Need to digitize, fast!
During the 20th century many industries were forced to transform the way they served their customers (e.g. telecommunications, manufacturing). It had not been the case, until now, for the insurance industry which, arguably, has not changed its ethos since 1,000 BC.
Internal and external pressures have built in past years, obliging each company of this traditional brokered industry to reinvent the way they integrate their partners, information and resources to remain profitable. Since US$4.5Tn are at stake (global GDP is US$75Tn), everyone is fiercely competing to adapt in this highly changing marketplace – and be able to survive. Nimble is and will be the new normal, and embracing and dominating the digitalization wave will be the only way to stay ‘normal’.
AXA, the French-based and 3rd largest insurer company in the world, has so far faced and understood the challenge. They know that if not prepared accordingly, the digital age will sweep them as the wave did with music, travel and publishing, and it is currently doing in banking.
Leveraging the ecosystem
Anticipating this new brave world, AXA has built a strong innovative platform, to foster and boost potential opportunities for the business through Insurance-Tech startups: InsurTechs. The objective is to collaborate with them at every stage of their development, from scouting ideas to investing, and finally by building partnerships. AXA has made 37 partnerships and 24 investments around the world so far.
In just a few years, InsurTechs have disrupted the insurance ecosystem with innovation and new trends. For example, on-demand and micro-insurance, previously unthinkable due to the lack of information and difficulty in verifying insured assets, are now feasible. Customers now insure their bikes or cameras for particular periods of time (i.e. hours) through their smartphones. Some call it the Uber-ization of insurance, and AXA has partnered with Trōv, the first to launch it, to develop and enable this product in a global scale.
The (correct) use of information will be critical to increase the industry’s portfolio and adjust to its customer needs. For example, AXA has augmented its car products to leverage the use of information: pay-as-you-drive policies now satisfy infrequent drivers, and pay-how-you-drive policies help AXA improve margins on both low- and high-risk customers. AXA is also preparing to deal with the complexities and opportunities driven by Internet of Things (IoT). Connected devices will aid with the risk prevention initiatives of the company: e.g. alerting customers in their smartphones when there’s smoke in their kitchen. Partnerships with Phillips, Nest and Orange have driven these opportunities.
Complexity will keep increasing
If keeping up with the latter current trends is not sufficient, AXA will still be forced to face new challenges in the midterm. Embracing technologies such as Blockchain and Artificial Intelligence (AI), or even the continuous development of IoT, will be crucial to avoid falling from the digitalization wave.
IoT will further help insurers gain and process data from customers to prevent risks: wearables will anticipate customer’s health complications. Blockchain will change the way the industry operates by enabling to be more efficient, it will for example help verifying the client’s and asset’s data (e.g. health conditions, ownership history of a house). Additionally, among the changes AI will bring, it will facilitate the claims management processes, ending with customer’s frustration and improving the company’s margins.
Relentlessness is key
In the meantime, AXA should continue keeping up with, or even lead, the pace of the digital disruption in the industry. Besides innovating in new products, it should also foster innovations to cut its operating costs. During 2017, in average an insurer will incur in US$1.06 in cost for every US$1.00 in revenue during 2017, a margin that will only worsen as unpredictability and intensity in climate continues worsening. McKinsey estimates that automation can reduce the cost of a claims journey up to 30%.
To reduce costs, many insurers have focused on risk mitigation and claims management initiatives. For example, Munich Re (a reinsurer) has been using drones in affected areas to scout and assess damage and be able to offer real-time aid to people in need. Furthermore, many InsurTechs are working in developing spare auto parts through 3D printing in order to reduce their sourcing cost significantly.
Digitization in insurance is an arms race. Companies that don’t find the correct set of partners in their supply chain, will be doomed to be obsolete.
A new Netflix vs. Blockbuster story?
This essay discussed how insurers are striving to jump in the digitization era. However, what if the wave kicks them away? Will some highly funded InsurTechs be able to overthrow the traditional insurers from their reign? After all, who will need a traditional car insurance policy in the era of driverless-cars…
 EY, “Global Insurance Trends Analysis 2016”, published May, 2017, http://www.ey.com/Publication/vwLUAssets/ey-global-insurance-trends-analysis-2016/$File/ey-global-insurance-trends-analysis-2016.pdf
 Forbes, “2017 Global 2000: The World’s Largest Insurers”, published May 2017, https://www.forbes.com/sites/ashleaebeling/2017/05/24/2017-global-2000-the-worlds-largest-insurers/#7756dab44ec4
 https://group.axa.com/en/about-us/stories-innovation, accessed November 2017
 Business Insider, “AXA partners with Silicon Valley startup Trov to launch insurance ‘as simple as Tinder’ for British millennials”, published November 2016, http://www.businessinsider.com/axa-insurance-startup-trov-uk-millennials-insurtech-tinder-airbnb-2016-11, accessed November 2017
 https://group.axa.com/en/spotlight/story/home-insurance-of-the-future, accessed November 2017
 Forbes, “How Artificial Intelligence Will Impact The Insurance Industry”, published July 2017, https://www.forbes.com/sites/blakemorgan/2017/07/25/how-artificial-intelligence-will-impact-the-insurance-industry/#2dce32ff6531, accessed November 2017
 Fortune, “From Monte Carlo, Insurers’ View of the Impact of Irma and Harvey Is Surprisingly Rosy”, published September 2017, http://fortune.com/2017/09/11/from-monte-carlo-insurers-view-of-the-impact-of-irma-and-harvey-is-surprisingly-rosy, accessed November 2017
 McKinsey, “Digital disruption in insurance: Cutting through the noise”, published March 2017, https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Time%20for%20insurance%20companies%20to%20face%20digital%20reality/Digital-disruption-in-Insurance.ashx
 Institute of International Finance (IIF), “Innovation in Insurance: How the Technolosgy is Changing the Industry”, published September 2016, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjT0JTQ9MHXAhVJ9IMKHb7ZC1cQFggrMAA&url=https%3A%2F%2Fwww.iif.com%2Fsystem%2Ffiles%2F32370132_insurance_innovation_report_2016.pdf&usg=AOvVaw2uUCkJrNf1U0_TFrnuxRsn