Loss prevention and the new role of the insurance industry
Human beings and companies have always faced risks which come up from daily life, both natural and derived from their own behavior. It seems, though, that we have entered in a particularly intense and turbulent period. Climate change, illnesses, population aging, social and macroeconomic crisis, and technological disruptions, just to name a few, combine to radically change the risk outlook, both through bigger expositions and the emergence of new types of risks.
In this context, the business model of the insurance industry is obliged to put some distance to the idea of repairing or reimburse to meet the demands of the insureds in a more assertive way, centering the offer in predicting and preventing.
There is a lot at stake, and the moment looks convulsed: hardening reinsurance markets, income flows under threat by claims costs, new competitors with disruptive and consuming business models (both individual and commercial) claiming solutions demand-based (and their needs), and not longer offer-based (what the industry wants to sell). All the above at the same time the insurers are responding to new challenges that go from regulatory changes and digitalization jump to the design of innovative products.
These challenges to be faced can be summarized in various fundamental strategic questions:
- How can they create more value to shareholders?
- How can they unblock the latent demand and improve the customer experience?
- How can they recover the impulse in the search of an improved productivity?
- How can they retain and develop talent?
- How can they – individually or collectively – reframe the role and the purpose of insurance in society?
To survive, but even more to prosper, insurers need to evolve. The scale of the evolution might be challenging, but most changes must be oriented to add significant value in the long run.
Within this reality, – which is already impacting the business – insurers must reframe their relationships with the rest of the participants of their ecosystem, turning it into an associative network for their customers and intermediaries, extending it to strategic suppliers, including tech companies, InsurTech and other specialists in different links of the value chain, which once combined can potentiate their offer.
A” double click” on the changing paradigm from repairing/reimbursing to protecting/preventing allows to delve into the true challenges the change is generating to the industry. This new scenario must push the Insurance companies to play new roles, promoting a transformation to go beyond compensation and loss audits to incentive better customer behaviors, in a way that prevent, manage and reduce their risks, independently of their size (person, business, company) and their activity.
To fully appreciate why is important a new paradigm in risk managing, we must focus on the real problem: uncertainty. When considering any aspect of commercial or individual activity, either strategic, financial, or operative, we understand that there is no safe bet. Independently of the business part we are discussing, there is still a cloud of uncertainty over the final outcomes. This cloud is composed of possibilities, potentially positive or negative.
This uncertainty turns into risk when it is calibrated or contrasted in function of created interests and expectations, namely, how much they believe they can gain or loss, and from there, to understand which are the variables that affect that possible range of outcomes. So, the big question within the Insurance customers universe would be: how much does it cost (time, knowledge, human resources, money) to understand and reduce uncertainty? In other words, what would happen if you could increase the predictability of the outcomes? And finally, how can those outcomes be changed by bringing to present time the future risks, to capture the positive part of that uncertainty?
When insurance companies incorporate this approach to the development of their services and solutions offer, they begin to respond to the change in paradigm that the moment and the demand require. By assisting they insureds to identify, analyze, and anticipate their risks and having in consideration their true pain points, they will be able to design products that give full response to their expectations. To achieve this and getting the most of it, the insurers must rely in a collaborative way in their specialists’ network, in the insurers and suppliers’ technology and in data analysis.
It causes a phenomenal change in the value proposal of the industry, transforming it:
- From Compensation to Protection and Prevention
- From Underwriting models strictly based on actuarial criteria to models complemented in measurement and modeling of individual risks
- From value offer perceived only in moment of crisis to multiple and permanent points of contact with solutions and presence in the daily life of its customers
- From fixed terms of coverage and static prices to models of prices on demand and dynamic
Finally, and as a conclusion, the challenge is to reinforce the “why’s”
Why does the industry keep operating as if the technology and the construction of the collaborative value offer are there just to make things more efficient and not as a tool and way to change the industry?
Why, if the customer is always right (as an indisputable principle), they are not asked or fully considered when insurers create their value offer?
Why does the industry only seek to answer the future demand by constantly looking the rear-view mirror?
“Changing the answers is evolution. Change the question is revolution” Jorge Wagensberg (1948-2018)
* The opinions expressed in this article are exclusive to the author and do not compromise the position of ALSUM.
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