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How the Digital Revolution is Transforming Life Insurance

By Milka Kirova, Senior Economist, Swiss Re

Milka Kirova, Senior Economist, Swiss Re

New technologies are paving the way for a revolution in the way insurers write business, handle data and engage consumers. The benefits of the digital age are already being felt in life insurance. New data sources and online platforms offer new possibilities to store, mine and share information. Automation in underwriting is a growing trend, which will be pushed to new frontiers by use of Big Data, and developments in cognitive computing. This will bring more consistency to underwriting decisions and cost efficiencies to business operations.

"The continued trend toward consumerization of technology means that customers and users have an increasingly higher expectation of a more digital experience"

In addition, new sources of data and predictive modeling tools offer opportunities for more granular identification of clients' needs, helping life insurers better engage with consumers. Insurers can also use the new formats of communication and sharing of information to make products more accessible and attractive, such as by using gamification techniques to make the buying process easier. Technology is also facilitating new and more frequent ways of interaction with consumers that provide the opportunity to improve customer retention and spot evolving consumer needs. For example, some life insurers have introduced programs that reward consumers for healthy lifestyle activities and choices such as exercising, regular check-ups and giving up smoking. Such programs can be beneficial for both client loyalty and policyholders' health and claims experience.

But harnessing the opportunities of the digital age presents many management challenges, as companies have to adapt their business models, review investments in technology, and rethink their talent strategies. Technology could spur new directions for insurers, from specialization in a part of the insurance value chain, to creating a fully digital platform for the whole value chain, or expanding offerings to include non-traditional services as part of the insurance package. Some life insurers already offer health screenings, preventative consultations, discount cards to pharmacies and other types of assistance, positioning themselves to provide family, health and wealth services to consumers. But insurers can enable access to newer-age technologies, such as platforms for on-demand access to healthcare and consultations with licensed health practitioners. They could explore home mobility services linked to robotics and similar capabilities that could be part of a service allowing people to have a higher quality of life as they age or become disabled.

The digital age will also necessitate a new view of IT architecture. Life insurers need to build capability to seamlessly bundle products and services, and deliver them through a multi-channel front-end that offers a single view of the customer and of his/her experience across all touch points in the insurance value chain. An integration engine should be able to view the customer as a "cluster of one" and assess what combination of products and services to offer based on new predictive models. Such technology is already being developed by start-ups, some of which have the financial backing of large insurance players.

Another key to the success of a technology-driven strategy is attracting and retaining talent. Some insurers have placed certain human resources responsibilities in the hands of individual business units, and others have centralized the function with Chief Information Officers or Chief Digital Officers (CDO). According to a Gartner survey, nine percent of insurers already have a CDO, tasked with developing a strategic vision of how technology will transform the business. The strategy may include the creation of an open-innovation environment through collaborating with research institutions and technology vendors.

Insurers need to rebrand themselves as technology employers of choice, especially for the younger generation. IT graduates may hesitate to join insurers heavily dependent on mainframe-based applications written with older programming languages. Thus, partnering or buying more tech-savvy companies may be a necessary part of a new strategy. Insurers also need industry experts who can translate technology into effective use across the insurance value chain and this may need to be developed in-house. Many companies are bringing talent into innovation labs and internal A-teams that operate outside the four walls of day-to-day business. The aim is to enable new thinking, while allowing for the luxury of failure. The team members could come from other industries where innovation is a pre-requisite, so as to be unimpeded by traditional insurance industry thinking and problem solving. Some insurers have taken the first steps in this direction. Aviva built its first digital garage in London in 2014, and has brought the idea to Asia.

There are also new challenges around data protection and privacy and how this is regulated. New regulations are being developed in most countries: at the beginning of 2015, 109 countries had data privacy laws and, for the first time, most of those countries (56) were outside Europe. The scope of national laws, however differ considerably and the differences raise complications because of the lack of international standards on consistent use and reporting of data by life insurers operating in different countries. Insurers are grappling with a number of other data privacy challenges, such as the clash between the Big Data mind set and the traditional principle of data minimization. Insurers may also need to keep abreast of regulations with respect to the use of technology in cross-border transactions since they may not be allowed to store certain types of data in locations outside their home jurisdictions. This could be a rising concern in the age of cloud computing. Currently, the cloud is not a big part of insurers' technology strategy because of security issues. However, much of the data generated from wearables, for example, will be stored in the cloud and in order to utilize it insurers will need to develop more secure ways of accessing, storing and using the data.

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