Digitisation And Insurance Risk Mitigation

Ignoring all the policy and product details, insurance effectively comprises a process whereby clients outsource their perceived risks and ask organisations to carry the financial burden in the event that the risk occurs.

This has been at the core of long-and-short term insurance processes over the past few decades where clients and insurance organisations alike assessed their risks and developed a complementary approach to manage those risks.

Clients identified their perceived risk coupled with the likelihood of the risk being realised and measured the financial impact that the realisation would have on them personally.

On the other hand, insurance organisations considered a broader view and, based the likelihood of a risk occurring on demographic information and market research.

This approach resulted in clients and insurance organisations both stepping back and waiting for the risk to materialise. One could liken this situation to a bomb with a fuse burning down, checking how long the fuse is, and then standing next to it waiting for it to explode.

Digitalisation is Changing the Insurance Landscape

With the proliferation of digitalisation, and the sheer amount of information that is now available to both clients and organisations, the world of insurance is starting to take the next step towards modernisation.

Whereas organisations previously focused almost exclusively on risk contingencies, they now have the opportunity to delve into real risk mitigation, owing to the amount of information available about clients and their behaviour coupled with mobility, the Internet of Things (IoT) and digitalisation.

These advancements have made it possible for insurance providers to not only understand more about client behaviour, which in itself can already improve the existing risk models and contingency plans, but also use tools to actively influence client behaviour and drive mitigation strategies.

By understanding client behaviour more accurately, risk models can be adapted and thereby reduce the number of assumptions inherent in such models. This has a direct benefit to the organisation in that the costs and risks are more predictable, and enables them to drive cost reductions while still offering the same, and even better, levels of service.

The benefit to the client, on the other hand, is the leveraging of inherent cost benefits provided as well as leveraging the innovations being driven in the models to make insurance more personalised by the insurer. Thereby risk mitigation creates a true win-win scenario for both clients and organisations.

Sculpting Client Behaviour with Risk Mitigation

By introducing a risk mitigation approach, and understanding what behaviours are being exhibited by clients, organisations are able to understand which behaviours lead to a higher likelihood of risk materialising, and which are likely to reduce risks. Once these are understood, it is possible to start initiatives to drive the desired behaviours and minimise the behaviours that are more likely to result in the realisation of risks.

As a result, organisations reap the outcomes of the desired behaviours by further reducing the likelihood of risks. Simultaneously, clients are provided with deep insights and access to behavior-related information, notifying them of behaviours that are likely to reduce the realisation of their risks. The resultant benefits to both insurance providers and clients are self-evident.

Improving Client Experience

Another benefit of digitalisation to insurance providers is the improvement that it provides to the client experience (CX) journey, and how insurance organisations can leverage risk mitigation strategies to drive CX excellence and differentiate on more than just price, policy and product information.

By tailoring and building processes designed specifically to enable and drive CX towards the digitally enabled and mobile client, insurance organisations can open new revenue streams and partnerships that will set them apart in an already competitive market. At the same time, organisations can’t afford to throw away, or ignore the traditional processes and approaches because they aren’t going anywhere…yet.