Connected insurance not only incorporates the latest technologies, it also makes the internal logic of the insurance industry even more effective and efficient. It streamlines processes, reduces costs, and personalizes the customer experience. For all these reasons, as we shall see, industry players can no longer afford to ignore it.
What is connected insurance?
It’s the wearable devices that record health indicators in real time and allow doctors and patients to be in constant communication. It’s the home automation systems that allow homeowners to control lights and locks directly from their cell phones. It’s the software installed in cars that provide data both to those behind the wheel and to a range of stakeholders with various interests in driving habits and car performance: automakers, institutions that monitor and govern traffic, drivers of other vehicles and, of course, insurance companies.
What we have described are all cases that we can relate back to connected insurance, an innovative business model that:
- uses IoT platforms, sensors, and devices to collect useful data to monitor actual user and consumer behavior
- translates this data into insights that it makes available to industry players
Connected insurance integrates input from a variety of sources into an interconnected ecosystem with the goal of creating knowledge that is useful in improving the decisions of companies operating in the insurance industry.
The impact that connected insurance has is not so much on the nature of insurance processes, which remains essentially the same, but rather on the speed, reliability, and ease of execution of those same processes. Let’s elaborate on this last statement.
Connected insurance: the evolution of the insurance business
Connected insurance may sound like a futuristic trend, but it is actually the evolution, made possible by technological development, of the typical core activity of insurance agencies, which is the activity of formulating a risk assessment based on customers’ personal information to dynamically determine the price of insurance products. In other words: connected insurance represents a considerable step toward the goal of developing accurate forecasts that make it possible to make business offers increasingly tailored and thus more attractive to the individual consumer. It is the horizon, until recently considered unapproachable, of perfectly tailored services. Such an outcome seems incredibly closer today because, as digital technologies advance, the units of information (data points) available to insurance companies are increasing.
What are the benefits of connected insurance?
To build their products, insurance companies today can leverage some of the devices we routinely use in our daily lives to collect data that is advanced and real-time and use it within automated processes (processes that are increasingly being enhanced through artificial intelligence and machine learning applications).
- On the customer side, this means being able to count on profiled offers that correspond more closely to real expectations and on timely and personalized communication. Thanks to connected insurance, the insured receives a treatment designed for his or her specific situation.
- On the insurance company side, the data-driven solutions of connected insurance make it possible to monitor customers more rigorously in order to provide timely alerts and reminders in the case of potentially risky behavior. Thanks to insurtech – digital technologies applied to insurance – it’s possible to offer better products (because they are built from data-driven insights) and to design innovative actions with the aim of increasing customer engagement, building customer loyalty and reducing the number of claims.
In short: telematics and IoT make it possible to optimize costs, to offer more targeted and flexible insurance policies, and to personalize the customer experience. Going into even more detail, customers and insurers benefit from the transformations produced by connected insurance on at least four key aspects.
- Accurate and real-time information: thanks to open data, which is constantly updated by the very users who produce it, policy underwriting processes have become faster, easier, and more accurate, to the full satisfaction of customers who don’t have to repeat the same information over and over again. The data-driven platforms at the heart of the connected insurance system, which manage huge streams of data, are able to detect risks and possible fraud quickly and with less uncertainty. Insurance companies are better protected and the perceived customer experience also improves.
- Minor costs: another benefit of connected insurance is that processes are more streamlined, faster, and more accurate: they save time and money both for insurance companies, which can draw on a wealth of correct, complete, and up-to-date knowledge, and for customers, who have access to new self-service ways to consult documents, request information, and perform counter operations without having to contact a physical operator. In addition, insurers, who are no longer engaged on repetitive tasks, can focus on more valuable issues.
- Increased competitiveness: companies that have implemented connected insurance projects are bound to become more competitive. Aside from the advantages we have already mentioned, since the insurance industry tends to be conservative—according to a recent Capgemini report, just 18% of insurance companies are able to exploit the potential of data—companies that begin (or have already begun) to use new technologies organically will accrue a considerable gap over those who have not yet taken action.
- Advanced personalization: connected insurance, we have seen, has undeniable advantages in terms of savings and efficiency. The great capacity for data management and analysis produces equally important consequences in redefining the relationship with the customer, which becomes more open and engaging. In a word: personalized. In a connected insurance ecosystem, data provides the fuel to empower all the tools that can enable the only customer service that lives up to the expectations of the contemporary customer, namely one that has reached an advanced level of personalization.
What is the context in which connected insurance has emerged?
What is at stake in today’s insurance industry? The industry is full of opportunities, and connected insurance is the best technological and strategic approach to take full advantage of them.
How much is the insurance market worth?
According to forecasts in the latest Swiss Re Institute report, the value of the global insurance industry would have reached a new record high by mid-2022, surpassing $7 trillion. This astronomical figure reflects three trends that have radicalized during this year: growing risk awareness, increased demand for protection, and rising rates.
The report points out that although the outlook for the sector is supported by a strong recovery (which began immediately after the pandemic crisis), economic growth will slow in the next two years due to energy prices and inflation.
Climate change and digitization are also contributing decisively to reshaping insurance markets. Decarbonization in particular, which goes hand in hand with the dematerialization of documents, is one of the crucial levers on which all companies actively engaged in the transition are focusing attention and investment toward a “green” economy. These companies include many in the insurance industry, which can contribute both by developing best practices with which to absorb losses from uncontrollable natural events and by promoting investments in sustainable infrastructure.
Finally, the study found that the adoption of digital technologies has played a key role in accelerating global productivity growth and intensifying interaction between customers and insurers.
How important is insurance digital marketing?
In the 2022 edition of McKinsey’s Global Insurance Report, there is ample space for achievements through digital innovation, especially those related to insurance digital marketing efforts. The report found that technology investments have risen over time: from $1 billion in 2004 to $7 billion in 2019, to more than $14.6 billion in 2021, and that more than 40% of insurtechs focus on marketing segments and the insurance value chain.
A major emphasis is on improving the customer experience that can be achieved through the implementation of digital marketing initiatives. In fact, a digital experience that customers perceive as distinctive becomes an indispensable prerequisite for growth both in quantity (sales and subscriptions) and especially in quality (loyalty).
To succeed in designing and implementing a digital customer experience that is both useful and relevant, it’s essential to modernize your technological infrastructure. Innovation in the insurance industry is a complex process that involves an organization at different levels. Digitization is putting a strain on the legacy systems of many traditional insurance companies, which are being called upon to decide quickly whether to replace pre-existing tools directly or to put them alongside the latest generation platforms in the short term.
In any case, change seems inevitable: from 2012 to 2020, technology’s average share of operating costs has increased, and the key driver of this increase is digitization, both at the front end, where technology improves the customer experience, and at the back end, where digital improves productivity and operational performance.
New customer behaviors require change, both in the distribution of products and services and, more importantly, in communications between insurance companies and their customers: more and more people are using digital channels with increasing ease and now expect to find the same standards both when they buy insurance offline and when they buy it online. A “multi-access” experience that is seamless and consistent across every channel is for this a minimum necessary condition to avoid being abandoned for another company. Insurance digital marketing is the only approach that can guarantee a truly omnichannel strategy, the only one that can build every action so that the customer is the absolute protagonist.
Digital channels in the connected insurance ecosystem: on-demand insurance policies
Connected insurance promotes dynamic models that can update in the background and adapt to new levels of risk exposure. They are ideal for the kind of usage-based insurance that is increasingly in demand. This is the on-demand insurance policy, which allows customers to purchase or update their insurance coverage online or via app at any time, from any device, and without the need for intermediaries (in fact, any changes made to the policy are made based on data processed in real time).
The Italian situation: the irresistible rise of digital
If they need information about policies, nearly 7 out of 10 Italians choose to look for it online: 35% consult the insurance company’s website, 11% open the app, and 21% read online reviews to get an idea of the weaknesses and strengths of different solutions. These numbers make us realize how digital channels have now become an integral part of our ingrained habits.
Even when purchasing a new policy, at a particularly delicate stage because it includes the payment procedure, 52% of Italians prefer the digital channel to the physical one. A significant 47% of users rely on analog channels; those who choose more “traditional” modes of contact prefer to interface with an advisor because they fear scams, data theft, or find the company’s website or app off-putting.
This is the situation described by the “Hybrid Lifestyle” Observatory by Nomisma in collaboration with CRIF, which indicates a growing use of digital channels in the insurance field by Italians. There are many reasons behind the tendency to favor digital:
- receiving immediate assistance
- reducing the time to handle paperwork in the event of a claim, from damage detection to filing a claim
- cutting bureaucratic steps to get the right coverage at the right time for the right amount of time
In general, we can say that new technologies, which are more pervasive and easier to use every day, are increasingly influencing both consumer choices and the way insurance services are used.
Connected insurance supports the building of a valuable relationship with the customer
Digital transformation has also spread to the insurance market, offering companies not only new tools and strategies but alternative business models, such as connected insurance, which promises to profoundly transform the customer experience of policyholders.
The advent of IoT and home automation, as well as the use of big data, are preparing the insurance world to face a challenge that is cultural even before it is technological: capturing and maintaining customer attention and trust over time. In this scenario, connected insurance has an extremely positive effect for the insurance company in all its complexity: it allows us to develop a strong and meaningful market presence, primarily digital, through autonomous channels and modes. This is why we can no longer afford to ignore connected insurance: because it supports building a strong relationship with the customer, bringing them firmly back to the center of processes.