Digitization in the insurance industry: Tailor-made for every situation in life — at the top of the Maslow pyramid

What challenges are currently facing the insurance industry in your view?

Welzer: For a long time, the insurance industry has not had to worry about its margins. But now a few things are happening that are causing concern in the industry. One important issue here is the interface to customers. Now there are comparison sites and young companies that are setting themselves up as digital advisors and effectively reducing traditional insurers to the role of risk bearer. These young companies now decide which kind of insurance the customer needs next. For each customer that traditional insurers lose at this interface, it gets more difficult for them to manage their customer business. That’s why many insurers now need an answer to how they can and should respond to these changes.

Are there any other challenges?

Welzer: Yes! The insurance market is particularly saturated in Germany. We are in a state of cutthroat competition where each new customer is fought over. It’s already difficult to convince young target groups of the benefits of insurance products. This can be remedied with new, flexible products combined with services, for example. But that’s especially difficult with inflexible and, in part, outdated systems. This is where young start-ups, who bring out new features in scrum rhythm and grow with the customer each week, are clearly at an advantage.

Can you give us an example of possible services?

Welzer: Let’s take traditional car insurance as an example. It used to be sufficient for customers to cover themselves for any possible financial losses. Today, in the event of damage, it is above all about a more abstract issue: I want to stay mobile! This means that with new services, insurers can inspire their customers by moving from the bottom of the Maslow pyramid to the top.

Why are some traditional insurers responding only haltingly to these changes?

Welzer: Insurance companies are not intrinsically highly agile enterprises. Each action is precisely calculated and taken with consideration for events in the distant future, as insurance contracts are often concluded against a very long-term background. An example of this is long-term life insurance. In consequence of existing contracts, many insurers also have a large number of different tariffs for similar products that need to be managed. So insurers are not at the cutting edge when it comes to making quick changes. In addition to this, traditional insurance representatives on-site have a powerful position in the company and wish to maintain their position. And when young start-ups appear on the scene, who carry out these operations in a highly flexible way with the aid of algorithms and referral marketing, these traditional insurers often have a hard time with this.

So have the demands of insurance customers changed as a result of digitization?

Welzer: What we’re seeing is that millennials basically have little use for traditional insurance as a kind of “non-transparent bet” involving security vs. damage. They don’t feel the need that their parents had for basic security. They want to develop as individuals and be mobile. So they always make decisions in terms of their current life situation.

What does this mean for insurers, then?

Welzer: They have to satisfy the need of young customers for self-realization. It’s a great opportunity for creating new products, new services and new customer loyalty. This is the only way that insurers can continue to grow in the future.

So is digitization a great opportunity for insurers?

Welzer: The question is really about how traditional insurance representatives can get onto the living-room sofa of the millennials. This is where artificial intelligence (AI) is part of the answer. Let’s take a current example such as the Amazon Echo Show. It is now quite possible to conclude an insurance policy of limited complexity through this channel without an advisor. But an insurance representative could suddenly appear on the monitor of this digital assistant if you have any questions about travel or accident insurance, or are planning your next weekend trip. AI mediates this way between customers and insurers, takes over the first approach and sounds out the requirement. As soon as it gets more complex, an advisor comes into play and appears on your “digital living-room sofa.” AI collects data on the customer’s life situation and gives insurers the opportunity to get to know their customers better and, consequently, to adapt their products and offers to the individual.

How can chatbots support the customer management process here?

Welzer: There are various ways for insurers to approach this. Basic chatbots are a first step. These use algorithms to understand the meaning of words such as “change bank details” in natural spoken language, and they can then initiate the right actions. The next step is scriptbots. These can request certain parameters for the purpose of drawing up an offer for supplementary dental insurance, for example. The culmination of this development is the natural language chatbot, which allows completely unrestricted dialogue and can carry on a conversation independently, like a person. A “virtual agent” of this kind is still a long way off, however.

What have you learned so far? How do the digital channels have to be configured to respond to customers’ special concerns?

Welzer: Customers don’t behave in the same way in every digital channel, and each channel has its own rules. So you cannot simply copy the implementation of one channel onto another. The basic requirements for each channel are knowledge of the language and the sector. A chatbot needs to recognize, for example, whether it is talking about a change of tariff in the insurance sector or in the telecommunications sector, as the same words often have different meanings. The dialogue must be structured and its quality ensured, because the chatbot speaks on behalf of its company. That’s why the quality of these dialogues is constantly checked — first by other algorithms and, as the final stage, by people. To a degree, such checking must take place automatically in real time, because any dialogue with a chatbot that goes off track must be picked up by a human advisor to avoid upsetting the customers.

How can insurers make the customer journey even better with the aid of AI?

Welzer: It gets interesting for insurers when they recognize a point in time or a life situation in their customers’ data environment that enables them to offer new products. There is enormous potential there that is now being uncovered only to an extent. For this, however, they have to be able to manage the customer dialogue expertly 24/7. AI can be an important tool here, and it can also help develop the customer relationship. With the aid of AI, insurers can identify important stages in their customers’ life cycles and offer tailor-made products for them, right up to the point of the claim. With the aid of AI, claims can be automatically and more quickly adjusted. Or, if necessary, fraud can be identified.

Can insurers develop completely new products with the aid of digitization?

Welzer: There is what’s called “connected insurance.” This is where insurers collect data in the home, for example, or in the car with the help of sensors, and can put together an individual product package this way. This could appeal to young drivers, for example, who are willing to share data on their individual driving behavior with their insurer. This way the insurer can make a tailor-made offer, and the insured drivers get the chance to differentiate themselves from the masses and free themselves from the collective liability ascribed to their age group by the standard auto insurance policies. This can allow some young drivers to avoid paying the usually very high premiums demanded for beginner drivers.

What does this mean for insurers in the next ten years?

Welzer: Data will be changing the insurance products. They will be more closely aligned to individuals and their behavior — but also to their current life situation and its requirements. For this reason, insurance will be backed up by more services. Person-to-person contact will continue to be important for complex products where more detailed advice is required. Standard products on the other hand — both with and without AI support — will be processed on a self-service basis. Short-term insurance, which is designed to cover temporary events such as brief trips, is becoming a trend. Insurers can only offer such policies — usually with very low insurance premiums — with the aid of data or AI and on the basis of low acquisition costs within their own IT, otherwise they won’t be worthwhile.

Author: Editorial team Future. Customer.
Image: Mikko Lemola – Fotolia/Adobe Stock