Rewriting underwriting to adapt to tomorrow’s challenges
Underwriting is the process of evaluating the potential risks consumers of insurance are exposed to. Consequently, underwriters determine the extent of the coverage the consumer is entitled to, and the price accordingly. Furthermore, they decide whether to approve the insurance policy from the outset.
But underwriting is not just risk evaluation and pricing; it’s a key factor for ensuring top performance. Underwriting can only be successful when taking into account how exposures can change in light of quantitative analyses and forward-looking decisions.
Today, the insurance industry is on the threshold of a paradigm shift in how it offers insurance products, transforming from insurance that is reactive to risk, to insurance that is predictive and proactive. This change is being fired by digitalisation and the demands of consumers for transparency, simplicity and positive customer experiences on all their journeys.
The transformation of the insurance industry is already underway through the integration of technologies such as AI and machine learning, which enable dynamic pricing of insurance policies, as well as automatic, claim-free compensation for any loss. This will have a direct impact on the overall process of underwriting.
Underwriting is going to have to transform. And that’s quite a challenge, since underwriting is historically conservative and slow to change and innovate. Underwriters will be digital managers, and I believe that in the next decade, we will witness extensive changes:
- The underwriting process will be mostly automated, performed in a matter of minutes, and manual underwriting for personal insurance products will no longer be relevant.
- Insurers will be able to make proactive decisions regarding underwriting by connecting to external databases and sources of information.
- Regulators will review AI and machine learning–based insurance products, which will require full transparency of the data, policy management, pricing and underwriting, as well as approving the policy prices.
- Smart, automated insurance platforms will offer consumers the added value of a new type of insurance experience which, just as important as the price, will be relevant to the consumer’s decision-making process.
- Pricing will be available in real-time through data-based assessment of the risk.
- Consumers will benefit from bespoke products, priced according to their individual needs and actual risks.
From distribution and underwriting to pricing and claims, insurance offerings will become automated and available in real-time, delivering consumers only relevant and reliable products, alongside a worry-free and hassle-free insurance experience.
About the Author
Ashley Abdelmoula is a business and product developer with 25 years of experience working in several locations around the world, including the US, the Middle East, Africa and the Far East. Vetted Fit and Proper by the FSB and FINMA, Ashley is now MD for Setoo’s UK Insurance Operations, where he’s utilising his extensive insurance and reinsurance experience to show insurers how they can attract millennials and grow revenue through the transformation in the insurance products they offer.
Why won’t they buy?
Millennials are rapidly becoming the largest group of spenders, who are focused on shopping for experiences over purchasing random products. Furthermore, reviews of Gen Z buying patterns and their preference for online purchasing, indicate that the demand for experiences is only going to grow.
Now is the right moment for e-businesses to catch the wave and boost ancillary revenues, by offering millennial-ready insurance experiences with products that protect consumers from unexpected events, provide support when things go wrong and offer immediate compensation with no claim required.
But are today’s insurance products geared to the demands of consumers? Are millennials buying insurance?
Take travel-related insurance products as an example: The travel industry has evolved to meet the modern consumer’s demands for unique, delightful and exciting holiday experiences. Just last year, British holidaymakers have travelled more than any point in the past five years, with new destinations and niche, authentic experiences becoming the norm. Nevertheless, traditional insurance products offered to millennials, are not in line with their expectations for a personalised, reliable and hassle-free insurance experience.
From consumers’ viewpoint, existing insurance offerings:
- Oftentimes fail to address their real risks and concerns.
- Entail reviewing complicated and unclear insurance policies.
- Require a long and frustrating claims process.
This is why millennials avoid purchasing protections, such as insurance against flight delay and cancellation, missed connection, bad weather and lost luggage. In fact, according to ABTA, 25% of holidaymakers travelled abroad uninsured in 2017, which was an increase from 2016. And as many as 38% holidaymakers travelled abroad in 2018 without suitable travel insurance or any insurance at all.
How can this trend be reversed, how can e-businesses cash in on the opportunity and grow?
E-businesses are uniquely positioned to deliver their consumers a new insurance experience. This means no more one-size-fits-all products offered in the customer journey by third parties; no more ambiguous policies or claims processes. Instead, e-businesses should adopt insurance platforms that leverage technologies like parametric insurance, AI and machine learning, enabling them to create simple protections that are tailored to consumer’s individual needs and generate automatic compensation.
Turning insurance into products millennials love is a great business accelerator. Delivering new types of protections will improve the customer journey in general, and travel experiences in particular. This will restore confidence in insurance, positively affect brand reputation and drive millennials to buy.
About the Author
Elana Marom is a full stack marketer who believes that marketing is about being present, relevant and adding value, alongside understanding how customers want to buy and helping them to do so. As Director of Marketing at Setoo, she’s leveraging her extensive marketing experience in start-up and enterprise environments to raise awareness about the paradigm shift evolving in the insurance industry and drive business growth.
Why parametric insurance is radically reshaping the insurance industry
Parametric insurance is constantly growing. Referred to as a new spin on an old product, I believe that it’s much more. It’s an opportunity for a paradigm shift in the world of insurance products.
That’s because parametric (index-based) insurance enables protecting against a wide range of risks, exposures and threats. It’s not merely an indemnification product; it’s coverage where a benefit payable is determined prior to policy purchase, by estimating the loss at superior accuracy and speed.
This is possible through the integration of machine learning algorithms and advanced actuarial predictive models, which allow the development of powerful tools ideally suited to swiftly predict and hedge risks in a digital era of challenging data, thus providing optimal insurance solutions in fast-changing environments.
Parametric insurance arose from the desire for a faster claim management process. The main differences with traditional indemnity insurance policies can be summarised as follows:
- Compensation payment trigger: Payment is automatically triggered by an event exceeding a predefined parametric threshold, rather than after a long process to determine actual loss or damage.
- Payment structure: Payment can be structured according to varying, predefined conditions, i.e., we’ll pay x if this occurs, and y if that occurs, replacing reimbursement based on the actual loss suffered.
- Customer appeal: Complex policy conditions, deductibles and exclusions that often are a deterrent to consumers, are replaced by a simple and intuitive scheme, correlating the chosen index with the payout and loss sustained, significantly enhancing customer satisfaction.
To date, implementation of parametric insurance is mostly related to agricultural insurance products against environmental factors, where it has an expanding role for coverage against disasters. But why not utilize the capabilities of parametric insurance for other cases?
The concept of parametric insurance can ideally be implemented in insurance products that cover simple events, where consumers have no ability to affect the outcome, such as flight delays, missed connections, lost luggage and the cancellation of gigs. In all these cases, it’s simple to understand the trigger for loss; the compensation for loss can be clearly predefined with an undebatable amount; and the payment can be transferred automatically without having to file any claim.
Such implementations meet consumer – and particularly millennial – demands for simple and transparent products, which eliminate the need for completing time-consuming forms and handling long claim processes. Parametric-based offerings can deliver automatic compensation and the worry-free, hassle-free experience consumers expect. They’re clearly going to revolutionize the world of insurance.
About the Author
Udi Makov is a professor of statistics at the University of Haifa, where he serves as the chairman of the Actuarial Research Center and director of the Actuarial Science MA Program. His current research focuses on predictive modelling and risk measures. As Lead Actuary in Setoo, Udi is responsible for promoting actuarial research in the context of insurance prediction and pricing, and for introducing aspects of advanced statistics into algorithmic development.
Can insurance really deliver on endless personalised needs?
Ancillary products play a major role for e-businesses looking for ways to expand their offering, increase revenue and improve their customer experience. For insurance-related ancillary products, e-businesses must seek the best way to guarantee that the insurance products offered in their customer journey really add value to their consumers, particularly millennials.
Sounds simple. But what does this require? Primarily, e-businesses need the flexibility and independence to determine what insurance products to offer; when to offer them; at what price and to which specific consumers; and how to present and communicate their packages.
Today, most of the available e-business insurance products are fixed and offered at a set price. Typical examples include travel insurance products that usually embed a predetermined set of guarantees, regardless of the consumer’s specific needs.
E-businesses have different types of customers with diverse insurance needs. Consider the following examples:
- Insurance for flight cancellation is less relevant to business travelers, who would typically want to be offered insurance for short flight delays to ensure they get to their meetings on time.
- A family going on a summer vacation to Greece does not require a snow guarantee insurance policy, but would definitely benefit from a rain-free protection package.
These examples not only indicate how complex insurance packages can be; they also highlight the customer experience that is expected. Today, consumers don’t want to match their needs to products – they expect products to meet their needs, along with a perfectly tailored customer journey.
This requires the personalisation of products to ensure relevance to customers’ actual needs. Furthermore, e-business should be offering insurance products with policies priced according to particular travel arrangements and potential risk. That way, a customer going on a one-day business trip from London to Paris will get a different insurance offer than a customer traveling from Rome to Berlin for a getaway weekend via a low-cost carrier.
How can e-businesses meet specific demands for practically endless protections? It requires a paradigm shift in how insurance is being offered, because it literally involves maintaining a factory of insurance products. The ideal solution is a generic insurance platform. Today’s innovation enables such platforms to be integrated via simple APIs into the selling process, forming an automated factory for easily distributing unlimited bespoke solutions and delivering an exceptional buying experience.
About the Author
As Business Development Director at Setoo, Julien Carmona brings a 10-year track record in corporate strategy, business development and successful digital transformation implementation in various industries. Passionate about disruption and digital models, Julien is also very familiar with the innovation ecosystem in Europe and the US.
Can Insurers really connect with the Millennials?
Merriam-Webster defines insurance as “a means of guaranteeing protection or safety”. Not so sure though that today’s consumers would consider this a representative definition of insurance today. Similar to many long-established industries, insurance processes have become complicated and outdated, with many considering insurance to be unreliable, unfair and far from being protective.
Irrelevant legacy products and cumbersome claims processes have generated a huge disconnect between insurance experiences and the expectations of millennial consumers who are the future insurance customers. Instead of being contracts of good faith, distrust has crept into insurance contracts. Most insurance companies operate on the basis of suspicion rather than trust, and their claims experience is far from enjoyable.
To remain current and evolve with their time, insurers have to fundamentally change their approach. Since different people have different insurance needs, one-size-fits-all policies are simply unacceptable today. Insurers have to revolutionise their policies; their never-ending terms and conditions; their manual processes that require consumer intervention; and their complex claims processes.
Insurers have to become consumer-centric. They have to engage digital native millennials by embracing digital and automated processes to generate contextualised and personalised insurance products, delivered when they are most relevant into the customer’s journeys. They have to eliminate lengthy claim processes by providing immediate, dispute-free compensation. Because that is what consumers expect and demand today.
By tapping into external databases and leveraging technologies such as AI, machine learning, parametric insurance and API, insurers can automate their processes – from dynamic pricing per individual consumer risk, to underwriting, policy management and automatic delivery of compensation. Furthermore, as the industry moves forward, new business models will demand new types of insurance products to meet new risks and maintain alignment with consumer expectations.
Insurers do not need to transform on their own, there are partners and insurance platforms that can help. The innovative insurance players will benefit from:
- Regulated and automated underwriting and claim processing
- New distribution channels
- Entry to digital transformation
- Precise pricing, contextualisation, personalisation and predictability
- Minimal involvement and operational costs
- Full control of risks and reduced fraud
Is this possible? Based on my past and current experience as an insurance executive, I can safely say that it is and that some of us are heading that way. With today’s technological advancements, insurance can evolve to become a completely personal service in terms of price, risk and communication, thereby meeting the needs and expectations of consumers in specific situations. It’s going to be a game changer.
About the Author
Pierre-Olivier Desaulle has over 25 years of experience in the international insurance industry, including numerous leadership, management and consultant roles. As Chief Insurance Officer of Setoo, he is passionate about revolutionising the insurance world through the creation of economically-viable, targeted insurance products that allow consumers to enjoy a well-protected customer experience.
Can e-businesses sell insurance like any other consumer product?
Technological innovation, data proliferation and the ability to tap into external databases are compelling insurance companies to readdress how they sell their products. A great example is parametric insurance, which is assuming a larger role in the insurance industry.
Could this be an opportunity for e-businesses to increase ancillary revenue from parametric-based insurance products, providing a better customer journey and keeping ahead of competition? Perhaps. However, there are two main problems.
First, even though insurance products are being offered within e-business customer journeys, they are created and controlled by third parties and not by the e-business itself. Second, they lack consumer appeal, but since they are associated with the e-business, they are negatively affecting the customer journey and experience, as well as causing churn.
At Setoo we believe that insurance has to be turned into an online consumer product just like any other product, which e-businesses know how to market and sell. Insurance products have to be created by the people who best understand the consumer and consequently, e-businesses –like OTAs (online travel agents), ticket sellers and e-commerce companies, should be defining these products.
Is this possible?
Many will argue that it’s unrealistic, claiming that while e-businesses know to sell consumer goods, they lack the knowledge and capacity to handle insurance-related processes and regulations. But using today’s range of innovative technologies – from big data, AI and machine learning to IoT, telematics, digital insurance and cloud – insurance processes can be handled in the background automatically, leaving
e-businesses to easily create already-regulated insurance products.
By gaining ownership of insurance products without having to know anything about insurance regulations, e-businesses can independently build and deliver insurance products that meet the needs and demands of their customers. Consumers can enjoy value added services with an extraordinary experience, while e-businesses benefit from:
- Increased revenue from ancillary services, since consumers will want to buy these new types of insurance and protection products.
- Enhanced brand loyalty, as consumers will recognize the e-business’s support when something bad happens in their customer journey.
- Competitive advantage through the delivery of an outstanding customer journey experience.
About the Author
Eyal Gluska’s entire career has been focused on creating innovative services and business models that generate new business opportunities for leading organizations around the world. As co-CEO of Setoo, he wants to disrupt the insurance industry with AI and state-of-the-art machine learning technologies, automating human-intensive operations to transform the way insurance products are created and delivered.
What do millennials expect from insurance and how can e-businesses help?
Millennials comprise a quarter of the world’s population with spending potential exceeding $200 billion – more than any other generation in the past. They expect a great customer journey from any online product they purchase, and insurance is no exception. This means that from the consumer’s perspective the future of insurance is dependent, among others, on two important market trends: digitalization and simplicity.
Rapidly becoming the majority of customers for insurance products, digital native millennials expect personal, simple and hassle-free experiences. They have no patience for the complex and cumbersome traditional buying process; they expect the e-business to delight them and not make them think or work for a service offered.
In fact, 72% of consumers purchasing online products fail to complete the purchase if the website or app is “tedious or concerning”. And with millennial consumers, this number grows exponentially, with more than 4 out of 5 millennials leaving the checkout without completing their transaction. The consumers of the future won’t bother completing an insurance-related transaction if the product and customer journey fail to meet their expectations.
Furthermore, there are endless stimulations, and to capture consumers’ attention insurance products need to be tailored to their needs. Yet, today’s insurance industry is lagging behind with one-size-fits-all legacy products. To meet millennial demands, insurance providers have to adjust their products and approach, bridge the digital divide and explore new ways of doing business.
Millennials expect to buy insurance products from within the customer journey. Products which not only offer protection, but also deliver a totally new and delightful experience. This can be achieved by:
- Offering a worry-free and hassle-free experience by providing immediate and automatic compensation with no claim process required.
- Turning negative experiences in customer journeys into positive experiences through contextualized, personalized insurance that meets consumer concerns and demands.
- Delivering trustworthy and affordable solutions through transparent, simple policies with optimized pricing.
My company’s name, Setoo, comes from the French “c’est tout”, which means “that’s it”! For us, it means simplicity. It symbolizes a new generation of technology which addresses millennials and actually makes their life easier and sustainable. It’s about transforming complicated insurance processes into simple, super-targeted products that address very specific individual needs.
About the Author
Noam Shapira is an entrepreneur and veteran of Israeli high-tech, constantly looking for disruptive solutions that enable traditional industries to adapt to the digital world. As co-CEO of Setoo, he’s seeking to totally transform the way insurance works. He’s addressing the demands of millennials for a delightful customer journey and enabling e-businesses to quickly build and launch new types of insurance and protection products, which deliver new revenue opportunities.
