Pandemic Disruption–How the Insurance Industry Can Recover Through Innovation

To survive, insurers will need to innovate quickly to adapt to consumers’ rapidly changing needs. Here are some ways carriers can ensure their organizations can do so.

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The COVID-19 pandemic has caused a massive drop in the amount of driving consumers are doing, and this reduction has extended beyond the lockdowns. Recent research shows that traffic volume trends, as measured by the number of roadside assistance requests, was still more than 20 percent lower on May 16, 2020 than it had been prior to lockdowns. And a subsequent survey conducted in late May and early June shows that just under half of drivers (45%) were filling up their tank once a month or less, compared to 11 percent who filled up that infrequently before the pandemic.

With such a dramatic drop in driving, a number of auto insurance carriers are returning a portion of their premium payments to their customers. For example, Allstate said it would return more than $600 million due to reduced driving in April and May due to state quarantines.

Carriers took these measures to retain customers, whom they feared would look for a better rate from competitors due to their drastically reduced time on the road. But the crisis didn’t end when lockdowns were lifted or loosened. Traffic trends remain well below normal volumes,  and unemployment remains the highest it has been since the Great Depression. Business as usual will not help insurers weather this crisis. To survive, insurers will need to innovate quickly to adapt to consumers’ rapidly changing needs. Here are some ways carriers can ensure their organizations can do so.

Implement an innovation process

Too often, innovation is siloed in strategic departments such as strategic innovation teams or corporate venture interests. But in our experience, the most important innovations come from those closest to the end-user, who are already familiar with the strengths and weaknesses of current processes or technology. Ideally, innovation processes should span the entire organization.

Creating a company-wide innovation culture and process requires some challenging changes. Companies who have succeeded at large-scale innovation tend to share the following characteristics:

  • They emphasize collaborative teams over top-down authority and value insight rooted in data and creative thinking;
  • Employees feel safe to suggest new ideas and ways of doing things; and
  • Bold ideas that challenge the status quo are rewarded, even if they fail. There’s no better way to kill innovation than to punish employees for taking risks.

Increase your capabilities by leveraging third parties who use disruptive technologies

Historically, many insurers adopted digital-first business models as a result of collaboration between traditional insurance companies and upstart InsurTechs, according to Forbes. These collaborations tested new business models and revenue streams made possible by new technologies. Specifically, they can reduce operational costs by preventing fraud, increasing automation and giving employees more time to work on initiatives—and further innovations—that add value.

Deploy artificial intelligence (AI) in a strategic way across the business to increase accuracy, speed and to decrease costs

According to Accenture, three-quarters of insurance executives believe that “AI will either significantly alter or completely transform the overall insurance industry.” They’re not wrong. AI has already proven its ability to improve insurance operations by lowering costs, improving efficiency and enhancing the customer experience.

That said, AI is not a panacea. Organizations need to think strategically about where AI could have the biggest impact and test multiple solutions to ensure they get the biggest gains from the technology.

Roadside assistance programs, for example, are now using AI and machine learning (ML) to increase automation and data transparency. It’s one of the highest volume claims for many insurers, so the ability of artificial intelligence to power an omnichannel touchless claims process (voice, web, mobile, with “hand off”) can create enormous efficiency gains.

Make more informed decisions with better data, both internal and from third-parties

Carriers are, in many ways, already very data-driven—actuaries depend on it to set rates and determine risk, after all. However, there’s still plenty room for improvement. Specifically, insurers can work more closely with third-party partners to design and deploy systems that continuously update data in a real-time environment. Introducing or evaluating new technology systems and partners is an excellent way to rethink or update data strategy, because they can unlock new sources of data that were previously unattainable and, thus, unactionable.

Improve the RFP process so that startups and young InsurTech vendors aren’t locked out

Requests for Proposal (RFPs) help protect operators from situations that might otherwise introduce bias and aim to create a fair and equal environment for vendor competition. But startups who could bring a lot of value and innovation often find the process as it is current designed makes it extremely difficult for them to succeed.

By definition, venture-backed startups are aiming to disrupt industries and bring completely new capabilities to the playing field. But it’s almost impossible to communicate their differentiators in 140 characters and in response to outdated questions that don’t reflect the current business climate.

Imagine trying to evaluate a switch from Seibel to Salesforce in the early 2000s. What questions would it have asked? “How many servers does a typical implementation require?” “What are your typical annual licensing fees?” “Describe the installation process on end-user workstations.” The efficiencies and cost savings of Salesforce’s software-as-a-service model utterly transformed the software industry and hastened the demise of on-prem software deployments. Would the RFP have communicated this difference?

To ensure your RFPs don’t keep your organization from adopting next-generation technologies, set up a process to try new technologies and make decisions based on the results.. The carriers that focus not only on fixing these “old” processes, but also introducing “new” ones will out-innovate those who do not.

The pandemic and the economic turmoil it has caused will accelerate the transformation of all aspects of the insurance business Policies, pricing and distribution, underwriting, risk management, claims servicing and payments —each of these functions will have to change to adapt to the times. If carriers use this time as an opportunity to work with upstart InsurTechs and create a culture of innovation, they will not only survive the current crisis, but will emerge in an even stronger position to thrive once a vaccine arrives and the economy recovers.

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Corey Brundage // Corey Brundage is the CEO of HONK Technologies. a next-generation, on-demand roadside assistance platform for connecting motorists, towing professionals and insurance carriers, fleet management companies and automotive OEMs for faster, more efficient service.

Comment (1)

  1. I found a two issues with your article that I find troubling. First, you claim unemployment is the highest it has been since the great depression, linking your claim to an article that was written in May when it was 14.7%. Currently, unemployment is 7.9% according to the Bureau of Labor and Statistics. I am not sure why you chose to lead with such a misleading claim about unemployment. Yes, unemployment was the highest since the great depression, in May. Unemployment is shrinking however and I believe you should have led your article with this fact in mind. My second issue with your article is the use of the acronym “RFP”. I am learning about technology and do not know what “RFP” means. I suggest explaining what the acronym means instead of assuming all of your readers know what it is.

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