by P.E. KelleyMr. Kelley is managing editor for this magazine. Connect with him at [email protected]
Part II of a two-part conversation with Mr. Sprackling on the role this industry plays in the digital-transformation of business. Read Part I, ‘Next-Gen Underwriting’ here.
Ecosystems are the new market. And as consumers embrace a new power, one that they wield in the palm of their hands, every typical business-to-consumer relationship has become summarily disrupted. Retail markets are in free-fall, as brick and mortar evaporates into the cloud and distribution becomes reinvented in a new digital space. And make no mistake about it: insurance & financial-services is in no way immune to this new order. In fact, it is playing catch-up.
Neil Sprackling is president of SwissRe’s Life & Health U.S. Business. He spoke with us about the new digital order in today’s global economies and its impact on existing consumer relationships that have already begun to fall away. According to his company’s research, consumers have more choice than ever before and, thanks to the ubiquity of smartphones, they can access their choices from their own home, workplace and on the go. Thus, every business market has had to adapt to this new constellation to maintain and expand their customer base.
PEK: Swiss Re says Digital Ecosystems are the new markets. While we can infer the deeper meaning of that statement, it might need to be clarified. Is it a revolution of how business gets done in the world?
NS: In a word, yes. Even 10 years ago, when you remodeled your house, you went to several stores to purchase all the things you needed. You went to a furniture store to get new beds for the kids, you went to a hardware store to get new flooring, you went to a paint store for the paint. Consumer expectations have shifted. People expect to conduct business on their own terms at their own time. Now, you can purchase all these things on Amazon through your mobile phone and have them delivered to your door. Amazon’s its own digital ecosystem.
This kind of one-stop experience is not just happening in the retail space either. It’s happening in healthcare, utilities, and financial services. Customers can accomplish more in one single digital space that is connected by a network of companies that provide the customer with a more holistic experience.
Participating in digital ecosystems would be one way for the insurance industry to deliver more relevant products that provide better value. For example, what if my insurance company can provide an assessment of my risk that makes sense relative to what I›m hearing from my doctor, while working with me to provide access to trusted advisors? Or what if my financial advisor can help me translate my insurance protection needs in a way that feels tailored to my own personal income, investment and risks in a clear and tangible way? And what if I can access real people or digital solutions at my choice in any combination of online and offline services that works for me at any time and in any way?
PEK: How are financial services in particular adapting to the new constellation?
NS: The industry is moving toward “Digital First” strategies. This means that customer communication channels, products and services are now being designed so that they’re scalable across many digital channels, thus making it easier for customers to integrate all their financial data and solutions into a single platform or experience. Insurance and insurtech innovators are investing in platforms which will enable services and solutions to be deployed into consumer ecosystems that surround and support the financial and physical well-being of customers, helping them live longer and healthier lives. John Hancock, for example, provides its life-insurance customers rewards based on healthy food purchases and activities logged on wellness trackers. Sharecare is another example of a sophisticated health and well-being platform that is helping consumers to manage their physical and financial stress all on one app. Expect to see them in the insurance space before too long.
Increasingly there are new avenues for engagement with multiple touchpoints where companies interact with customers through mobile devices, wearables, social media, email, and chatbots. Collectively these interactions generate new data and insights that help insurers customize products and provide better experiences. As a result, companies are ramping up their focus and capabilities in the area of data. This includes hiring data scientists and assessing the quality of their own data while also assessing the potential usage of external data sets.
PEK: If we consider that data is the fuel of this ‘new engine’, how is it transforming the way companies relate to consumers… and vice-versa?
NS: Customer data is proliferating exponentially. While all of this data has the potential to provide a more complete understanding of customers, it can be overwhelming for companies. It’s crucial for companies to properly collect, manage, and extract insights from the data. Companies are also recognizing how essential it is to ensure customer-data security. Telling customers how their data will be used and ensuring privacy are key areas of reputational risk for companies.
Customer expectations are also changing. Companies like Netflix have primed customers to expect that companies know how to use data to deliver excellent products and services without bothering them with repeated questions. The bar has been raised and insurers must meet these expectations.
PEK: For insurers, how have data ecosystems altered the protocol for risk-assessment?
NS:New data ecosystems open up opportunities for insurers to not only access new risk pools but new kinds of underwriting data. Today there is interest in evaluating and potentially using additional data sources on applicants that could provide information on their future health trajectory. That information might either be overtly clinical in nature, such as a history of prescriptions an applicant takes, or perhaps data obtained from biosensors, like heart rate or step counts. It’s possible to think of no longer pricing the risk of an individual at a single point in time; digital ecosystems allow us to continuously gather customer wellness data and adjust the price of a person’s risk to reflect the changing state of his or her health over time.
At the same time, regulators are carefully scrutinizing how customer data is being used to ensure high-risk individuals are treated fairly and not charged prohibitively expensive premiums.
PEK: Do you consider the emergence of new ecosystems the front end of a total revolution in commerce? If so, what does the far future look like?
NS: There is no doubt commerce is being transformed by digital ecosystems, but we are experiencing the transformation more as an evolution rather than as a seismic change. I don’t have a crystal ball, but I think it is safe to say that over time, we will have fewer apps on our phones that allow us to do more things. This is because digital ecosystems integrate data, services, and functions to create a better customer experience.
Our shared mission in the insurance industry is to close the insurance protection gap. In an ideal world, we would equip every person with the insurance product that they need to secure their personal and financial well-being. We imagine a world where insurance could be purchased through various customer channels and it would be easy to purchase and easy to process claims if necessary. Technology and data are key enablers.
Predictive models will make it possible to identify people that do not require traditional underwriting because we will be able to use other data to replace information used in the traditional process.
Insurers could work with customers in the ecosystem to alert them to changes in their health and financial risks, while supporting them with interventions and risk-mitigation tools. Swiss Re is already taking steps in this direction by creating a new product concept for people with diabetes and mild chronic conditions. Life insurance of the future will no longer be a product awaiting your beneficiaries when you pass away or an investment tool. It will be more integrated into your life, helping you manage your current health and financial risks.
PEK: What is the new dynamic for customer loyalty?
NS: Swiss Re conducted a test in South Africa which showed that members of a wellness program had 11% lower lapses than nonmembers, and that persistency improved in relationship to the level of membership. By extension, the better the perceived value of a relationship, the more likely a customer will stick around. Ecosystems create the opportunity to present insurance offers in a context that is very relevant for customers and help make a connection between near term value and the longer-term protection promise of insurance.
Swiss Re also recently conducted some interesting research to better understand the customer of the future. One key insight revealed that emerging customers are motivated to buy life insurance from companies that not only meet their functional needs, but also their emotional needs for an enjoyable, low-stress experience and their desire for personal growth.
Alibaba in China has accomplished this by empowering customers to decide on the payout of claimants through a collective voting system, which creates a community product with emotional value. Similarly, Lemonade allows customers to decide on the social cause they want to support with any unused policy funds, allowing them the emotional benefits of joining a community of like-minded individuals. In both cases, these companies also provide simple, immediate insurance processes.
In a nutshell, customers are gravitating toward companies that not only deliver what they need, but also make them feel good and help them become who they want to be. This greatly expands what it means to sell life insurance and requires us to think in new ways.
PEK: How firm a grip do we have on the flow and control of data, and ultimately on the critical safety of these new systems? It seems that cyber security is only in its early stages.
NS: Privacy breaches, systems failures, business interruptions all can have a large reputational risk on businesses. All of the major tech players consider IT security as a top priority for their platforms and services. Technology capabilities are strengthening in this area and we are optimistic that the threat of cyber security will continue to be diminished. We may never be able to eliminate the threat of a cyber security attack, but insurance companies are working to provide insurance coverage for the gaps and threats which will remain. ◊