There is nothing special about buying insurance with a corporate model that has remained essentially unchanged for hundreds of years. New York Life has been in business since 1845 and operates under the same objective of assuming and diversifying risk. The business model relies upon charging premiums in exchange for insurance coverage to a diversified pool of customers while reinvesting those premiums into interest-generating assets. But, with technology imbued in the lives of humans, the time has come when companies have an existential choice for the future of the insurance industry: adapt to the market’s demands or risk becoming obsolete. Insurance companies must disrupt the model they have followed for hundreds of years.
The insurance customer of today needs a different insurance experience
We’re living in a world where technology companies have paved the way to genuinely digital experiences for customers. Airbnb, Amazon, Uber, and DoorDash all provide unique services enabled by technology, giving customers the power to self-service, pick what they need and customize their experience – down to the car’s temperature they are about to get into. Because of this normalized seamless experience, interacting with insurance companies can be a shock. It requires speaking with an agent, answering numerous questions, and providing medical history and physical assessments.
GenZ and millennials are digitally native; they feel most comfortable navigating digital experiences. This comfortability and familiarity with digital experiences have invented new expectations regarding commercial relationships. To be successful in this arena, companies, especially those who have delayed transformation in the digital world like insurance companies, must embrace new focus areas, such as:
- Customization. With the advent of technologies like artificial intelligence, and processes like machine learning and data mining, companies have a more remarkable ability than ever to understand the wants and needs of individual customers and tailor product offerings accordingly.
- Speed. Technology like 5g has made it possible to access services instantaneously. Gone are the days when waiting for a customer service response is acceptable. With artificial intelligence capabilities, companies can build customer relationships even when their workforce is not clocked in. This is a stark contrast to the current insurance model that relies on phone calls, wet signatures, and verifications to secure a policy.
- Personalization. Customers yearn for product offerings custom to their wants and needs, and technology makes it possible. IoT makes it possible to collect information about individual behavior, paving the way for greater insight into what they may like, what products are relevant to them, and what offerings they can be excluded from. In the context of insurance, companies can assess the risk of a policyholder through wearables and devices like telematic systems that track driving performance.
A new generation of insurance products
Insurance companies are used to offering set products, assessing individual customer risk, and assigning a price based on that information with actuarial inputs. At Globant, we see disruption on the horizon for this business model, moving from pre-set coverages for a specific dollar amount to the ability for individuals to determine exactly what they want to be covered, the amount they want to be covered, and determine the amount they will spend on premiums or deductibles.
Moving from the long-standing model to a new one is a change that many insurance companies do not have the infrastructure for. To overcome this barrier, they must explore new distribution models that usher outside resources to convey the product offerings.
New distribution models
How could it work? The industry has unique opportunities in the marketing and partnership spaces. Take Apple, for example. Via devices like the iPhone and Apple Watch, they know exactly what the lifestyle of their customers is like. That data, coupled with mass adoption and trust of the brand, can be infused with insurance offerings backed by a company like New York Life, providing their actuarial prowess. This model would look much like the model that the Apple Card, backed by Goldman Sachs, follows.
Additionally, users could opt-in to share their information with the insurance offering to unlock discounts, special offers, and loyalty programs. It is an opportunity for insurance companies to refocus on their core capabilities while staying relevant in the digital age. This is particularly relevant for lifestyle-influenced insurance policies such as health insurance, life insurance, or long-term care insurance.
With new, modern product offerings, it raises the question: If attaining an insurance policy was as easy as signing up for Netflix, would more people opt to purchase it, thus lowering the price for all?
The sales model for insurance companies, like their business model, has not changed much at its core in the last century. With companies like GEICO embracing digital marketing and limiting the number of commissioned sales representatives, the cost of acquiring a customer is shifting from one-on-one relationships to mass media. Insurance companies, like many other industries, rely on technology to stay close to their customers, making up for the lack of face-to-face interaction of the past.
Another channel that insurance companies can break into is influencer marketing. Other foundational services, such as banking, have successfully implemented influencer strategies that raise awareness of product offerings, driving business with a younger demographic. Financially-savvy influencers can bridge the knowledge – and awareness – gap that insurance companies have by promoting the importance and benefit of having fundamental insurance policies such as life, health, and renters insurance.
When it comes to life insurance, it is beneficial to both the insurance company and the policyholder to begin paying premiums at a younger age, as it lowers the monthly cost for the policyholder and increases the LTV of the customer for the company. The value proposition is even more compelling for whole life insurance policies that are a known investment and tax strategy. Building this type of awareness makes influencer marking a no-brainer, primarily since GenZ is heavily invested in social media and related trends.
Three make-it-or-break-it factors for next-gen insurance products
The digital age has made speed, accuracy, and expertise table stakes in being agile. Those are three capabilities that many legacy industries cannot calibrate on their own, and that is where a digital reinvention partner like Globant can provide a strategic advantage. At Globant, we have more than twenty years of experience in partnering with the world’s best companies to build innovative experiences.
This is especially true for our involvement in the financial services industry. Much like insurance, the financial services industry has had the same business model for more than a century. We helped Itau in Argentina begin its digital transformation, creating an innovative and functional home banking interface and fulfilling customer desires for self-service, reliability, and personalization.