Subtle Biases in Financial Statement AnalysisSeptember 28, 2020
Alignment of InterestDecember 29, 2020
Currently, financial advisor reps (FA Reps) recognize that the everyday lives of their customers, be it retail or corporate, are being transformed by the proliferation of new technologies. This transformation is inevitable. The term ‘insurtech’ derives from the combination of two words — ‘insurance’ and ‘technology’ — and it means the adoption of emerging technologies to improve industry efficiency and add value for the customers. The entrance of insurtech and artificial intelligence (AI) is disrupting the traditional ecosystem in the industry as new technologies are introduced to improve the operations and bottom line for financial advisor companies.
This would save cost and increase efficiency for both the financial advisor and their clients. With this, insurtech players in Singapore, including Singapore Life (Singlife), which pursues online distribution strategies, GoBear, an insurance plan comparison site, and Symbo are fighting for their place in the industry by raising funds and offering more cutting edge technologies and higher speed of services. For instance, Igloo, founded in 2016 by former GTO Wei Zhu, has closed its series A+ funding round in April 2020. Venture capitalists are looking very closely at start-ups dedicated to reinventing the way people buy insurance, how insurers manage risk, and bring solutions for new needs, like shared economies. Annual investments in Insurtech start-ups have increased fivefold over the past three years, with cumulative funding reaching USD 3.4 billion. Insurtech is definitely soaring in the past two years and will definitely continue to do so in the near future.
Insurers are no different from other financial sector players when identifying top threats related to the rise of FinTech: margin pressure and losing market share. Specifically, these game-changing insurance technology software solutions may offer clients self-service purchasing and servicing models that are quicker and more cost-effective. These insurtech startups also hold the promise of delivering a more personalized, customer-centric insurance buying experience for clients. However, whether Insurtech and automation becomes a threat or an opportunity is dependent on two factors: i) how FA Reps utilize these technologies and ii) what are the skills which FA Reps have to develop to stay inclusive and competitive in the industry.
This can lead to significant challenges and differences in terms of how insurance companies underwrite risks and how sales are being conducted. Specifically, SingLife uses fact finding through online methods and application proposals are mostly done through email correspondences with clients. Moreover, the use of AI also helps facilitating decision making in personal finance as AI makes predictions better, faster and cheaper.
Insurance players firstly, have to put insurtech at the heart of their strategy. Looking at Aviva, it is one of the few local insurers that have a digital technology culture, using mobile apps, conducting digital training classes for its advisers and equipping them with digital marketing creatives, financial needs analysis digital tool, among other steps. What this means is that traditional insurance players need to start learning and leveraging these technologies to also comprehend risk insights, enable their businesses with sophisticated operational capabilities or utilize new approaches to underwriting and predicting loss. When it comes to digital and technological collaboration with startups, insurers are significantly less developed than their retail banking counterparts. According to Bryn Barlow, partner at ISG, a lack of attention on AI in the sector has left businesses with a lot to do. “All the big insurers are wishing they’d made more ground in artificial intelligence before Covid-19 hit,” he said. “For some, 60% of their processes still rely on paper. That makes everything harder now.” Insurers should draw inspiration from the enthusiastic example set by retail banks. They can also adopt the different models employed by banks when engaging and keeping up with the FinTech scene.
Insurtech is not a silver bullet – the real challenge for insurers is to become more innovative in their everyday business by constantly embracing new technologies and ideas from insurtech startups. To put it bluntly, comparing between the FA Reps who purely memorize formatted scripts before meeting clients for sales versus the insurer who learn and utilize automation to create personalized data predictions for their clients, it is clear whose job would be at risk in the future. Traditional insurers can learn much from the way Insurtechs operate, and from partnering with them. Quoting from Sun Tzu, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.”
Next, in particular for retail clients, the emotional aspect and the understanding of nuances of customer engagement in insurance sales are of utmost importance in maintaining a business relationship. The availability of a real live human assisting in transactions that arise in the insurance experience would be an element which AI would not, at least in the near future, be able to replace. According to customer satisfaction surveys, around 80% of respondents would rather speak to someone in person or over the phone to discuss their wealth management, health insurance and retirement plans. With much uncertainty and risks in their financial planning, clients generally prefer to have a real life human to understand the complexity of how their planning would affect their personal lives and to guarantee that they are making the right decisions. Insurers must be prudent in understanding how to maintain a surplus in their Emotional Bank Account (EBA) and maintain a good relationship with their clients. Digital transformation still needs the human touch. Customers of all descriptions want to be heard, understood and empowered when making important financial planning decisions.
To sum up, the area of insurtech is still at its adolescent stage and they are growing rapidly. This is the prime time for insurers to change their business models. Insurers need to align their digital capabilities with their customer-facing representatives and financial advisors in order to deliver the optimal channel and service that can meet the clients’ demands – making the insurance purchase experience cost-effective, streamlined and yet maintaining the human touch.