The following article about “Customer Expectations in the Digital Age” (with a focus on the Austrian market) was published in the 3rd issue 2019 of the association magazine “Makler intern”. Click here for the official website. The article was written by Hermann Fried, Managing Director of bsurance. The original article was written in German, this is an English transcript.
Customer Expectations in the Digital Age
Insurance customers are becoming increasingly open to new distribution channels. 69% of Germans can already imagine taking out an insurance policy completely online. In the previous year, this figure was 57%. Customer expectations have clearly changed in the digital age.
More and more Austrians also appreciate shopping on the Internet. Between 2008 and 2018, the share of online shoppers rose from 37% to 60%. Especially relevant for forecasts: among 16 to 24-year-olds, this share was already over 80%. While apparently 10 years ago there were still concerns and obstacles, today, e-commerce is used by more than half of the resident population, with more than two thirds of young people already.
Online purchases radically change customer expectations. The demands for speed and accuracy are increasing rapidly. If the response time is longer than a day, customers perceive it as disregard. If the goods are not delivered within a few days, a shitstorm on social media is possible, a 24/7 service is taken for granted.
Convenience, speed and availability – across all industries, purchasing decisions are increasingly being made according to these criteria. All signs indicate that this development will increasingly affect the insurance market as well.
Digitalisation in the Insurance Market
At present, however, the Austrian insurance market can only be expected to experience this development at best. Digitalisation has been the subject of writing and discussion for many years, and hardly a single conference omits this topic, yet the sceptics have so far been right: the digital insurance market in Austria is still very manageable. However, there are some signs that this will change in the short rather than the long term.
Global investment in lnsurTech increased from around 500 million in 2014 to around 1.6 billion in 2017, doubling to 3.2 billion US dollars in 2018. Investment alone is no guarantee for success, but a clear signal that more and more investors are relying on the potential of digital insurance models. More investment also means more variability and higher quality offers. Paul Morgenthaler’s highly acclaimed article explains in detail why “Neo lnsurers” are currently more interesting for investors than “Neo Banks”. According to Morgenthaler, one of the reasons is the greater difference between newcomers and established companies. While banks are already offering their services digitally on a large scale, this is still the exception in the insurance sector.
Most lnsurTechs are currently still at the margins of the insurance landscape: short-term cover, guarantee extensions, cover for very specific groups are not yet widely applied, at least in Austria. However, the experience of the providers and the willingness of the customers is growing steadily.
While aggregators for retail insurance products have already gained great importance in Germany and the UK, for example, the largest market participants in Austria have so far not participated in such comparison platforms. But here, too, there seems to be a change in thinking: The first shy test balloons are launched and everyone is eagerly waiting to see what happens.
The sharp rise in the use of digital services, the resulting changes in customer expectations and increased investments in lnsurTechs allow some hypotheses for the insurance industry: it seems unlikely that the Austrian insurance market will remain unaffected by digitalisation.
The prerequisite for this is an offer that is suitable for digital distribution. The strategy of simply putting a household insurance policy online that is currently customary on the Austrian market and was designed for a consultancy market will not work. A radical simplification of the products as well as a complete digital application process are mandatory prerequisites and part of customer expectations. Digital offers that result in a proposed appointment with an insurance sales representative – actually seen in this way by an Austrian insurer – do not meet the requirements defined above.
It cannot be assumed that the distribution of insurance products will shift 100% from the consultant to the Internet from one day to the next. Good consultants will always be in demand and will of course have their justification and their market even in a more digitalised world. But there will also be a market – young, digitally affine customers with standard insurance needs – that can no longer be reached in this way. Here lnsurTechs and digital insurers will show you how it can work: Consistent digital processes, simple products, short ties and few application questions are the future.
According to the trends observable on developed digital insurance markets, disruptive changes are not to be expected, but rather a slow development towards more and more diverse digital offerings. lnsurTechs play an important role here. But their role and demands are also changing more and more. Many startups see themselves more as “enablers” and not as “disruptors”. It remains to be seen whether this offer will be accepted by established insurance companies.
Such cooperations are particularly suitable in the area of “bancassurance”. It seems that banks are much further ahead than insurance companies in their efforts to achieve more digitalisation. There are indeed insurance companies that do not even offer a digital customer platform – this would be unthinkable for banks. Digital banking platforms, for example, are now encountering analog insurance offerings. This inevitably leads to frustration and a media break for customers. This means that large market potentials remain untapped.
Even if the skeptics have been right so far – the subject of digitalisation will certainly not stop at the insurance industry. It remains an exciting topic because it is highly relevant for the future.
This might interest you, too: Hermann Fried in an interview with “derBrutkasten”.