Is Insurance an Old Business? Not at all. It is innovating fast!

Is Insurance an Old Business? Not at all. It is innovating fast!

One of the industry that is pushing fast in innovation is Insurance. Banks are continuing to change, but Insurance companies need to catch up a long period when their innovation has been rather limited. With innovation insurances aim to:

  • Grow market share through the execution of a strategic approach;
  • Gain competitive advantage by consolidating various processes;
  • Create an integrated approach to deliver higher quality service, more reliable information, and lower costs

Insurance are innovating in several ways, but in all the sectors:

  • Products
  • Processes
  • Organizations
  • Business Models

In terms of products the more extensive use of information and communication technologies is making possible new types of products. Still limited, re-insurance is growing in importance thanks to the possibility to communicate easily all over the world.

In terms of processes, insurance companies are more and more active in using new channels, like call centers, web and mobile. This channel can bring substantial reduction in prices. On the other side, it makes possible to switch insurance companies easier and especially compare prices and conditions, either by the customer itself or through the so-called aggregators. Information and Communication Technologies are becoming more and more important, similarly to what has happened for the banks (Nicoletti, B., Mobile Banking, Palgrave MacMillan, London, UK, 2014). As a consequence processes are being automatized at an increasing speed. The increasing use of digital channels, are also making easier to sell in distant markets. Compliance and regulations are becoming also more and more relevant. Of course, this requires an increasing expertise in risk and compliance management.

In terms of organizations, insurance companies are reducing their own agencies in favor of more digital connections directly with the customers. On the other side, they are finding more and more important to be active in marketing, also digital marketing.

In terms of business models the most dramatic change has been in the direction of going to selling insurance not anymore through the traditional channels of agencies and brokers. Insurance companies are selling more and more in two different ways:

  1. Direct to the customers, through digital channels. This is happening initially essentially for more standard products, like motor insurance. It is now spreading more and more to other P&C products;
  2. Through banks, in what is called bancassurance. This channel has been available for many years, but now it is picking up more and more especially for life insurance.

These innovations could have drastic changes in the medium-long term.

Insurance companies need to be leaner. As a consequence, the application of lean approaches is spreading out. Lean processes should rely on digitization. The real approach should be the one of Lean and Digitize(Nicoletti, B., The Methodology of Lean and Digitize, Gower press, London, UK, 2012).

Digital tends to permeate all the sectors in the new model of insurance companies. It is becoming essential in marketing. It is important in operations. It is becoming more and more important in risk management. Big data can help in a substantial way.

Competition is increasing, thanks to digitization which makes easier to sell in distant market and to the facility in comparing prices and conditions for some standard products, like motor insurance. The consequence is that there is a strong pressure on cost reduction. ICT expenses and investments are growing. As a consequence Finance scrutinizes quite a bit this sector. Procurement can help. Another way is to use new technologies, like for instance cloud computing (Nicoletti, B., Cloud Computing for Financial Services, Palgrave-MacMillan, London, UK, 2013).

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