Insurance market and innovation: the challenges ahead

Maintain customer focus and adapt to the customer’s lower spending power. We will overcome these challenges if we can use innovation and technology as a tool and not an end. Starting with the correct use of metrics

Published on 01 Jun 2021

Photo by Luke van Zyl on Unsplash

Insurance is like a big ship, fast and with a great buoyancy but difficult to steer. A big wave came along that obviously slowed us down and made us dance. But those who continued to go straight ahead on their old course just took the wave in their face. Those who, like us, had already started the turn, took it sideways and were able to use their strength to accelerate the change. 

The effect of the pandemic on insurance company accounts has yet to be experienced in full, and we are confident that the moves to revive the economy will help us never see it. What we are all witnessing, however, is this magical convergence that has been created between the needs of our customers, the prioritization of investments in digital by companies and the regulatory environment which, it must be said, has given us a strong hand, particularly with the simplification of email contracts. 

However, we have all been operating fast, shifting budgets from other items, departing from the usual processes and in a favorable regulatory environment. So for post-pandemic we have two major challenges ahead: maintaining this focus on innovation and customer experience and adapting to customers’ lower spending capacity. As Istat highlights, the decline in spending on non-housing related services is 19.4% and if we really want to play a social role we need to be truly accessible to all. 

Innovation is not the end but the means 

Beyond the technological breakthrough we have made in recent months, the most important growth is cultural. We have finally made peace with technology, we have brought the digital world back into the dimension of a tool, useful for doing normal things in a simple way or for enabling things that would otherwise be impossible, such as, until yesterday, being able to attend school without leaving home. 

Unfortunately, considering innovation as something exotic is a weakness widespread among practitioners. We tend to be smitten by technology, we are fascinated by innovative solutions, forgetting to evaluate whether or not they respond to a real need. Only 6% of the innovative projects launched in the insurance sector are now in the industrialization phase and 60% of the Artificial Intelligence projects opened by banks and insurance companies have been closed before implementation. I am convinced that they were all beautiful projects, for those who followed them or from an “academic” point of view, but they worked more to make a good impression at some convention than for a real business objective. Let’s say those kinds of projects became the goal of those who launched them, rather than the means to reach an aim. Nor does it have to turn out this way: innovation has to be a cross-functional facilitator, not an organizational structure. 

The kpi of innovation: not only digital transactions  

If innovation is a tool, I think it’s a mistake to try to measure it with direct KPIs. Instead, we need to measure its effectiveness in achieving the objective, whether it be business, NPS (Net Promoter Score) or cost cutting. Initially we had a KPI for number of digital transactions out of the total. However, the digital binary choice is not always exhaustive, because in many cases human intervention adds objective value, in many others it adds subjective value for the customer in terms of experience, and in other cases human intervention may cost less than developing an automaton. In short, the KPI should be to maximize the use of digital transactions as often as needed, liked, convenient, etc. and the real KPI goes back to NPS (how much do customers recommend your company?) sales, costs not the use of digital per se.  It is also a mistake to allocate a dedicated budget, the budget must be that of the business/process owner who, believing in the usefulness of the innovative tool, allocates it to these initiatives to achieve his goal utilitarily, not because he wants to do something “tech”. 

Investments in insurtech and the Italian delay 

Having said all this, there is still a lot to do in the insurtech sector. Investments in Italy are still very low, for two main reasons. The first is the complexity of the Italian regulatory system in the face of a low ratio of premiums to GDP, which we have been saying for some time is destined to grow but is still aligned with the trend in the auto sector. 

None of the Italian insurtechs has the status of a company: the startups are brokers, managing general agents, solution providers or much more often “simple” service companies that carry out part of the insurance process. The insurtech pipeline today is therefore in prevention and assistance services, which are central to moving from paying claims to preventing and mitigating risks. 

The second reason for the Italian insurtech delay is a mixture of the size of the capital market and the ambitions of Italian startups, both of which are limited. Those who are born thinking of the world, or at least of Europe, start directly from London, where Italian startuppers make their fortune. For the others, there is a market in Italy that is, however, efficient in relation to their ambitions, both set on the domestic dimension. With a limited market and a return on capital only in the medium term, it is difficult to attract large resources thinking of scaling up to European level: it is easier to enter more mature markets and to return to Italy later. 

Yet there is no shortage of positive signs of change. When the going gets tough, the tough get going. We are finally seeing the big institutions come into play, such as Cassa Depositi e Prestiti with CdP Venture Capital, which are not only bringing size and structure but are catalyzing different skills and players, attracting other players. In doing so, we will succeed in something that Italians are usually not always good at: creating a system. 

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