In recent years, possible criminal charges against insurers, banks and superannuation funds in the Royal Commission Report have raised a concern about ethics and conduct within the financial services industry. An enormous responsibility in repairing damage to the trust of the consumer base belongs to the financial services sector, according to Paul Lucas (2019). During the commission’s public hearings, people discussed stories of aggressive sales tactics. For example, an insurance agent signed up a man with Down syndrome for more than $100,000 worth of life insurance policies (Elise Donaldson, 2019). Australian Securities and Investments Commission ASIC has prohibited unsolicited cold sales calls on life and consumer credit insurance. Research and Ratings Manager Mitchell Watson further stated that the consumers would need to undertake their research and decide whether they wanted to speak with the particular provider for the right product. The financial industry needs to rely on multichannel strategies, technology, and ecosystems. This essay will describe the advantages, disadvantages, and consequences of the digital transformation resulting from the changes affecting the industry in the future.
Multi-channel strategies
Numerous companies have multichannel strategies in place (Lynn, 2016). The interviewed firms pinpointed the increasing importance of being innovative. It is a crucial advantage in corporate strategy and a driver of growth and business development. Consumers now require more options in today’s world in connecting with companies and have altered how they find information and their consumption behaviour. Therefore, multichannel strategies provide the customer with the need to have several channels available. Regarding the aim of multichannel strategies, insurers agreed that:
- Digital channels help to reduce costs. For example, a life and health insurance sales campaign targeted at the general public by an insurance company with a low communications budget led to the launch of a 100% digital communications campaign including websites, a Twitter account, a Facebook page, blogs and the involvement of the Internet influencers. The insurance agent can utilise multichannels to strengthen the relationship when their role is central. The agent can promote new channels (for example, via websites and smartphone applications) for the customers.
- Introducing multichannel strategies is satisfying the needs and expectations of the customers. Customers these days, especially Generation Z and Millennials want to have an ease of purchasing or accessing their insurance policies in the palm of their hand and having consultants to help them with what they need at the same time. They are becoming increasingly digital-savvy.
Ecosystems
Secondly, with more competition within the industry, according to McKinsey (2018), the incumbents must act quickly to integrate digital technologies into daily operations. Claim functions are a top priority. They should commence on a transformation to become customer-centric and digital-enabled. Insurance companies should adopt a customer-centric mindset and invest in an end-to-end reassessment of their customer connection.
The future of digital insurance is bright and progressively purposeful. Ecosystems, the Internet of Things, and Artificial Intelligence will have a significant and interdependent impact. Europe is already experiencing the consequence of online aggregators, while commercial insurance faces a future in which its industry players need to consider whether and how to partner with insurtech companies. One must ask a question: is the insurance industry going to be reliant on technology capabilities?
Insurers now have the opportunities to build new sources of new revenue by rethinking their traditional roles and adopting an ecosystem mindset. In this paradigm shift, digitalisation has blurred out the boundaries between industries. As a result, platforms and ecosystems will influence the future of insurance companies greatly. Examples of successful companies built on digital platforms are Alibaba, Amazon, and Facebook.
According to Mckinsey (2018), ecosystems will account for 30 per cent of the global revenue by 2025. The extensive use of digital technologies has become commonplace with consumers. Thus, putting the customers at the centre of every digital activity has escalated adoption while helping companies capture previously unimagined values. Customers these days expect to get a ride from Uber and book their hotels from AirBnB.
Ecosystems present three types of desirability: acting as a gateway to reduce friction as the customers switch across related services, harnessing network effects and integrating data across various services. Shifting from industry to an ecosystem perspective requires changing how insurance companies define their roles in the economy. Currently, insurers focus on acting as risk aggregators. They have a passive and limited relationship with the customers. If the insurance companies lost their relationships with their customers and distribution, they would risk having few options to reinvent their business models. Adopting an ecosystem perspective - reevaluating their business models and considering partnering up with companies inside and outside their industry is fundamental to reinvigorate the insurers’ digital strategies.
Artificial Intelligence
The development of AI will unquestionably improve customer service and communication for most financial services companies. AI these days possess more of a humane interface. Vanessa Mitchell (2018) explains that with the recent launch of Soul Machines, the technology with feelings, AI does not have to be robotic or lack emotional intelligence. It has developed some empathetic AI for ANZ. It is the next level of AI - from chatbots to avatars. As the leader in emotional intelligence for use in machines and digital avatars, the company aims to improve artificial and emotional intelligence for a multichannel and customer-service pilot. Soul Machines have created several avatars, including Nadia, voiced by Cate Blanchett - currently in use by NDIA - National Disability Insurance Agency. Nadia has operated consistently across multiple channels. Emotional intelligence will play a crucial role in adapting services, such as car financing, leasing, insurance, car-sharing or ride-hailing to customers.
As IAG’s digital ambitions become a reality, it has unveiled initiatives to save more than $250 million a year by 2019 (Henderson, J. 2016). The organisation pursues to replace workers with robots, streamline systems and foster technological innovation.
Blockchain Technology
Blockchain digital ledger will disrupt the insurance industry for the better by providing complete accountability, transparency, and superior security. It will improve the insurance companies’ processes to save time and money. According to Robert Cummings (2018), the insurance industry does understand that it needs to evolve to be more competitive by streamlining processes and meeting the demands of digitally savvy customers. Insurers can overcome unique challenges these days and create transparent operations built on trust and stability by using blockchain technology. Insurance companies need to have visibility into their data to deliver tailored services and products since they have a vast amount of data that needs sifting with the onset of interconnected devices and ever-growing data generated by the Internet of Things. In a couple of ways, insurance companies can leverage the benefits of blockchain technology to mitigate some unique challenges:
- Security: with a public ledger, blockchain technology can potentially eliminate suspicious or duplicate transactions by documenting them. Through its decentralised digital repository, keeping a historical record will support the authenticity of customers, the insurance policies and activities.
- Big data: a surge in the amount of data insurance companies need to deal with because of more connected devices used every day. Blockchain can properly administer, distribute and produce a large amount of data. The technology can store static records and data without the centralisation of data. All parties can view the data. Data registered on the blockchain has a digital fingerprint which includes the date and time stamp. Ultimately they are more secured in a timely and transparent manner.
- Third-party transactions: blockchain can handle the increase of third-party activities and claims through personal devices. Insurance companies can quickly view claim transaction history on blockchain for easy reference. Reduced administrative costs will incur because of the automated verifications of claims or payments. It will promote a higher level of trust between the insurers and the customers.
- Smart contracts: contracts connect real-time information from multiple systems across physical documents and activities to trigger processes such as claims, payments and reimbursements faster with greater accuracy. Thus, insurance companies save more time and money while creating a great customer experience. The emergence of personalising contracts in the industry has caused the above effects.
- Reinsurance: blockchain can create reverse calculations based on the contracts within the reinsurance space. Consequently, the P&C insurers know how much they need compared to how much is available as they pay the claims. Blockchain can make sure that they are rebalancing their exposure against their risks. Blockchain can secure their daily business operations in insurance companies.
Organisations, including Swiss Re, Aegon, Allianz, Munich Re, and Zurich Re, have launched their Blockchain Insurance Industry Initiative. Its purpose is to explore the potential of blockchain distributed ledger technologies to better serve clients through faster, more convenient and secure services.
Limitations of Digital Transformation
On the other hand, digital transformation could result in job loss. For example, chatbots are replacing human beings in customer service. Since job security is what staff usually expects from a company, the fear of job loss will discourage staff from delivering exceptional services. However, as Pedro states in his book “The Master Algorithm”(2015), it is unlikely we will eventually run out of jobs for humans. Even when the days come when robots and computers do things better, there will still be jobs for some of us. A robot can perfectly mimic a bartender, and people still prefer a bartender because he is a human. Some professionals will be invaluable since the jobs have things robots and computers do not have: the human experience, by which Pedro means the humanities will thrive from the ashes where other professions will disappear. AI will be brilliant at performing tactical tasks. However, human beings have the capability of long-term thinking. The digital transformation will result in job loss. The boundary between automatable and non-automatable jobs advances across the economic landscape. Thus unemployment creeps up. There will be downward pressure on the wages of more and more jobs and increasing rewards for the fewer and fewer not automatable yet. The transition will be turbulent. However, thanks to democracy, it will have a happy ending.
Our workforce in the future now will acquire new skills and adapt to the increasingly capable machines. Certain activities are more easily automatable than others, for example, physical activities in highly predictable and structured environments, data collection and data processing. Least susceptible to replacement jobs include managing others, providing expertise and interfacing with stakeholders. Automating some repetitive and manual tasks could eliminate some jobs and enable some workers to focus on higher-value, more creative and more rewarding work while removing the day to day monotony of occupations. In the PWC 2018 research, there is a prediction that fewer female jobs are at risk of automation compared to their male counterparts. It is due to the empathetic nature of the jobs females carry out. Its report also explains that knowledge will be commonplace. We need to change our approach to skill and upskill future generations. Creative and critical thinking will be crucial. Besides, emotional intelligence will play an important role.
According to Gerald C. Kane, Dough Palmer, Anh Nguyen Phillips, David Karon and Natasha Buckley (2015), digital success is not about technology. Instead, it is about the strategy. The 2015 Digital Business Global Executive Study and Research Project by MIT Sloan Management Review and Deloitte confirm our strategic approach as the key driver in the digital arena. Risk-averse companies are unlikely to thrive and likely to lose talent, as employees across all age groups want to work for businesses committed to digital progress. Across the age group from 22 to 60, many employees want to work for digital leaders. Employees will be on the lookout for the best digital opportunities. Hence companies will have to increase their effort in digital transformation to retain and attract them. The digital agenda begins at the top. Maturing organisations are nearly twice as likely as less mature companies to have a single person or group leading the effort. Additionally, employees in a digitally advancing organisation are highly confident in their leaders’ digital fluency.
Conclusion
In conclusion, these recent years have been controversial for the financial services sector due to definitive allegations against the banks and insurance companies for their behaviours. Trust is vital in the business world. With it at the forefront, cost savings (i.e., increased employee productivity and initiative) will trickle up, and people will be happier at work. However, it all starts at the top with leadership. With the help of multichannel strategies, digital ecosystems, and AI and blockchain technology, the insurers are on their track to making a change in the industry and rebuilding trust with the consumer base. Regardless of the fear of job insecurity, digital transformation is necessary and crucial for insurance companies to thrive.
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