) and traditional banks, so called “incumbents” have realized that consumers’ relationships with retail financial services is in the early stages of the data and technology revolution. The race is now on to own the relationship with the end consumer. Despite the compound annual growth rate of 41 per cent in investment in UK FinTech firms for example, the FinTech’s are facing obstacles also. Building a customer base in financial services is hard and takes investment. Customer acquisition costs are significant.
However, the culture in FinTech firms is perfect for innovation. Despite their relatively small size, their systems and data are set up to innovate and “technologists” play a key role in delivering the business model. This gives FinTechs speed and agility to respond quickly to consumer and market trends. They also have a relatively lower cost base, as they are not burdened by legacy system maintenance costs and large risk and compliance teams.
For traditional banks the competitive drag comes from legacy systems, cultural inertia and the real and perceived barrier of regulatory compliance with respect to innovation.
The banks’ own technology will need upgrading, and that is a significant task fraught with risk of damaging the customer relationships they are ultimately competing for. In order for banks to take advantage of their data, it needs to be of a good enough quality to draw meaningful insights. They then need to follow through with tailored customer solutions before market and customer preferences evolve.
No matter how the race will end, there is an apparent trend that the future of FinTech and financial services will see “more focus on what services are provided, rather than just how they are provided… products need rethinking in a customer-centric way” (Kevin Hanley, Director of Innovation at RBS on the Innovate Finance Global Summit 2018).
RegTech - has rapidly risen to prominence in 2015 and with a good reason: RegTech is saving firms a significant amount of money in regulatory fines and is displacing manual risk and compliance with cutting-edge technology. The advent of emerging technologies such as advanced analytics, Robotic Process Automation (RPA), cognitive computing and cloud is enabling the creation of a differentiated regulatory technology (RegTech) solution. Key characteristics of RegTech are:
- Agility – Cluttered and intertwined data sets can be de-coupled and organized through ETL (Extract, Transform, Load) technologies customized to user needs
- Speed – Reports are quickly configured and generated as per user needs
- Integration – Short time frames to get the solutions up and running to meet user needs
- Analytics – A recent Deloitte report quoted biologist Edward Wilson: “We are drowning in information, while starving for wisdom”. RegTech uses analytic tools to intelligently mine existing “big data” data sets and unlock their true potential, e.g. use of the same data for multiple purposes customized to user needs.
The key difference between traditional solutions versus the RegTech era solutions is agility.
Many RegTech providers use agility and are exploring how advanced analytics and assessment techniques can start to ‘learn’ and support in accelerating the assessment of new and emerging regulation based on historic data. In the same way neural networks have helped predict fraud or customer behavior.
InsurTech - Advancing technology has collided with longstanding customer issues to create, what we believe to be a series of deep, lasting, systemic challenges for insurance. The insurance industry has mostly operated on a product-centric rather than customer-centric mode. Insurance is not something people love to buy. Consumers are questioning the relevancy of certain products, particularly those they are not required to purchase by law.
When traditional business and operating models stop delivering sought-after results, the logical next step is to of course explore alternatives with greater risk appetite. In other words, the industry should disrupt itself before a newcomer does it for them.
InsurTechs are nimble and adaptive businesses and in many instances they have tapped into a zeitgeist of younger customers rejecting bigger corporates.
The need for product simplification is well-acknowledged, as is the need to pivot to insurance based on what customers want (versus what carriers believe they can sell). Across the field of InsurTech, customers can now, among other things, find:
Seamless engagement, e.g.:
- AI-powered technology enables to process and settle a theft claim in just three seconds, without paperwork from the customer
- Platform to underwrite life insurance based on public records and third-party data providers, removing the need for many customers to undergo medical tests.
- Rather than be locked into longer-term coverage, customers can toggle on or off coverage at will to cover periodic situations or behaviors. For instance, San Francisco-based Trov provides a mobile app that lets users activate and deactivate insurance across an inventory of their belongings. Further, Metromile offers pay-per-mile insurance for city dwellers who drive only occasionally.
- InsurTech companies are offering insurance tailored to the needs of ever-narrower consumer segments. London-based Bought by Many, for instance, created a way for customers to sidestep traditional routes so they can purchase niche products insurers will not often touch, such as travel insurance for customers with known medical conditions (e.g., cancer survivors).
- As the line between personal and commercial use blurs, consumers increasingly need coverages that specifically address what they are doing with their property. For example, online hospitality platform Airbnb has set up an insurance program that provides homeowners with primary coverage for bodily injury or property damage related to an Airbnb stay.
In general, there is a high degree of unintentional disruption from other industries. These adjacent developments are the result of the changing nature of competition in other industries—mobility, the connected home, genomics, and industrial manufacturing to name a few. In many cases, these introduce new characteristics of risk. They also introduce new business models that challenge elements of the insurance value chain while influencing client needs, expectations, and preferences.
Deloitte helps customers and insurers embrace the disruption and reorient themselves to a newly-assertive customer and in that way find routes to long-term profitability and growth.