"Digital disruption" is a term we hear so often these days that it's almost lost all meaning. The insurance industry isn't known as an early adopter for new technologies, and is undergoing some major technological changes not seen since the advent of the internet. Shifting customer demographics, downward cost pressure and new technologies all are forcing insurers to look for cost savings to boost profitability while at the same time providing a new generation of customers with the kinds of services they demand. Consulting sat down with Seth Rachlin, Executive VP, P&C Insurance Lead at Capgemini to talk about how the industry is changing and what it means for consultants.
Consulting: What have been some of the big recent changes you've seen in the insurance industry?
Rachlin: I work with the full set of our property and casualty clients across the broad range of services we provide. What we're seeing and what we continue to see accelerating is a real desire to really re-define how insurance is actually sold and delivered based on the capabilities of various digital technology. It's no secret the insurance industry has been behind a number of other sectors, including its sister sector banking and financial services, in terms of the kinds of capabilities customers are offered in what I'd call a "seamless digital interaction."
Consulting: What components make up that seamless digital interaction?
Rachlin: It's really three things. First is a desire to enhance and, in some cases, create new insurance products that benefit from things like connected technologies and other ways of really changing the nature of risks that are actually insured. Second, I think we're seeing a desire to substantially change the customer experience, to make it more seamless, faster and more customer-focused in the broadest sense of the word. Third is the ability of these technologies to take cost out of the system. My focus is property and casualty; it's an unbelievable statistic that for every dollar of premium insurance companies take in, 30-35 cents of that is administrative costs in one form or another. We often don't think about what these ratios mean or what they're actually saying. That's an equation that when people look at it, that's where people see the opportunity. There's a real ability to change the cost structure of the industry based on some of the technology capabilities that are out there.
Consulting: How will industry changes be felt on customer side?
Rachlin: From a customer perspective, whether it's product changes based on things like connected homes, connected cars, just-in-time insurance enabled by mobile devices, all those kinds of things. I do think the product change is still less dramatic than some of the servicing changes, like the notion that for a minor car accident you get out of your car, take a bunch of pictures or now maybe you do a 360-degree video which is mobile phone enabled. Then you get a repair center to get an estimate and actual payment all in near-real-time. That's a different customer experience that Insuretech enables. I think it's both a product and an experience change you're going to see from a customer perspective.
Consulting: What forces have given rise to this digital insurance revolution?
Rachlin: There's always two pieces to the equation. The actual availability of relevant technologies, because without the capabilities nothing happens. That being said I think it's two things, number one, changing demographics of the customer base and the emerging customer base. The notion that the next generation of insurance customers just doesn't want to be dealt with the way prior generations have. So you have a much less sticky agent-insured relationship as a consequence, a real need to reinvent the experience. The second piece is the change in economics of the industry. As I mentioned before, 60-65 cents goes towards claims and 30-35 cents is administration costs. You add those together and that's 100 and there's no profit. So you had an industry that living off investment income for many years, generally in fixed investment vehicles where interest rates are so low and have stayed low over a long enough time there's significant cost pressure from throughout the industry.
Consulting: What are the big consulting opportunities you see arising from this transformation?
Rachlin: I think the word transformation is almost overused in the sense that virtually every company we talk to has some form of transformational program at work. If you think about redefining customer experience through digital and all of the distribution oriented dynamics associated with that, what are the customer journeys, what are the personas we need to digitize and how does that change the distributional landscape and relationship of the agent and customer? That's a huge consulting opportunity and I think almost every company is asking themselves those questions. From an operational standpoint, how do you, from a combination of technology, robotics, AI, and data analytics, take cost out of the operation? How do you actually make the product of true straight-through processing from most insurance transactions actually happen. Another is for the new economy we're looking at, how do we re-define insurance product so it actually actively addresses the new nature of the risks of this economy. The most trivial example is how do I change a homeowner's policy so it handles the fact that I may rent my home out to AirBnb? Or how do I provide the right car insurance for someone who drives for Uber two nights a week? The changing nature of the economy requires changes in the insurance products space, and that's a great consulting opportunity.
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