After taking a bird’s eye view of the market in the first part of our series on digitization opportunities, we now land on the product level. Starting from the definition of a digital insurance product you can read here which criteria determine the digitization potential of a specific product. In the next part we will then analyze concrete challenges of digitizing these products using selected commercial products such as D&O and marine insurance.
I am happy to quote my colleague Marc-Philipp Gösswein: “It has never been more exciting than today to work for industrial insurers and brokers!” In the course of the digital transformation, established insurance companies are called upon to rethink their business model and strike out on new paths. On the one hand they are faced with the task of occupying a digital access to a highly dynamic market. On the other hand they have to digitize their own portfolio in order to offer their products in an online distribution channel.
These requirements give rise to the march route, i.e. the digitization strategy. In addition, two complementary fields of action within the transformation process – market and product – are clearly defined. I therefore find the question of what steps an insurance industry takes at these levels to implement its strategy exciting. At the product level, the aim is to standardize one’s own insurance offers according to certain criteria in order to be able to represent them digitally. In operational terms, this means that insurers or their IT service providers must transfer data and rules for assessing underwriting risks into digital form in order to structure this information and make it readable and interpretable for IT systems.
Definition: What is a digital product?
But how do we even define a digital product? Again I follow my colleague:
“A digital product is characterized by a standardized set of conditions that specify the product core. It must also contain a cover model describing the insured interest and the information required for the risk assessment. This included underwriting model contains rules for deriving pricing and applicable clauses – for example for certain industries”.
From this definition it is easy to see how important the information to be collected is for risk assessment. This applies to the assessment by an underwriter as well as to the risk decision that a system should make. With their decisions, underwriters contribute to their employer’s underwriting result. The insurer relies on their expertise. As far as the product’s risk model is concerned, the question of the millions is therefore: how do we digitalise an insurance so that the system’s decision is considered as credible as that of the expert? And how can the decision rules even be improved?
With regard to the market perspective, the question arises as to what effort a sales partner wants to take in order to participate in the recording of risks digitally.
Display products digitally: Risk decision in focus
How do we digitize an insurance so that the system’s decision is as credible as the expert’s?
Based on these questions we can define the following criteria that determine the digitization potential of a product in the market context:
- Risk analysis with moderate use of resources: Is the time required for a digital risk assessment for the sales partner in a suitable relationship to the benefit from his point of view? For example, the immediate creation of offers and policies would be a major advantage resulting from a digitally mapped risk analysis.
- Confident risk decision: Can a risk decision be made on the basis of the collected and possibly enriched information to which the insurance company attaches so much confidence that a system-supported decision is accepted as the qualitative equivalent of an individual assessment by an underwriter? To this end, the relevant information must be structured in such a way that it is possible to make rule-based decisions. Furthermore, the required information must be able to be depicted objectively, i.e. there should be no dependence on the subjective assessment of the person collecting it.
- Competitive pricing: Is competitive pricing possible by automating processes? Cost advantages, which can have an impact on pricing, can be realized above all if the decision-making and document creation processes are automated. This means that a regular additional assessment of the information collected by an underwriter or other administrative employee is not necessary. The more intense the competition with regard to a specific product the more price-sensitive the sales partner will react.
On the basis of these aspects, we will examine and analyse selected commercial insurance products in the following section to identify concrete challenges of digitisation.
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