The Future of Insurance: Personalized, Embedded and Data-Driven

Written by Ben Yoskovitz

Consumers want great experiences. Even from their insurance providers. The consumerization of the insurance experience is well underway. New, emerging Insurtech startups (some of which have scaled significantly) lean heavily into user experience, making things seamless and transparent. Providing high quality consumer experiences drives brand awareness and loyalty. People become fans of companies that treat them well and differently from the status quo. And let’s face it, the bar is quite low in the insurance industry.

But user experience is quickly becoming table stakes. On its own, it’s not a defensible moat. Insurance companies need to continuously improve how they deliver services and value to customers, but they also need to go beyond that.

1. Meet Customers Where They Are

People don’t wake up one day and think, “I need to buy [fill in the blank] insurance,” and then begin the process of searching for options. Once someone does get online to look for options, it’s a sea of sameness. It becomes incredibly difficult to discern the differences between insurance companies and their offerings. Even comparison sites that provide you with an array of “personalized” options end up listing so many choices it’s difficult to know what’s what.

There are two ways to meet customers where they are:

1. Provide embedded insurance in other services, experiences, etc.
2. Solve adjacent problems that are earlier in the customer journey (towards buying insurance)

Everything is becoming embedded

Embedded insurance is a trend that’s emerged over the last few years. Everyone in the insurance industry is exploring embedded insurance or trying to figure out where it’s all headed.

The concept is simple: Insert a relevant insurance product into another user experience or purchasing flow. A neo bank might offer credit insurance on loans it’s issuing to customers. An ecommerce site or marketplace may offer embedded insurance that provides coverage for lost or damaged items during shipping. Airlines offer trip cancellation insurance while you’re buying your airline ticket. It’s one simple checkbox–easy to click and transact. There are plenty of examples and more emerging all the time.

Embedding insurance into other services and products makes transacting easier for the user. The customer experience can be improved, as long as the customer knows what they’re buying. But more interestingly we see this leading to new types of insurance products being created. If you can embed simple, inexpensive insurance products into almost any service or product, what types of insurance products could exist?

This is where innovation truly plays a role, not only in finding partners to embed with, and meeting customers where they already are, but finding partners to co-create new insurance products that create added value for customers.

Connect with people earlier in the customer journey

A lot of insurance is purchased based on life events; i.e. buying a car, getting married, having children, etc. These are well known triggers that often get people thinking about their insurance needs. But insurance is still an afterthought. You don’t think about buying life insurance in the delivery room when your daughter is being born.

Eventually someone might say, “Oh right, we should probably get insurance.”

Insurance companies are at the tail end of most customer journeys, not at the beginning. You don’t buy auto insurance and then search for a car. You don’t buy mortgage insurance and then get a mortgage. You don’t buy general liability insurance for your new business before you actually start the business. In some of these cases you absolutely need insurance, it’s not an option–but that only increases the likelihood that customers see all insurance providers as the same. “Well, I know I need car insurance, so I guess I’ll find the cheapest option.” There’s no differentiation or opportunity to stand out in those situations.

One option is to connect with potential customers earlier in their customer journey. We think of this as ‘growth innovation’ designed to solve problems in adjacent areas to the core business. Insurance companies are in a great position to build new ventures that interface with customers before they need insurance. These new ventures become bridges (or lead generation opportunities) to the core insurance products and services.

For example:

• Provide an estate planning tool to new parents, where insurance is one piece of their plans
  
• Provide workplace EAPs (employee assistance programs) with concierge services around financial wellbeing
  
• Provide compare and contrast tools that help you buy a car, and include the potential cost of insurance as a decision making factor

The problems you’re solving for users come before the realization that insurance makes sense. These examples give insurance providers an opportunity to meet customers where they are in their journey, provide value, build brand & loyalty, and hopefully capture the future insurance purchases.

New Insurance Products + New Customer Experiences

Insurance companies, through an embedded strategy (or otherwise) can find ways to sell more of their existing products and create new products as well. Both are reasonable growth strategies. When focused on existing products, most insurers see this as “closer to the core” innovation (i.e. H1 innovation), often spearheaded by business units. The exploration of new insurance products (especially delivered in new ways, be it direct to consumer, embedded, etc.) is often the purview of “further from the core” innovation or ventures teams.

The balance is important. We often work with teams doing incremental innovation and teams doing disruptive or growth innovation at the same time, within the same organization, because of the importance of exploring multiple pathways to growth, and taking a portfolio approach.

So the first strategy we often see is selling existing products in new ways or selling new products the old way (or in new ways.)

The more “advanced” or bold approach is to build net new ventures that aren’t even selling insurance at all, but instead are adjacent opportunities, solving different problems, ideally earlier in the customer journey before someone realizes they need insurance. If you can capture people’s attention earlier and create value, the thesis is that they’ll more likely buy insurance from you at the right time.

Both of these strategies need insurance companies to increase overall efficiency and leverage data for faster decision making.

2. Optimize Everything

If you want to provide a great user experience, you need to hide all of the complexity. Users don’t want to know what the underwriting process looks like. They don’t want to be burdened by a hundred step claims process. All of the complexity and uncertainty that comes with the insurance buying (and using) experience has to be abstracted away as much as possible.

To do so, insurers need to “optimize everything” — and we think of this as very critical, core innovation, which sits within all aspects of operating an insurance business.

Data, data and more data

To underwrite successfully you need data. And lots of it. This becomes particularly relevant if you want to launch new insurance products, where you might not have the necessary data. As we think about data relevant to insurance, there are a few important components:

1. More effectively leveraging data you already have: The emergence of natural language processing (NLP) and machine learning techniques are creating interesting ways of accessing and analyzing existing data sets. NLP and OCR (optical character recognition) technologies allow insurers to tap into unstructured data sitting in PDFs, open text fields or web scraping results. Once these sources are processed, centralizing them in data lakes or catalogs allows authorized teams from across the organization to analyze and take action – whether that is personalizing pricing, better stratifying risk, or reducing fraud.

2. Identifying and accessing new data sources: With the proliferation of wearables, connected devices and sensors, insurers can access a broad set of real-time data streams to make products relevant and customized. Telematics, for example, can enable auto insurers to collect data on driver habits, distance driven, and vehicle condition, leading to usage-based policies that align premiums with actual risk exposure. The biggest challenge for insurers is ensuring the necessary permissions from users to access this data, usually through some form of value exchange like safe driving discounts or complimentary devices.
   
   Integrating third party data sets can also lessen the upfront burden placed on users during the application process. These integrations can help eliminate the majority of questions initially asked of applicants for certain types of insurance, which could allow more complex insurance products to be embedded in the same way as more simple product types are today.

3. Collaborating with others: Within the complex ecosystem of insurers, agents, brokers, MGAs, reinsurers, third party data providers, regulators and insurance associations, data sharing and collaboration has the potential to streamline operations and unlock new sources of insight if industry players can overcome some of the challenges they face in working together. These challenges include data privacy, security, ownership/approved data uses, quality, integration and regulatory compliance concerns. Companies must balance the pursuit of deeper industry insights through cooperation with their commitment to transparency and stewardship of individuals’ personal data. Privacy enhancing technologies are emerging, such as federated learning and homomorphic encryption, that can help companies overcome these barriers to collaboration while upholding their privacy commitments.

AI & automation

ChatGPT changed the game. It made us realize how powerful LLMs could be in conjunction with a simple chat interface. The complexity and power of LLMs is abstracted by an interface that everyone can use. This is precisely the lesson that insurance (and every industry) should take from ChatGPT’s rapid growth–make hard things easy for people to use and get value from.

Beyond that, it’s clear that AI and automation can play a huge role in optimizing operational efficiencies within insurance. Every company we speak to in the industry is testing AI and new automation capabilities across the value chain. This will only continue to accelerate, leading to new innovation opportunities at the very core of insurance.

Core Innovation Fuels Growth Innovation

When people speak about core, incremental innovation and growth or disruptive innovation they’re often categorized as polar opposites. 

Incremental innovation is there to protect the core business, increase efficiencies and make small improvements. It doesn’t lead to sea-change events or radical shifts in the business–simply steady as she goes is the play.

Growth or transformative or disruptive innovation on the other hand is meant to explore new horizons. Often this is bucketed into H2 or H3 innovation–further afield, with a longer time horizon. R&D is a bigger component, as is the exploration of new business models.

The definitions are fine, but what’s lost is the connectivity between the two, and this is even more readily apparent with emerging technologies such as AI, NLP, etc. that are having a huge impact across the innovation spectrum. The adoption of new technologies in the core business creates the efficiencies and new capabilities that can drive more successful innovation on the fringes. A more capable and advanced core business becomes a more solid foundation for broader innovation, new ventures, new business models and more.

Instead of incremental and growth innovation being opposing forces, they should be much more aligned. A business unit looking to optimize how it handles life insurance claims could instigate the creation of new businesses that help people through the grieving process. A business unit trying to improve its underwriting for small business insurance may realize it has the data and capabilities necessary to launch new, adjacent insurance products for the same customer.

The technological acceleration we’re facing today is a wake up call for companies in all industries, including insurance. I recently participated in a small roundtable discussion with Sam Altman, CEO of OpenAI, and he made a pretty poignant argument that the technology they’re building will have a bigger impact than the iPhone. What makes LLMs, OpenAI, ChatGPT, etc. so interesting is that it can positively impact a business across the innovation spectrum–improving operational functions and spawning entirely new capabilities and ventures. And the impact this technology can have on a core business will fuel the more transformative and growth innovation that insurance companies need to pursue.