What's Happening?

The rise of customer disruption



Up until now, insurance product complexity, regulation, and established insurers’ balance sheets have kept insurtech and other digital disrupters at bay. However, this is changing. The new customer generation expects to be able to interact with insurers and brokers in an omni-channel digital experience. The key question facing insurers, underwriters and brokers going forward is how to facilitate the needs of their customers in an ever-evolving digital world and offer lifestyle choices to create the broad experience this generation has come to expect.

No customer needs to check on their insurance policy daily. It is different from banking or investments. But customers expect the same type of experience when they interact with their insurers. For the past 20 years, insurers have focused primarily on efficiencies and speed to market – and these may still be their main objectives. But, in the general market, these priorities have been superseded by changes in customer expectations.

Millennials and Gen Z enter the customer base

Insurers will need to balance the needs of new, younger generations with those of older ones, including the Gen Xers and Baby Boomers, who do not have the same preferences or aptitude when it comes to digital interactions. It is important to remember that the customer and employee demographic combination will change dramatically between now and 2030, when digital natives will make up half of the adult population.

To understand digital natives’ distinctive attitudes towards risk is vital. They have a methodical and information-gathering approach to assess what to do with their money and their free time and careers that may strike the older generation as risk averse. Their choices and decisions may simply be a practical response to financial crises and other world shocks of the time. They respond differently to change. They tend to focus on the things they can control and turn a blind eye when they feel they have no influence over a problem. They want to deal with or work for companies they can trust, companies whose values match their own. And they require flexibility. 

As this generation continues to mature, gain experience, and express their preferences about what they constitute as risk in their personal, financial, and work lives, they will start to play a more influential role in the economy. These preferences will dictate the risk products on offer and how insurers recruit and develop talent.

This digital generation wants simplification and a holistic view to manage their lives across different areas. It is important for insurers to pay attention to these changes and to develop value-added and digital services to manage risk, while protecting the homes, motor vehicles, health and retirement of the younger generations. This rapidly changing nature of home, work, business, and family is erasing the conceptual lines that have kept insurance “traditional”. These new generations have made significant lifestyle shifts and choices, which are outpacing the older generations in all aspects. This leads to truly diverse risk needs and an entirely different range of insurance solutions.  

Innovative marketing battlefront

The pandemic has accelerated the need for change. Insurance companies have focused on digitising their existing processes to enable virtual engagements to continue with current sales, advice, and engagement models. A major customer perception is that the insurance industry players engage with them in a siloed manner, selling them individual product lines or solutions driven by remuneration structures and not addressing their holistic needs. 

Today’s customers increasingly expect a more meaningful and diverse value proposition and relationships built on trust. They are looking for partners to assist them or advise them on how to achieve their personal objectives and levels of protection. This will require the insurance industry to coordinate and collaborate or partner with different marketplaces and ecosystems that deliver a total life experience strategy and a set of services to help customers meet their personal, risk protection and financial goals.

An example of this would be to provide a free and clear platform for recommendations and estimation that will optimise customers’ insurance, mortgages, and investments to help them achieve their financial planning targets, budgets, and life stage ambitions. 

It will require research to understand how customers are trying to solve a complete set of financial challenges outside the products and services you currently offer as an insurer. Engaging in a more holistic way will require you to review your advice models as well as your fit-for-purpose distribution models. Accommodating and supporting this new consumer demand will require investment to develop refined digital architecture and business models that are more authentically purpose driven.

The answer is hybrid

The new customer generation avoids face-to-face engagements. They prefer their interactions to be online. This often means financial advisors, who traditionally provide advice in person, struggle to reach people. And when they finally do, they spend a sizable portion of their time doing admin and compliance tasks instead of giving advice.

Online engagements will simplify uniformity in compliance around advice. Increased adoption of hybrid models will create better quality controls, save time, and reduce advice risk. This will require a redesign of existing advice models to enable advisors, both in terms of the advice they dispense and how they dispense it. Technology will enable intermediaries to sell more, with greater alignment to their needs, as it will reduce admin and assist with decision making, thereby reducing distribution costs.

Looking into the future

Why commit and invest in something now for a risk that may never happen in the future? It is a common phenomenon that we put off buying insurance until we need it. Loss aversion is a natural human cognitive bias and a result of many influences, includingbut not limited toindividuals’ neurological make up, socioeconomic status, and cultural background.

But when a risk event happens, our rationalisation changes and insurance becomes a priority. Rational or not, when we decide to buy insurance can be explained by science. Behavioural economists Amos Tversky and Daniel Kahnerman describe it in their “prospect theory”, which determines how we decide what is “risky” and what we perceive as “gains” rather than absolute outcomes. According to the theory, many individuals view their insurance payments as a loss for unknown gain. People tend to purchase insurance after a risk event and cancel their policies years later when they perceive the likelihood of a risk event as low again.

So why is it that after experiencing a risk event, getting insurance seems worth it, but the odds of this risk event are still the same? Tversky and Kahnerman call it the “framing effect” where identical situations generate dramatically different decisions depending on whether you see the situation as a potential loss or gain. People adopt risk-seeking attitudes when confronted with losses and risk-averse attitudes when facing gains. Many important decisions we face require incurring losses. Loss aversion can prevent people from making the right decisions for themselves in order to avoid failure or risk. Though being risk averse is useful in many situations, it can prevent certain people from making rational and logical choices as their fear of loss is too intense.

Behavioural economics research has shown that when customers are compelled to visualise their future, they often make better financial choices. The key is to facilitate customers to connect to their future selves and make the impact of their decisions tangible to them, there and then, to drive informed decision making. Using a combination of gamification or multimedia content, match sharing and scenario modelling, this will drive better financial outcomes for customers and increased premiums or assets for the insurance industry.