A New Model for Using Data Science in Insurance

Oct 21, 2020

The coronavirus pandemic continues to impact businesses even after quarantine measures in many countries have begun to ease. There has been a strong shift towards digital channels, and many people have realized that this is more convenient, regardless of whether staying home is required or not. The insurance industry is not an exception: many companies transferred their employees to telecommuting and began to actively develop remote services. Now, many insurance companies are focused on developing a new strategy that will allow them to successfully provide services in the changed environment.

After a month of quarantine, McKinsey conducted a survey of German local insurance agencies, which showed a decrease in insurance volumes by 40% on average. On the same note, the majority of survey participants from other countries think the necessity of building relationships with customers remotely is the main problem that has caused a decline in sales. However, the companies that established digital insurance processes before COVID-19 started not only managed to maintain the pre-crisis volumes but even reported growth.

Insurers that used to be offline-oriented have to urgently rethink their models. Currently, the key points of this model are customers, sellers, and additional promoters. In order to change the whole model, it is necessary to change the working principle in each of the directions.

How distribution in insurance is changing

Before the pandemic, most insurance policies were distributed through offline channels and were classified by region and line of insurance. The need for distancing has spurred the following changes:

1. Transition to digital tools. Although many agents are accustomed to personally communicating and signing contracts with their clients, they have to quickly adjust to the new format. A survey of US agents, which was conducted in January 2020 by McKinsey, showed that insurers signed contracts in person about 80% of the time. A similar survey in May showed a decrease in this indicator to 5%.

2. Commitment to self-service. Clients want a faster and more convenient registration of insurance policies. However, it is important to make sure online services won’t turn out to be too complex and inconvenient for customers – in this case, they will still have to contact an agent, but the general level of satisfaction will decrease.

3. Rejection of autonomous media. Until recently, most companies’ insurance contracts were considered valid only with a physical signature of a customer. Now, when many people are afraid of getting infected and avoid physical contact, a full-fledged transition to digital signatures is necessary.

The aim of the changes is to get businesses back to fast scaling, which will be especially important after the economic impact of the virus becomes apparent.

Distribution strategy change in the near future

Today, the main forces of companies are focused on digitalizing relationships with customers and increasing the use of data science in insurance. Insurers learned to create, test, and launch prototypes of InsurTech solutions in the distribution within several months. As we mentioned earlier, the three main areas that companies need to focus on are customers, sellers, and additional sales promoters.

Customer care

Companies need to focus on the customer preferences that have emerged in the new environment. For example, the conditions and procedures for issuing insurance products should be simplified. Research shows that some clients are unable to remotely obtain insurance in its current form by themselves, even with all the necessary instructions. It is necessary to use all the possibilities of modern telecommunications in order to recreate contact with a client in a remote format. For example, telemedicine tools can help, if necessary, to consult with a doctor when applying for health insurance.

Seller care

In order to prepare the sales department to work in the new realities, insurance companies can do the following:

1. Launch a remote distribution system. Along with the ability to work in new conditions, this allows for faster processing of information and better control over the efficiency of processes.

2. Put emphasis on teamwork. Working in a team, agents can become more experienced, cover for each other, and eliminate situations when one client is served by several agents.

3. Expand your partner network. Attracting customers through additional channels will help to maintain sales during the crisis.

Investments in sales promoters

Most agents believe that insurance companies should first invest in digital tools that will help to sell their products in the new environment. However, before investing in IT, companies need to do thorough research and put new solutions in order of priority.

The best solution for this is to seek expert advice. For example, Andersen has been specializing in providing IT services for over 13 years, hence can help both with choosing the right solution for a specific task and with insurance software development. Particularly, Andersen’s head office is located in Belarus, where blockchain operations are permitted at the legislative level. This will allow, for example, using smart contracts and tokens to guarantee the impossibility of changing events of insurance history and conditions unilaterally.

Long-term planning

In addition to quick short-term decisions, companies should take certain action to make sure their businesses will grow in the future:

1. Find a balance between sales channels. Digital channels are not yet capable of completely replacing personal customer service; an optimal balance should be found.

2. Identify and implement the technologies required for digitalization.

3. Develop an M&A strategy to expand distribution.

Changing the distribution model will take time, as it not only means using new tools and assets but also requires significant capacity building that affects other parts of the value chain such as products and requirements. The companies that are first to embrace the new norm will be the ones to start working on tomorrow’s imperatives today.

Zhann Chubukov, Head of Data Science, Andersen:

As for insurance companies, there is a very important issue – the time during which the insurance company manages to adapt its tariff plans to existing realities. The cost of a mistake is enormous. Analysts work both on the part of the insured and on the part of the insurance companies. The task of the customer’s analysts is to find a loophole in the insurance policies, which will minimize risks at the expense of the insurer, and ideally, make money from the insurer’s miscalculations. An insurance company’s analysts are doing the exact opposite: trying to earn as much as possible from insurance premiums while minimizing insurance payouts, but in such a way as not to alienate potential customers. Whoever calculates the risks rapidly and accurately remains in the black.


Written by Denis Ostapchenya, Head of the FinTech Department at Andersen


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