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The Digital Timebomb - Insurance Adviser (NIBA) Article

Wednesday, 09 May 2018 15:04

The Digital Timebomb

By Stephanie Wanless

Over the years, the insurance sector has been a badge-wearing, fully-paid-up member of the watch and learn club. Weighed down by complexities, it naturally stood firm against the initial waves of digital disruption. However, that all could be about to change.

NIBA article 

The Path of digital progress is littered by the wayside by casualties. Some are remembered - usually for the element of quirky nostalgia - while others have been log forgotten.

Whichever way you look at it, they're casualties who've been beaten by the rate of progress. And, ultimately, these casualties only have themselves to blame. They've been too inward in their view of their standing in their sectors; too assured that customers will stay with them come what may. 

People neither make clear distinctions between sectors, nor make allowances for them.

And when you're playing catch-up, that's a problem.


The Blockbuster video chain famously turned down the chance to purchase fledgling video streaming company Netflix in 2000 for US$50 million. Netflix is now worth US$100 billion and climbing.

Blockbuster stores in the US number in the single digits, and the company clings to life seemingly by its proverbial fingernails.

The dagger neart the heart (just missing the main artery, it seems) for Blockbuster, however wasn't necessarily technology, but its reluctance to consider its business model. Blockbuster's revenue streams were significantly comprised of late fees (remember them?). They didn't buy Netflix because it would kill the cash cow. And well, you know the rest of the story.

More recent examples of disruption have been repeated so many times they're almost cliched - Uber and AirBnB, for example - but the effect they've had, particularly Uber on the taxi sector, has been marked.

In the insurance sector, we've been pretty lucky. Insurance with all of its complexities, cannot be readily disrupted with the one smart, Uber-esque idea. The influx of technology has happened at a steady pace; we've been able to observe other sectors as they navigate through technological disruption - and have been fortunate enough to have a watching brief as the financial sector's undergone massive change.

Hopefully, it's been a watching and learning exercise.

Hopefully the sector - from brokers to the biggest insurers - have been learning from what's unfolded before our eyes, and have spent the past few years exploring and testing technology that can aid, or indeed, completely change, businesses.

Because the clock's ticking here in Australia.

It's disruption time. 

The Key Drivers of Change

The ever-excellent Harvard Business Review recently published a report into the extent of disruption in the Australian financial sector.

NIBA article digital disruption bomb

Identifying the key challenge facing Australian financial businesses at present as building a business that is fit for purpose for tomorrow, the report reiterated the one thing that has to keep centering us all - the need to give customers value and sustained relevance.

While the report positioned Australia's banks in the top quartile of banks globally for implementation and ongoing exploration of digital technologies, it also included criticism for many projects being 'digital lipstick'; a wonderful term in itself, but utterly damning.

"Historically, it's fair to say that insurance has lagged behind other industries in the adoption of new technology," says Leon d'Apice, the long-serving managing director of software supplier to the insurance sector, Ebix.

"The industry is change adverse, partly due to the complexities involved in some insurance processes. The difference between the insurance sector and others, though, is the format and processes of other sectors haven't required much structural change to be disrupted. 

"Take Ebay, for example. It moved the auction house online, but it essentially follows the same standard. The same goes for AirBnB and Uber; they merely changed where the product was being sourced, and developed platforms to connect those products to the consumer."

"Over the past 12-18 months insurance has begun to embrace technology, simply because it's had to,

but I believe 2018 will be a breakthrough year for technology in insurance."


Big change, d'Apice believes, however, is just around the corner. "The insurance sector may be one of the last to be [significantly] impacted, but it certainly will happen."

According to Eoghan Trehy, National Head of Insurance Broking at Macquarie Business Banking, the Australian insurance sector has had a huge wake-up call.

"If you'd asked me over 18 months ago how much of the Australian insurance broking sector was being affected by technology, I'd have said the technological impact was negligible, certainly not particularly tangible to business owners.

"Insurance is lagging behind most other sectors; real estate, accountancy, strata - the legal profession is six to 12 months ahead of insurance.

"Over the past 12-18 months insurance has begun to embrace technology, simply because it's had to, but I believe 2018 will be a breakthrough year for technology in insurance."

Is it all in the works?

Of course, there'll be significant efforts going on behind the scenes that we're simply not privy to. Companies aren't going to shout from the rooftops all the details of the exploratory work they're doing to embrace available and developing technology; and as d'Apice observes, the intrinsic complexities of insurance naturally decreases the speed at which it is able to move.

This is a sentiment shared by Hilary Bates, chief claims officer, general insurance, at Zurich Australia and New Zealand, a huge player and one that's innovating, too.

"The Australian insurance sector is showing pockets of engagement with new and innovative technologies and it's a trend that will accelerate in the years ahead," says Bates. "We are already seeing insurers move into areas such as automation, artificial intelligence and predictive analytics, particularly in relation to claims, and it will be exciting to see how and where these technologies move into other parts of the value chain."

"Customers now expect simple, easy-to-use digital services

across all domains in their lives, and insurance is no exception."


Zurich itself is making noteworthy strides in technology. It entered what Bates describes as a 'strategic partnership' with insurtech Blue Zebra, an underwriting agency seeking to target the broker intermediated personal lines market - while late last year it acquired Bright Box, a company providing telematics solutions that link drivers to their vehicles.

NIBA article digital wave

The strategy of purchasing and aligning with startup insurtechs is sensible, and also to be expected, given the Federal Treasury's regulatory sandbox, which encourages insurtechs to develop and test new concepts and products. Free from the weight of legacy and expectation, companies can explore, play, test and refine.

But regardless of whether technology emanates from startup or major player, two key words have continually act as a guiding star: customer experience.

"Customers now expect simple, easy-to-use digital services across all domains in their lives, and insurance is no exception," says Bates.

This is a major theme of the HBR report, with "customer experience" cited as the key driver for financial services organisations to pursue digital initiatives. Key to meeting these consumer expectations, says the report, is deploying artificial intelligence-driven technologies, such as chatbots, to make transactions more personalised, agile and intuitive.

Of course, the expectation of customer service is based on what's experienced elsewhere in a customer's world. People neither make clear distinctions between sectors, nor make allowances for them. And when you're playing catch-up, that's a problem.

"The companies that can make the insurance experience

as easy and painless as possible will be the ones that come out on top."


The new payment platform in banking, for example, will change the perception of money transfers in Australia, and that immediacy - instant gratification - will become the norm.

While people will not, in all likelihood, expect instant settlement on major claims, it will, d'Apice believes, shine a light onto the customer experiences insurance companies serve up that are far from ideal.

"It will once again emphasise the slow processes that make up the insurance sector.

"PassportCard, an insurtech in Israel, pays out travel claims instantaneously. It works as a bank card for travel insurance, allowing policyholders to use the card to instantly pay their medical bills overseas.

"This means the insured has no out-of-pocket expenses and eases any financial stress at a time that would already be stressful.

"Insurance won't exactly replicate the immediacy of NPP, but it will get as close as possible in certain areas, and it will be a game-changer for the industry."

Again, it's all about customer experience.

"Customers want confidence that their assets are secure and that when a claim arises it will be dealt with transparently," says Zurich's Bates.

"Technology can play a huge role in that, for example, whether it's notifying a customer on the progress of their claim or when a renewal is due."

"Technology is one element of delivering that customer experience," says d'Apice.

"Creating facilities for a customer to place cover with a mobile device might work in the personal lines space, but it is of little relevance for high-end commercial insurance.

"At the end of the day insurance is just another thing that customers have to deal with, but would rather not.

"There's no denying that, at times, particularly when making a claim, dealing with insurance companies can be a tedious chore. The companies that make the insurance experience as easy and as painless as possible will be the ones that come out on top."

So, is the Australian insurance sector ready for disruption? In all reality, it's very difficult to say. The reluctance of some major insurers to contribute to comment to this feature was, in itself, telling. There undoubtedly is some very innovative and interesting work going on albeit - as Zurich's Hilary Bates acknowledges - in scattered pockets of the insurance landscape.

However, until this work is rolled out and tested in the mainstream market, it's impossible to exclaim "we're ready!" with anything approaching conviction.

One thing is for certain though: we're about to find out.

Read 4644 times Last modified on Thursday, 10 May 2018 16:18