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Technological advancement in the life insurance industry
Technology is constantly evolving as time goes by and will carry on doing so. Even over the past few years we have seen technology rapidly growing and many business sectors have already started taking them on board. One of these sectors is the life insurance industry who have started to incorporate digital tools such as wearable technology amongst other technologies including gamification, artificial intelligence, robo advisors and analytics. The need to adapt to the use of these technologies comes from the evolving customer preferences, continuous advancement in technology, growing competition and margin pressure. The life insurance industry uses technology in many ways to increase revenue growth, optimize costs, enhancing the engagement of customers, reducing risk, improving the accuracy of their pricing and reducing the leakage of claims.
This is the process of using game elements as a type of online marketing technique to engage customers on a product or service. Life insurance companies have started using Gamification as a way of engaging customers and spreading information about their policies. They are particularly aimed at the younger generation who are more tech savvy and are not fully aware about what life insurance is and how important it can be. This also allows life insurers to get an upper hand amongst the competition as well as create an interactive experience for their customers. Gamification can help educate customers on the benefits of life insurance as well as creating brand awareness convincing customers to buy the insurance products, so they can hedge their risks. AXA is one company that has already taken this on aboard with its game “Crazy Crash” which it launched in Indonesia where insurance penetration is less than 2% due to the lack in understanding the insurance products offered as well as their importance. It was a huge success generating over 200,000 tweets hence spreading awareness amongst the customers.
Wearable techs are being used by many industries and are gaining popularity among them as they can provide real-time data and improve business decisions which can be very useful in the life insurance industry to provide an accurate underwriting of risks and for improving customers mortality. We have seen an increase in wearable techs popularity over the few years and the wearable market is expected to grow significantly over the coming years as it is expected to reach $51.6 billion by the year 2022 according to the Markets and Markets (2017) Article. Real time data from these wearable tech help life insurers to develop their interaction with customers by offering personalized policies as well as help improve life expectancy by collecting and analysing the data on health as well as customer’s physical activities. Some life insurers have already started handing out rewards to policy holders who meet certain targets which policy holders can join if they are willing to share their physical activity and data required. These rewards can be in the form of discounts at retailers as well as a reduction in premium. Wearable tech can provide a lot of data on customers that can be used to make better business decision as insurers will be better informed as well as allowing the continuous monitoring of their customers. This allows for the life insurance firms to get an understanding of the lifestyle and life-stage needs of their current customers allowing them to develop targeted policies to attract new customers.
An Insurance company that is making use of wearable tech is John Hancock through its program called ‘John Hancock Vitality’ which provides discounts on policyholder’s premium for allowing them to obtain customers fitness tracking device data as well as their medical information. Through the application of data analytics on the data obtained from the wearable tech, life insurance firms can design and customize products based on their customer’s risk exposure. They can also manage notifications in the events of a sudden health condition to control the risks.
The main type of wearable tech that comes to mind is the Fitbit which provides vital data such as blood pressure and heart rate as well as daily exercising habits. However more advanced biometric sensors are still under development. Google for instance have partnered up with global health care provider in Switzerland named Novartis to develop a smart contact lens that does not only correct someone’s vision but provides data on customers blood sugar levels which will be especially useful when dealing with customers that have diabetes. Another sensor still under development is an ingestible tech this will provide far more information on the health of a customer. It is a pill sized electronic device that updates customer’s smartphone with data once it has been swallowed, they measure pH, temperature as well as keep track of if patients have taken their medication. This will be particularly helpful when investigating claims. This will benefit the life insurance firm in many ways but can lead to the certain issue being raised such as the effect on health and the safety of the consumers who ingest the pill. However, the pill is still under development and these issues should be resolved as the FDA themselves have given their approval.
Overall wearable tech can help reduce risk and claims for the life insurance firms, allow them to improve their pricing accuracy as well as enhance their customer engagement.
Robo advisors will help spread risks for life insurance firms as it will be able to revolutionize life insurance sales process by providing advice that are personalised towards their specific customer. Robo advisors are better able to understand the customers’ needs and insurance gaps compared to humans. Scenarios that are pre-defined can be taken care of by robo advisors while cases that are exceptional are given to the human agents. Robo advisors will mean that customers will have less waiting times and seamless help for insurance advice. They can provide a personalised service to customers since not only will they be able to better understand customer needs they will able to use various other data’s such as credit score, previous queries and purchase details giving tailor made suggestions.
Robo advisors are also able to enhance the efficiency of underwriting process since they can determine the exposure of the risks of the customers more accurately by accessing the data from a variety of sources using advanced algorithms that can predict risks. A Fin-tech company Certua is planning on rolling out robo life insurance services which analyses and identifies the risk exposure of a customer using varied sources and will be able to underwrite policies based on a customer’s needs and risks.
Capgemini-Efma World Insurance Report (2017) mentions that traction for robo advisors are increasing and according to 75.0% of surveyed respondents, insurers have already begun investing/ planning to invest in these types of technology within the next three years.
On top of providing advisory and underwriting services, robo advisors are also capable of other functions. They can renew and cancel policies, update customer details, process claims and instantly approve them if they pass the pre-determined criteria and capture the customers expectation and save them for further analysis if required.
Robotic Process Automation (RPA) and Artificial Intelligence (AI)
Life Insurers are making their core processes of policy administration and services more automated by incorporating the use of RPA and AI.
RPA is mainly used when dealing with structured data while AI is needed when dealing with unstructured data such as email and image content. Certain processes associated with underwriting, claims and policy administration that require various formats of customer data from varied resources require the use of both RPA and AI.
Through various sources such as social media and connected devices insurers are able to process as well as capture huge volumes of both structured and unstructured data from customers through automation systems as technological advancement continues.
The processes involved in life insurance require a lot of paper work which is time consuming and requires more human labour. This means the work done will be prone to human error however automation can digitalise the process reducing the time taken to process the data as well as minimise the chance of human error. Automation also enables insurer to provide a personalised service to their customers.
Due to heavy competition as well as reduced investment income there is a decrease of profit margins for life insurers hence there is a necessity for life insurance firms to optimize costs and reducing the error and delays in their processes through integrating automation.
Capgemini-Efma World Insurance Report (2017) states that AI and RPA are considered a top priority by 63.2% to 69% of insurance firms across the globe. In the current environment the life insurance business is very competitive hence they are required to automate underwriting, servicing, policy administration all of which are core processes in the life insurance industry. This is essential for cost optimization and improving customer satisfaction.
The core policy processes and systems that could be automated using RPA and AI are as follows:
Automated systems can be integrated in the underwiring process to underwrite tailor made policies through personalised risk and need assessment in order to speed up the process.
- Processing Claims
Through automated claims processing, claims can be resolved and settled faster. They can also help in effectively eliminating fraudulent claims using advanced fraud detection algorithms. A life insurance Firm based in Japan called Fukoku Mutual Life Insurance has already made use of AI by replacing its manual system with and AI system which is used to calculate pay-outs to policy holders. The AI system is expected to give a return on its investment within two years and is expected to increase the productivity of the firm by 30%. The AI system has cognitive tech that allows it to analyse and interpret a variety of data formats. However, this meant more than 30 employees were laid off to be replaced with an AI system. This could have a knock-on effect on other insurance firms who decide to adopt this type of technology as more employees will be made redundant.
Policy Administration and Servicing
Creating and issuing a life insurance policy can be time consuming as it is a very intensive process in terms of the number of documents and data that need to be analysed. Hence automation of this through AI and RPA can reduce the turnaround time significantly.
The RPA and AI systems can be integrated into the renewal and cancellation process as these systems will be able to automatically send reminders for renewals as well as gather feedback during cancelations. Also, if customer details or policy details change the RPA system will be able to update the required fields that use these data.
Life insurers have begun to embrace the cloud to distribute new offerings. The cloud is very flexible and is able to handle a large volume of behavioural data from various sources such as wearable technology. It can also provide real time insights to both the insurers and customers. Life insurers will able to cut down on the infrastructure costs that come with the IT uses as the cloud will help manage with the under capacity and underuse of the IT infrastructure already available according to Microsoft (2016). The Cloud can help with insurers needs to streamline their processes as well as make them efficient. It also helps with Life insurers need to improve their ability to collaborate with their external partners such as agent, broker or agencies.
For the development of new applications insurance firms have begun taking on board a cloud-native approach. Around half of the insurers consider cloud-native approach to be a core part of their technological strategy.
An example of cloud-native approach is shown by a company named MetLife who developed a new user interface which streamlines their customers and agents experience in order for them to have a complete relationship with the insurer on any platform such as Mobile, Tablet and PC.
Smart contracts based on the use of blockchain is very likely to be a huge game changer in the life insurance firms over the coming years. It will help with the processing of claims, increasing transparency as well as enhancing the operational efficiency.
Block chain technology is a shared, decentralised distributed ledger where every user of the Blockchain has a copy of the ledger and participates in independently confirming transactions in the absence of trust in the peer to peer network. This makes the process highly transparent.
Distributed ledger technology allows the coding of contacts which are simple (Smart Contracts) which is executed automatically when certain conditions on the blockchain are met. These conditions are already predetermined. Life insurance can leverage the blockchain technology to increase transparency, operational efficiency and distribute the data between shareholders.
Smart contracts that are based on the use of Blockchain is an insurance contract written in code that is automatically executed when a claim has been made on a peer to peer shared network. An example of this is information shared by hospitals and medical centres on the deceased since this information can be shared with the life insurance firms as well as the government health department at once, so they can both directly use the information where it’s needed. One of the main reasons for the requirement of smart contracts is the need for automatic initiation of life insurance policies and reducing the time taken to process claims during customers distress. Smart contracts benefit the life insurance firms as it reduces cost and increases operational efficiency as there is no requirement for the role of a third party. Blockchain reduces the number of fraudulent claims since it’s very transparent, takes the general agreement from all the parties and maintains collated data from related organizations.
Many life insurance firms are looking into the use of Blockchain as it enhances security and simplifies the process of data transfer hence increasing transparency. Several leading insurance firms have already joined a Blockchain advisory council created by LIMRA to explore the possible Blockchain based solutions. According to The Insurance and Investment Journal (2017) members of the advisory council have representatives from a variety of firms such as AXA, John Hancock, Lincoln Financial Group, MassMutual, Nationwide, Northwestern Mutual, Pacific Life Insurance Company, Penn Mutual and Principal Financial Group.
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- Capgemini (2017) Top 10 Trends in Life Insurance 2018 Available at: https://www.capgemini.com/wp-content/uploads/2017/12/life-insurance-top10-trends-2018.pdf (Accessed: 08 November 2018).
- Gamification case study: AXA online game educates customers on insurance fund (2015) Available at: http://www.digitaltrainingacademy.com/casestudies/2015/03/gamification_case_study_axa_online_game_educates_customers_on_insurance_fund.php (Accessed: 08 November 2018).
- Institute of International Finance (2016) Innovation in Insurance: How Technology is Changing the Industry. Available at: https://www.iif.com/system/files/32370132_insurance_innovation_report_2016.pdf (Accessed: 08 November 2018).
- Markets and Markets (2017) Wearable Technology Market worth 51.60 Billion USD by 2022. Available at: https://www.marketsandmarkets.com/PressReleases/wearable-electronics.asp (Accessed: 08 November 2018).
- John Hancock (2017) The John Hancock Vitality Program. Available at: https://www.johnhancockinsurance.com/vitality-program.html (Accessed: 08 November 2018).
Capgemini (2017) World Insurance Report Available at: https://worldinsurancereport.com/
(Accessed: 04 December 2018).
- The Insurance & Investment Journal (2017), Robo-advisor announces digital insurance service. Available at: https://www.finextra.com/pressarticle/68987/robo-life-insurance-startup-certua-to-launch-in-uk (Accessed: 04 December 2018).\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\
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