Compelling customer experiences open the door to valuable streams of real-time data. Insurtechs understand this.

Among incumbent players in the insurance industry, the fear of disruption is fast being replaced by a thirst for the opportunities offered by digital innovation.

“Insurers are taking a proactive approach,” says PwC in a 2017 report, “with 52 percent putting disruption at the heart of their strategy.”

This is hardly surprising. In 2016, McKinsey found that property & casualty carriers who ranked highest in a range of measurements around digital capability, culture and management practices saw revenues climb 1.5 times faster than the average traditional insurer. The group’s combined ratio — a key indicator of profitability — was four points lower than that of their peers (lower is better).

Is data “the new oil”?

According to the PwC survey, the most important innovation trends centre on customers and the data they generate. Companies are looking to feed this data into advanced modeling and analytics tools in order to improve their identification and quantification of risk. They’re also seeking more sophisticated ways to reach and engage customers in a more selective manner.

They are on the right track. By personalizing content and offering a better digital experience, McKinsey found that one auto insurer was able to reach those people who were most likely to buy insurance online. The insurer was able to boost its online conversions by 20 percent, adding $400 million of growth to an annual premium base of $10 billion.

Women and millennials are among the most likely segments to complete their purchases online. Optimizing content to attract them and to match their decision-making pathways makes sense. Crafting captive customer experiences is critical, because every click and interaction produces a valuable data point, even when it doesn’t lead to a successful conversion.

Another way that insurers are using data is to mitigate risk and lower the cost of claims. The growing pervasiveness of cheap sensors in homes, vehicles and wearables is providing new ways to detect and prevent losses from occurring — through pre-emptive repairs for example, or by incentivizing behaviour change.

Equally, the impact of large-scale catastrophes can be reduced. French insurer AXA is using an integrated big-data approach to model flooding scenarios on the Seine. By combining traditional insurance expertise in analyzing risk with research from scientists and collaboration with civic authorities, they are collectively working to limit the potential devastation of high-risk scenarios that could produce up to 30 billion euros in damages.

Compelling customers

With data — particularly real-time data — being so fundamental to digital innovation in insurance, power is shifting to those who collect, own and analyze it.

Insurtech-focused companies understand this, and are showing the the way forward. Some incumbents in the insurance industry have perceived insurtechs as a threat, but there is much to learn from these ventures, especially in the ways that they are improving customer experience.

Companies that can convince customers to use their digital tools — whether on the web, on mobile or through telematics — gain access to a wealth of data. But convincing people requires creating compelling customer experiences, and understanding how these might integrate with emerging digital ecosystems.

That’s a challenge that insurance players must measure up to if they plan to get ahead of the game.