Cutting through the haze of cloud computing

While the evolution of existing technologies has led to increased demand for cloud services, there is often confusion about what exactly this approach entails and what firms need to consider.

Despite this lack of clarity, Forrester Research, one of the most influential technology research and advisory firms globally, expects the global cloud market to reach $113.9 billion in 2016, with further growth to $241 billion in 2020, as companies look to benefit from increased efficiency and agility, while focusing on their core business rather than their IT operations.

Rhys Collins, Head of African Operations for SSP says “the commoditisation of products and the emergence of new channels to market plus the drive for cost efficiencies means that cloud computing is particularly pertinent to the insurance industry”. “Furthermore,” says Collins, “ with IBM research showing that only 16% of insurers felt they lacked the relevant skills, and cloud computing expected to account for 25% of the average insurer IT budget this year, insurers would seem well-placed to make the most of the benefits available.”

Yet a further report by Novarica, a well-known global IT Consultancy, demonstrated that while over half of insurers use software-as-a-service (SaaS) in some ancillary applications, only 20% of general insurers have active or planned pilots for core applications via SaaS. In addition, IBM noted that almost three times more insurers than the cross-industry average (11% compared to 4%) have no plans to adopt cloud computing in the foreseeable future.

Collins says “given the advantages that can be obtained in terms of managing budgets and resources, it would be valuable for these insurers to re-evaluate their approach”.

“One of the significant benefits of cloud computing is the confidence it provides around IT costs. By renting a virtual server rather than investing in network equipment, insurers can exchange set capital expenditure for operating costs that adapt to meet their requirements. Moreover, packaging up the infrastructure, electricity and disaster recovery with the actual virtual server provides firms with further certainty over their forthcoming outlay.”

As demand for services increases or decreases, the cloud system responds to these changes, ensuring that insurers have the right size provision available and pay no more in IT costs than is strictly necessary. In addition to the economic benefits this flexibility provides, there is the advantage of operational responsiveness to the opportunities and challenges insurers face.

“Of course, all of this requires a change in business attitude to accept the technology and models behind cloud computing. One aspect of this is the need for insurers to have policies in place to adopt cloud-based services in a joined up way to reduce costs through economies of scale,” says Collins.
Insurers also need to manage where their data is stored and ensure they are comfortable with the regional regulations that govern this. It is also not just the physical location that needs to be considered, as regulations often extend beyond national boundaries.

So where is the insurance industry currently in terms of adopting cloud technology? While it is still at the relatively early stages, SSP is already seeing the use of cloud infrastructure as a test environment, and it is only going to be a short period of time before those further core capabilities beyond just policy administration are being adopted through an as-a-service model.

Insurers are also starting to look at using cloud computing for production services and data, and this trend is set to continue as more propositions come to market, in particular the use of big data and management/business intelligence as services.
“Insurers need to be ready to accept the way technology is moving and have policies in place to adopt these services as they come along. This strategy is no different than the outsourcing trends of the past – it’s just that the technology has evolved and the legal aspects are more mature,” concludes Collins.

The case for telematics

While telematics is not new to the motor sector it has never been more relevant – and it presents an opportunity for insurers to create a more meaningful relationship with their customers through a better understanding of the data and how it can be used.

According to estimates, telematics based solutions have the potential to gain up to 19 million policies in the UK and 89 million worldwide. However, leading global technology provider SSP estimates suggest that there are around 300,000 active telematics- based policies in the UK alone. The potential for growth is clear but insurers must consider how they will manage all the new data and how it will be presented to clients before rushing to market with any new products.

According to Gartner, insurers will need to have core systems that “support usage-based pricing, and manage or mine the amount of incoming data, especially around billing and pricing calculation, the calculation of recurring premiums when monthly costs are less predictable, and the implications on financial forecasting”. Effectively managing the vast quantity of data that is generated by telematics is the next logical step. The ability to process and analyse data allows insurers to turn information to their advantage in both pricing and the distribution of products, however, from a workforce point of view, one of the biggest challenges faced by insurers is a shortage of people who are able to analyse and interpret the large data sets generated by telematics. SSP suggests that insurers address this issue by developing relationships with specialist analytics firms while upskilling internal staff.

Another key consideration is offering the right customer service for motorists using telematics technology. Existing telematics providers are finding that policyholders visit their personalised driver dashboards on average twice a week – a golden opportunity to make a good impression and strengthen a relationship that traditionally has a lot less interaction.  Policyholders are keen to view their data and understand how their approach to driving affects their premiums, so presenting this data in a way that suits them can help retain business and attract new customers as well as improving driving behaviour and ultimately claims frequency.

Meanwhile, incentives for customers who improve their driving could form part of these data dashboards. For example, impact analyses on premiums based on certain driving behaviours could help policyholders bring down costs and should also impact the way premiums are paid.  Itemised billing could be the way forward for both good and bad driving behaviour – and their impact on what is to be paid for the period – clearly outlined in each statement. The old model of annual invoices for motor insurance premiums will become obsolete for telematics policies with insurers having to move to either quarterly, monthly or even weekly statements.

Telematics is currently one of the main talking points in the industry globally but entering into this area of the market is not without its pitfalls and requires careful consideration. Taking the opportunity to learn from specialists, understanding data and how it can be used and servicing customers in the way they want could make a move a manageable and profitable experience.

Consumers risk committing insurance fraud or incurring unexpected costs on claims

SOMEONE ELSE SHOULD BE CHECKING MY INSURANCE APPLICATION FOR ACCURACY, SAY NEARLY A THIRD OF CONSUMERS

Consumers risk committing insurance fraud or incurring unexpected costs on claims

New global research from insurance technology provider SSP has found that 29% of consumers mistakenly believe that they are not responsible for checking the accuracy of their own motor insurance applications and more than 1 in 10 people (14%) don’t realise that inaccuracies in their personal details could invalidate their policy.

22% of people think their insurer is responsible for checking the accuracy of their motor insurance application, with a further 7% believing responsibility lies with another third party such as their broker. Rhys Collins, Head of African Operations for SSP says this suggests that many consumers are unwittingly putting themselves at risk of committing insurance fraud or incurring unexpected costs on claims if information they have submitted is found to be inaccurate. “Young drivers are particularly prone to this mistake with 30% of drivers between the ages of 18-24 and a third between 25-34 thinking data validation is the responsibility of their insurer,” says Collins.

The research also shows that this lack of awareness is having a serious impact at the claims stage with younger consumers twice as likely to say they have had a claim turned down as a result of inaccuracies in their application. Lack of awareness is consistent whether consumers go through brokers, price comparison websites or direct to their insurer. 25% of consumers who go direct to their insurer say they expect someone else to check the accuracy of their application, compared to 28% and 29% for PCWs and brokers respectively. Several survey respondents highlighted the role they think insurers should play in raising awareness of the importance of accuracy when applying for insurance, with one commenting that “The public need to know what insurers mean by inaccuracies!”, whilst another said that a policy being invalidated by inaccuracies in details is “Not totally fair…the insurance company should go through it all with the customer to check at the start”. However, there are a significant minority of people (15%) who believe the risk of lying on their insurance applications are worth taking in order to bring down the overall cost of their insurance.

According to data mined through SSP’s Intelligent Quote’s Hub, each error on an application form (either intentional or accidental) cuts the annual premium paid by around 46% and could be costing insurers over a billion pounds a year. As the industry prepares more sophisticated tools to deal with the rising problem of fraud, more customers who are being economical with the truth are about to face the consequences.

Collins says, “Insurers simply cannot take the accuracy of their data for granted. Across all the channels our global office tested, at least a quarter of consumers thought their insurer, broker or other intermediary were responsible for the accuracy of their application. “On the contrary, unless they have the appropriate systems in place, insurers are rarely able to apply more than a credit check until claims stage, missing other important factors like vehicle usage, main driver, overnight vehicle location and occupation – leaving them out of pocket when it comes to premiums.
“It’s important the industry as a whole does more to verify risks and root out potential fraud, ideally at sale and pre-inception, but it is also important to support consumers by helping them ensure the information they submit is as accurate as possible.”

Managing insurance in a digitalisation era – What are the challenges

The IT landscape is shifting as we move from the IT Industrialisation Era into the Digitalisation Era.  This is according to Gartner’s 2014 survey, ‘Taming the Digital Dragon’.  There is a definite change in focus moving from Processes to Business models and a change in capabilities from purely IT management, service and management to Digital leadership.

Many of the challenges in South Africa are not too dissimilar to those experienced in more mature insurance markets – it is the customer journey which is the silver lining.

While elements of digital strategy are becoming more visible in the African insurance sector, there is still a huge amount to be done to digitise the industry. Many insurance businesses have added digital channels to the customer journey to remain competitive. These include digital quote capabilities; the ability to buy products online and electronic marketing capabilities for promotion.  Most insurance companies can now interact with customers across web and phone, as well as face-to-face.

However, in many cases this digital experience is only skin deep.  Beneath the surface the core back-end systems are made up of legacy platforms that are creaking at the seams and struggling to keep up.  The volume of digital transactions that are coming through the front end, as well as the amount of data that is received and needs to be collated, analysed and interpreted, continues to grow.  In order to manage this and provide consumers with the immediate information they require, on the appropriate device, insurance businesses must change their models to become end to-end digital businesses.

Recent InMobi research illustrates that users spend on average 114 minutes per day online. Smartphone and tablet usage is growing by an estimated 20% per annum and the internet is accessed more frequently from a mobile device than a PC.  Consumers are increasingly demanding simplicity, transparency and speed in their transactions.

This is supported by PwC’s 2020 research which identifies mobile technology as having a major impact on the insurance industry over the next three years. Slow broadband in some territories is recognised as a limiting factor for the application of mobile technology in sales and claims processing.

Learnings should be drawn from digital strategies in more mature markets.  The UK non-life insurance market for example is one of the most digitally mature. 86% of customers carried out some kind of online research and 50% of policies were bought online, compared to a quarter (26%) globally and less than 10% in Canada.  Yet, despite the huge opportunity they are struggling to cope with digital channels.  The maturity of the UK market has led to ubiquitous digital access and the development of social networks, resulting in increased consumer power and less control for businesses. The overarching implication is that insurance products will increasingly be bought, not sold.

Expectations of transparency, relevancy and simplicity will drive increased product innovation for smaller target groups.  Insurance businesses will need to invest in mobile and interactive technologies for multimedia content creation and product distribution across multiple digital platforms.  PwC research suggests that the role of the intermediary sales channel will also reduce, and customers will demand a direct relationship using their own online and offline trusted networks to guide their choices. Globally, the number of mobile internet users is poised to overtake desktop ones. In addition, the number of internet-connected devices is expected to reach 50 billion by 2020, which will have a significant impact on the availability of real-time information.

Insurance businesses need to exploit this growth in information to automate intelligent decision making and drive better pricing, underwriting and fraud decisions for competitive advantage.  By 2020, PwC predicts that the use of unstructured data from social media, mobile devices, video and audio will complement the existing structured data within traditional insurance business processes to enable insurers to make strategic real-time decisions to drive better customer journeys.

Incrementally digitising the insurance business

All the research points to a real need for insurance businesses to re-design their traditional customer journey processes to create an end-to-end digital experience that meets changing consumer and business journey needs.

For most insurers with deeply embedded legacy systems a phased approach, managed incrementally, is recommended which incorporates both front and back end solution refreshment. Additionally, insurers can combine the benefits of social media and mobile devices with telematics to develop new products for smaller target markets.

Becoming digital for most companies will mean an overlap with existing processes and strategies that are enabled by IT, as well as a wholesale change in the culture of the business and the way it operates. The key to digitisation is to map out what you want the digital customer journey to look like, and to then review this against the existing platforms in the business and identify how they need to evolve to support being digital. The important factor will be establishing which elements of the business’s processes will drive most value in the shortest timescale.

Approaching digitisation as a journey rather than a large single step will enable insurers to retain the strengths gained from years of operating experience whilst moving to an integrated end-to-end digital model.