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Why digital is not enough in insurance

Why digital is not enough in insurance

Charlotte Koep  •  30 November 2021

If you think that a pivot in insurance strategy to digital means staying ahead of the innovation curve, you’re probably wrong.

While enabling direct-to-consumer digital distribution channels is a prerequisite of any relevant strategy, it is only the first step. With non-traditional players successfully selling insurance to their existing customer base, consumers are becoming increasingly accustomed to (and expect) an embedded insurance journey.

Let’s briefly explore this new world, how Open Insurance will enable it and outline some of Root’s key empirical findings.

Digital insurance is bought, not sold

The COVID-19 pandemic has accelerated insurance into the 21st century as distribution channels moved online and on-mobile overnight. Incumbents with no digital strategies to dust off have been left behind for the simple reason that digital front-ends are not compatible with analog back-ends. Without a system to handle digitised customer journeys, the plethora of websites launched have likely created an administrative nightmare for operational and compliance teams.

Be that as it may, we don’t intend to convert you to digital- the assumption is that we’re preaching to the digital choir. We intend to encourage you to look beyond digital, to realise that digital is just the first step of an existential transformation.

You may be familiar with the platitude insurance is sold, not bought and why it exists. In a 2016 Insurance Thought Leadership article, Maria Ferrante-Schepis argues that holding onto this notion in a world where the consumer is more empowered than ever has caused the industry to lose focus on the end consumer. Ultimately, consumers are in fact looking to buy insurance but are frustrated by the existing user journeys.

If she is right (which we think she is) what matters is how consumers want to buy insurance; what is the user experience they demand?

Embedded insurance

We back the notion that the ultimate user journey for purchasers of insurance is an embedded one, where buying insurance is a part of satisfying the customer’s Job To Be Done, not separate from it.

Embedded insurance is not a new concept and much has been written about it. Sibylle Fischer of Baloise describes the concept best - embedded insurance means that “the insurance product is not sold to the customer ad hoc, but is instead provided as a native feature...in the purchase of a product, service, or platform”.

For example, your Job To Be Done when buying a car is that the money you spend now will ensure transportation for the next five years with no additional capital expenditure.

How do you meet this need? By including motor insurance as a part of the product being bought, i.e. the car or the insured car.

The industry, from reinsurers to brokers, recognises and embraces the reality of embedded insurance being, at the very least, a dominant feature of the future of this market.

Those at the forefront of industry strategy understand that enabling embedded insurance is crucial in gaining and maintaining a piece of the growing distribution pie. According to Munich Re (referencing 2020 research) “truly embedded insurance has just started to emerge and has the potential to grow into a trillion-dollar market”.

In the same piece, Martin Thormählen highlights the reality that “Embedded insurance sounds like a logical and simple next step in digitalization but in reality, it is a massive change within the business model. Insurers need to have a dedicated organisation and have to own a modern, evolutionary IT architecture to be able to partner successfully with OEMs, retailers, telcos, etc.”

Enter the concept of Open Insurance- the lesser known and loved brother of Open Banking.

Open Insurance provides third parties open access to consumer insurance, transactional, and other data and services from relevant sources and players through the use of application programming interfaces (APIs).

In short, to truly remain at the forefront of the waves of change rippling through the insurance landscape, adoption of technology platforms leveraging open APIs is an essential and foundational piece of any modern strategy.

Root powers embedded Open Insurance

Root’s easy-to-use APIs are designed to power the world of Open Insurance and thereby enable embedded insurance. Even though the adoption of Open Insurance is in its infancy, our experience building and supporting embedded insurance products for clients has allowed us to gain valuable insights into what the characteristics of successfully embedded insurance products might be. They include:

  • Simple, digital, embedded customer journeys
  • Simple, easy-to-understand products
  • Self-help possibilities
  • Minimal data input fields to inform underwriting and pricing

In the work we do with our clients and observing product performance across the Root platform, we are continuously learning and crafting a better view of these characteristics and, fundamentally, how we can continue to support our clients in achieving them.


Author

Charlotte Koep

Chief Operating Officer

Root is an end-to-end digital insurance platform that enables you to launch new products and digital engagement channels fast. We package all the compliance, regulatory and reporting complexities behind easy-to-use APIs, allowing your team to focus on building great customer experiences.

Are you interested in taking your insurance business to the next level today? Email us at hello@root.co.za or get in touch here to hear more.

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