The future of the insurance market

The insurance industry continues to face a challenging future and not just in digital transformation. Changing customer behaviours, demographic shifts, new market entrants and tighter regulation are all impacting the industry. The future may be hard to predict, but the insurance industry is, as always, adapting to these shifts to remain relevant and agile in these changing times.

Chris Hallett, Insurance Product Manager at Synectics Solutions has provided a brief overview of some of the changes and challenges that the insurance industry is facing in the coming 2 – 3 years. He also considers the work Synectics is doing to help support the insurance industry through these challenging times in terms of enhancing the fraud, financial crime and risk management solutions that Synectics offers.

"Such new insurance products and accompanying services draw to a close the tradition of overnight batch processing of data and put counter fraud screening requirements closer to the front of the customer journey.”

The ‘Uber Generation’

“The world’s largest taxi company owns no cars. The world’s largest accommodation provider owns no real estate. The world’s most popular media owner produces no content.”

*www.propertyvista.com/the-uber-generation-how-technology-is-changing-expectations

We’re seeing a marked shift customer behaviours, particularly for the younger – or as they have been branded – ‘Uber Generation’. Generation Z are much more inclined to rent a property, rather than buy, use public transport, short term vehicle rentals or carpool schemes rather than own a car and stream music, films, media or literature rather than invest in a physical DVD, CD or book. Additionally, the gadgets and technology goods used to stream media content regularly become cheaper and easier to replace.

“...this generation and those that follow are less and less likely to want or need insurance.”

The result of these changing behaviours is that this generation and those that follow are less and less likely to want or need insurance. If consumers don’t own cars, houses, big-ticket tech or other assets, they have less need for insurance.

This isn’t new news for insurers. Insurtech’s and new start-ups in particular are creating niche insurance products aimed at the ‘Uber Generation’ whose needs are essentially liability based and restricted to losses arising as a result of their negligence whilst using the goods and services they are renting or leasing. Insurance is often on a very shortterm basis such as hourly or daily motor or gadget insurance cover for example.

Early entrants into this market already cite fraud as a major concern, with no brand loyalty to fall back on and fraudsters seeming to take every opportunity to test the resilience of their respective processes and systems. Inevitably, fraud across these currently more niche books of business will continue to rise as they become more commonplace with new insurance products being released to chase the declining ‘Uber Generation’ revenue.

Such new insurance products and accompanying services draw to a close the tradition of overnight batch processing of data and put counter fraud screening requirements closer to the front of the customer journey. If a £50,000 vehicle is insured for only an hour at midday, and a fraudster has criminal intentions in mind, insurers that screen their application data 12 hours after the event and review the output, potentially 24 hours later, may find that fraud could have been avoided at point of purchase. This is simply too little, too late.

To support these new challenges, Synectics Solutions is continually working to enhance its real-time offerings at Point of Quote, Policy Sale, Mid-Term Adjustment and now throughout the claim lifecycle. Synectics has recently built a number of real-time screening solutions that offer the capability to fully automate risk analysis at any point in the customer journey enabling insurers, MGAs and insurtechs to expand their consumer offerings and respective portfolios.

At a glance

Changing consumer demographics

• Less asset ownership

• Reduced need for traditional insurance products

• Increased need for short term and liability insurance products

• Insurtechs targeting new and emerging markets

• Reduced market share and premiums for composite insurers

Insurer strategies

• Ease of purchase, good customer journey and excellent service are key selling points

• Motor and Liability insurance remains only compulsory insurance products

• Motor and Property – 1 hour to 31 day short term policies

• Rise in value added services rather than traditional protection cover e.g. Maintenance cover

• Tennant and landlord liability insurance products increasing

• Short term policies attract high premiums and high fraud risks

Synectics response

• Enhanced real-time services

• Improved standard RTQ

• RTQ+ (Outcome Orchestration)

• Point of Sale, MTAs, FNOL and updates all need to be in SIRA and serviced in RT (and Outcome Orchestration)

• Increased emphasis on real-time data processing – all new sales real-time only

• Increase emphasis on Clear matching

"Synectics Solutions is continually working to enhance its real-time offerings at Point of Quote, Policy Sale, Mid-Term Adjustment and now throughout the claim lifecycle.”

The ‘Now Economy’

The ‘Now Economy’ is one of instant interaction and responses, as well as highly customised experiences and exceptional customer expectations. Our busy, on-the-go lifestyles leave no time for poor customer service.

With the advent of the aggregator, the power to obtain quotes and purchase policies has moved from the high street broker to the consumers’ living room, placing greater emphasis on premium pricing above customer service. Consumers now expect the same level of realtime servicing when it comes to claim notification and settlement. Gone are the days of paper, claim form submissions and waiting for your insurer to contact you to arrange replacement goods to arrive in a week or so. For the ‘Uber Generation’ in particular, online purchasing, and in some cases, same day delivery have significantly moved the goal posts for insurers.

“With the advent of the aggregator, the power to obtain quotes and purchase policies has moved from the high street broker to the consumers’ living room, placing greater emphasis on premium pricing above customer service.”

In response to this shift, many insurers are looking to, or are already, beginning the claims settlement process during the First Notification of Loss (FNOL) calls wherever possible. This is particularly prevalent where replacement goods or services are required and arrangement for delivery is being made in real-time or within hours or even minutes of notification. For the 9 out of 10 genuine claims, the provision of such a level of service represents an excellent, high quality, frictionless customer journey, exactly as demanded. However, expedited claims settlement often leads to claims leakage with overpayments and settlement of claims that could have been declined, or reduced settlements agreed, particularly where fraud has been identified in a screening process, post claim settlement. Not only do these cases incur financial losses to the compensating insurer but can cause considerable pain for those in the supply chain, where replacement goods or vehicles are authorised and released, prior to an overnight batch fraud screening process occurring.

The evolution of claims handling continues at a pace. FNOL calls and call centres are the mainstay of an insurer’s claimant facing contact method - be that in house or via a third-party service provider.

Step forward the online, and even Chatbot based, self-service claims platforms. Driven mainly by the insurtech operations, viable ‘touchless’ and fully ‘self-serviced’ claims reporting and handling platforms could well be the norm two to three years from now – certainly for lower value claims in the first instance. No one doubts that there will always be a place for the ‘human touch’ as significant events such as fires, floods, catastrophic personal injuries and, more recently, worldwide pandemics are traumatic, once in a lifetime occurrences for most claimants. So, a friendly, reassuring voice at the end of the phone is irreplaceable. But, as safety requirements and enhancements in all aspects of the modern world come in to effect on a daily basis, then such events exponentially reduce.

In the motor industry, current in-car technology and third party technology providers, have the capability to link their Advanced Driver Assist Systems (ADAS) to insurance based product offerings with pence-per-mile insurance policies, which would offer tangible pricing benefits to the consumer and real-time risk based pricing to the insurer. The real benefits for the customer come in the event of a crash, where emergency services can be immediately notified. The wellbeing of the vehicle occupants can be checked via a phone call, when the telematics data has identified a serious collision. As an extension of this customer care aspect, it is entirely feasible to use dash cam footage and telematics data generated in any collision, regardless of severity, to fully automate the liability and indemnity valuation decisions. Potential witnesses from passing cars could be identified from their number plates before the victims of the collision have even exited their own vehicles. The counter fraud opportunities around implementation of such technology are significant to say the least.

"...it is entirely feasible to use dash cam footage and telematics data generated in any collision, regardless of severity, to fully automate the liability and indemnity valuation decisions.”

"It is as important to us, as it is to our clients that only the right data at the right time is ingested and we work in partnership with all concerned to ensure maximum value is derived for each stakeholder.”

The ‘Now Economy’

Many of Synectics’ insurance clients utilise the capabilities of SIRA Real-Time and Precision’s predictive analytics to aid claims handling by identifying genuine claims earlier, to give good customers a friction-right journey. Clients are also using sophisticated workflows, rules and logic to prioritise high risk, fraudulent claims and identify more fraud. In addition, by enriching data with third-party data sources clients gain a much more in-depth picture of the claim and claimant they’re dealing with. Recent developments within Synectics Intelligence Hub provide clients with almost infinite automated decisions to be made based on rule hits and data service call outs, all returned in a real-time response.

“Recent developments within Synectics Intelligence Hub provide clients with almost infinite automated decisions to be made based on rule hits and data service call outs, all returned in a real-time response.”

In a recent case study, Synectics worked with one of its insurance clients to deploy the enhanced capabilities of the Intelligence Hub. The insurer has been able to completely customise how each insurance application and claim is dealt with, through the adoption of highly configured decision workflows, which automatically feed outcomes into their in-house claims management platform. This has helped the insurer speed up the customer journey by accessing the right information, at the right time to make more informed decisions. The insurer has seen a 57% reduction in the time taken to settle claims with no loss in the volume or value of frauds detected since its deployment.

The old adage #1:

‘Data is king’. This is probably more pertinent today than it ever has been and, as a statement, can only become further reinforced as we become more and more reliant on data to run our everyday lives. Servicing the ‘Now Economy’ sees unprecedented amounts of data being created every second.

The old adage #2:

‘Can’t see the wood for the trees’. Being able to access lots of data is not the same as being able to access the right data. Equally applicable to underwriting and claims, the customer will only give you the data they either have to give or, in the case of the fraudster, the data they want to give you. In most instances this data starting point is only the tip of the iceberg in terms of what information and intelligence can be gathered on the subject for decision making purposes. Being data agnostic, Synectics is continuously on the search for, and is incorporating pertinent data sets and services in to SIRA. It is as important to us, as it is to our clients that only the right data at the right time is ingested and we work in partnership with all concerned to ensure maximum value is derived for each stakeholder.

At a glance

Increased consumer expectations

• Aggregators shifted consumer buying power away from high street brokers

• Purchasing insurance became easier, quicker and cheaper thus setting new levels of expectation across all areas of the customer journey

• Expedient claims settlement is the main requirement from customers

Insurer strategies

• Web based quotes and purchasing is BAU in Personal lines and now moving to Commercial

• Self service portals for mid-term adjustments and claims reporting

• Low value claims settled at FNOL stage via cash or replacement goods

• Motor – replacement vehicle in hours. Damaged vehicle repairs fully managed via approved repairer networks

• Increased use of Chatbots

• Heavy reliance on external service providers (equates to lack of data capture at insurer level)

Synectics response

• Enhanced real-time services. Particular reference to

• Outcome Orchestration use in claims

• Alternative / non-standard data sources

• IFB and extended data services

• Hosted data services accessed using enhanced rule functionality

The Tightening of Belts

‘The premiums of the many pays for the losses of the few’ will always be the cornerstone of insurance, however consumer reluctance to pay the price required to meet the expectations at point of claim is a fine juggling act.

The motor insurance market will continue to be at the forefront of this battle for the foreseeable future. Pressure to reduce premium prices in order to appear on page one of the aggregator site has to be managed against the ever increasing cost of crash repairs as newer vehicles with their expensive on board safety features and ADAS demand higher cost replacement parts and longer repair times.

“As competition increases chasing the ‘Uber Generation’ pound, whilst meeting the expectations, and associated costs, with the ‘Now Economy’, the pressure to cut costs becomes ever increasing.”

As an example, in the last 7 years alone, Gross Operating Profit for motor insurers fluctuated from 14% down to 7%, back up to 16%. But, this is still well short of the pre2010 rates and again, short of where they really need to be to attract new entrants in to the market or the return of those who left when times became lean.

Premium income will always be an insurer’s main source of revenue. As competition increases chasing the ‘Uber Generation’ pound, whilst meeting the expectations, and associated costs, with the ‘Now Economy’, the pressure to cut costs becomes ever increasing. For the more traditional, and certainly the larger insurers, these costcutting exercises nearly always start with the claims department. Albeit every operator in the lifecycle of an insurance product requires payment from that single consumer’s premium – aggregators, brokers, software houses, claims service/ replacement goods providers, legal suppliers, and even your friendly counter fraud service provider - Synectics Solutions.

Insurers fully acknowledge that all operators in the supply chain require payment for their services. However to minimise costs, suppliers constantly need to prove tangible benefits to remain relevant. To explore the subject of costs a little closer, we can place them in to two broad categories:

Claims spend / indeminty costs - the cost of settling a claim and indemnifying the claimant. This includes compensation, replacement goods, property repairs, etc.

Operational costs - people, premises, etc.

Claims spend is well understood – it may be increasing with the additional repair/ replacement costs mentioned previously but it can be projected with a degree of certainty. Equally, reserving now comes under scrutiny by the Financial Services Authority, post EU legislation – Insolvency II – that was, at least in part, responsible for the dip in operating profit mentioned above.

In partial response to the above, Managing General Agents (MGAs) have become commonplace – effectively small insurance companies backed by larger, often London market based, carriers. These firms can meet the Insolvency II requirements, leaving the MGA to explore new markets, offer niche products and to be more agile, without the need to be encumbered by carrying large cash reserves. Similarly, multiple insurtech operations have started in recent months in the claims space. This is a trend that is perceived to grow significantly in the next 24-36 months.

Operational costs are constantly under review and see restructuring exercises occur, with the occasional headline grabbing news of claims offices being closed and redundancies being made. The reduction in head count often places greater emphasis on systems, processes and the underlying data to bridge any gaps. However, we should not lose sight of the fact that, although we all work in the insurance industry, we are also consumers and have a part to play in demanding lower premiums, hence requiring costs to be cut and jobs ultimately lost. Educating the public to accept paying a higher premium is always difficult and never popular”¦and so the cycle repeats.

In today’s tech savvy world, and to support the expectation of data being readily accessible, Synectics has a big part to play. To aid the new, agile, go-to-market strategies of insurers, MGAs and insurtechs alike, Synectics offers ever-increasing levels of functionality within the core SIRA platform for the end user. In addition, the build of API connections and the previously mentioned enhancements to the Intelligence Hub offer insurers real-time risk analysis and automation throughout the entire customer journey. In a similar vein, Synectics is developing a ‘Sandbox’ environment - allowing insurtechs to precan Synectics API connections as part of their market offering.

Whilst we never lose sight of the fact that the vast majority of insurance consumers are entirely genuine and quite rightly demand the highest levels of service, ever since the insurance market came into existence there has been the select few who see the industry as an opportunity to commit fraud and obtain ill-gotten gains. Millions of insurance quotes, policies, MTA claims and updates are processed through SIRA on a daily basis, flagging thousands of potential fraud cases, each of which requires some form of action prior to continuation of the customer’s journey. In a small number of cases, significant and organised criminal activity is identified. Whilst data still has a strong part to play in such cases, it is the skills and expertise of the industry investigators that not only make tangible cost savings to the business, but often make the world a safer place by assisting law enforcement in taking criminals off the street. Synectics has recently opened its own Special Investigations Unit to provide cost effective assistance in the gathering of intelligence for such cases including access to our National Fraud Initiative (public sector) data, National SIRA and multiple other investigation resources.

"To aid the new, agile, go-to-market strategies of insurers, MGAs and insurtechs alike, Synectics offers ever-increasing levels of functionality within the core SIRA platform for the end user.”

At a glance

Reduced revenue v increased costs

• Premium Income is an insurers only real source of revenue

• Costs are increasing, which include; indemnity spend and cost of claim settlement (particularly motor repairs) and operational costs are rising (people, infrastructure and premises)

• 2016/17 EU legislation (Insolvency II) requires insurers to hold greater reserves

Insurer strategies

• Claim spend is understood and budgeted for by actuaries

• Claims operational costs are under constant review

• Insurtechs and MGAs becoming common using larger insurers capacity to meet insolvency II requirements

• New market entrants more agile and able to operate in niche markets

• Advances in technology means less staff are required versus cutting overheads and hope technological advances keep pace. A tricky balancing act

Synectics response

• Enhanced Real Time services to minimise impact in reduced head counts

• SIRA Sandbox – support new market entrants in ability to build, test and fail fast

• Strategic partnerships, such as ClaimsTech for Chatbots

• Synectics SIU and strategic partnerships with law firms offers cradle-to-grave fraud investigation and handling, to support new start-ups predominantly

Changing Fraud Trends and the Impact of Reforms

For over 20 years, insurers have lobbied for and against a variety of law reforms from changes to the Legal Aid System in the 1990s to the Civil Liability Bill today. Each change has bought with it new and sometimes unforeseen challenges, particularly when organised fraudsters have taken advantage of certain aspects in the claims process to generate millions of pounds in ill-gotten gains from insurers.

As an example, even before the Civil Liability Bill becomes law, insurers have seen a subtle shift in the type of personal injury claims, allegedly occurring in Road Traffic Collisions (RTCs). This is combined with an increase in cost layering fraud, as well as an overall move away from RTC based fraud and a return to ‘slip and trip’ or casualty claims farming.

“...even before the Civil Liability Bill becomes law, insurers have seen a subtle shift in the type of personal injury claims, allegedly occurring in Road Traffic Collisions.”

On the other side of the ‘Claimant v Defendant’ fence, changes to business operating models are being made, with a view to maintaining relevance in a changing claimant landscape. Many of the larger claimant law firms are moving away from high volume personal injury claims towards credit hire litigation and cost recovery actions. The next 2 years will see a significant change in the way low value RTC personal injury claims are submitted. With solicitors regulated by the Solicitors Regulation Authority taking a step back, and potentially Claims Management Companies stepping forward to represent claimants, will insurers have greater expectations of the Financial Conduct Authority? Only time will tell.

One of the insurance industries greatest achievements has to have been the creation and continued expansion of the Insurance Fraud Bureau (IFB) plus, more latterly, the Insurance Fraud Enforcement Department. Using industry data to fight organised fraud has proven extremely successful for over ten years in the motor insurance space and as the IFB extends its remit in to other lines of business, the demand for quality data and intelligence will only increase in coming years. Synectics achieved Approved Third Party Supplier status to the IFB in 2018 and has a program of enhancements planned to work in partnership with, and support the work of the IFB and the wider insurance industry.

While the IFB is the industry’s main counter fraud body, the number of counter fraud solutions deployed by the industry are wide and varied - all require an element of data capture to some degree. At point ofquote, point of sale and MTA stages, data capture is generally good, fraud typologies are well understood and insurers have robust processes in place. At claims stage things tend to become a little more difficult. Motor and casualty claims often feature parties, with whom the defending insurer has no prior knowledge or experience. Property claims contain unforeseen levels of detail and sometimes otherwise genuine customers may take the opportunity to exaggerate a claim.

Combatting opportunistic and organised claims fraud is now, and will remain, an uphill struggle. We have already explored the increased levels of expectations and the emphasis on enhanced data capture. Nevertheless, if we accept that 80% of data relating to parties in a claim appears in the unstructured data format of the documentation that accompanies a claim, then the challenges faced in providing the frictionless customer journey become exponentially greater.

To extract the hidden value in unstructured data Synectics has partnered with 360 Globalnet and Infoboss to provide a combination of hosted and SaaS services to integrate within SIRA. Now, by unlocking the information from an unstructured data document, insurance clients will be able to integrate this intelligence into wider fraud and claims management systems and create a much fuller picture of a policy applicant or claim.

A holistic view of all available data sources, at every point in the customer journey, continues to provide dividends for those able to embrace the next generation of real-time analytics. Not only does this help reduce fraud exposure, but enables insurers to accurately price all forms of insurance risk, then, in the event of a claim, provide the desired levels of service at an acceptable cost.

"Using industry data to fight organised fraud has proven extremely successful for over ten years in the motor insurance space and as the IFB extends its remit in to other lines of business, the demand for quality data and intelligence will only increase in coming years.”

At a glance

Fraud trends and industry reforms

• Upcoming Civil Liability Act has already seen changes in fraud trends

• Cost layering and non soft tissue injury claims are on the rise

• Circa 80% of data relating to a claim is contained in documentation not insurers claims systems

• IFB funding model changes have impacted insurers previously unaffected

Insurer strategies

• Motor fraud remains the most prevalent. Insurer fraud teams are alive to changing trends

• Standard industry data does not contain data items required to combat new fraud trends

• Unstructured data mining is now becoming a key requirement

• Increased expectations on IFB – wider fraud remit, new lines of business, ROI

Synectics response

• Enhanced standard RTQ – Commercial risk screening

• RTQ+ based on Outcome Orchestration

• National Clear matching

• Unstructured data mining (DocuStore now in core SIRA and partnerships with providers)

• Enhanced core SIRA functionality – Advanced Name Matching

• Ad-hoc data agnostic network visualisation - Orion II

• IFB GDF Data Service enhancements plus additional IFB based services

"A holistic view of all available data sources, at every point in the customer journey, continues to provide dividends for those able to embrace the next generation of real-time analytics.”

Here I have taken a look at just four of the challenges facing the insurance industry – and this is by no means an exhaustive view. The industry will continue to adapt and change. New regulations and reforms will be passed, customer demands will increase and criminals will continue to change their tactics to circumvent the fraud systems we put in place. What is certain is the need for organisations to continue to work together, develop technologies and share intelligence to be able to adapt quickly in a volatile insurance environment.

If you’d like to learn more about the product and service enhancements discussed in this article and how these could be incorporated within your business, please contact me Chris Hallett, Insurance Product Manager on: chris.hallett@synectics-solutions.com or call 0333 234 3417.