As technology continues to transform virtually all aspects of the insurance industry, the potential impact is of especial interest for mutual insurers, insurance cooperatives and other member-owned insurance companies around the world. Like all insurance companies, the fundamental change that technology is having on the insurance value chain is disrupting the existing operating models of mutuals/cooperatives, and leading to a need to innovate, adapt and update their organisational capabilities.
Today, the majority of mutual and cooperatives, like stock companies, are looking to invest internally in new technology, such as advanced analytics, AI (artificial intelligence) and cognitive solutions. These technologies are seen as a way of improving customer engagement: updating and improving internal processes; and gaining smarter insights into market trends through the analysis of big data. Mutuals are also looking externally at the rest of the industry and into other sectors, with a few setting up venture capital arms to invest in insurtech/fintech companies or making strategic alliances and partnerships with accelerators, incubators or start-ups in the sharing economy.
In terms of their current approach to technology, there is little difference, in general, between mutual companies and stock companies. However, the mutual and cooperative model could potentially lead to different approaches to investment in technology.
For some of the larger mutual/cooperative insurance groups, more capital and resources could be made available for technology investments. With no shareholder pressures or need for instant returns on investments, the long-term approach of mutual insurers may allow capital to be invested in technology and innovation projects that may not garner a financial benefit in the near future. However, as the vast majority of the 5,000 mutual and cooperative insurers around the world are small and medium-sized enterprises, many of these face increased pressures from solvency requirements and may not have the levels of excess capital available to invest in technological advances. Similarly, they may not have the skills required within their existing workforce or be able to attract the best talent (such as data scientists) to effectively use this technology.
The future change that new technology will bring to the insurance industry is something that could benefit the mutual sector and allow them to provide a better service and customer experience for their member policyholders. On the other hand, it could end up eroding the competitive advantage and benefits that mutuals enjoy through their close proximity and better understanding of their membership base.
Many insurers are currently exploring how they can harness technology to improve the way they interact with customers in an effort to become more “customer-centric”. While for many insurance companies this will represent a huge transformation, mutual insurers, on the other hand, may find themselves with an unexpected advantage. The existing operational model of mutuals is already closely-aligned to the needs and preferences of their customers (their members). Also, many mutual and member-owned insurers are associated with affinity groups and therefore tend to know their customer base better than other insurance companies.
However, while mutual insurers may have a short-term advantage as other insurers attempt to transform their operating models, the rest of the industry may soon gain insights and knowledge of their policyholders through the smart analysis of their customer’s data. By harnessing these big data set, insurance companies may be able to better understand the needs and preference of their customers, and provide some competition to the mutual sector’s level of personalised service.
Technology may also lead to a change in how customers view their insurer, with a shift from a means of financial reimbursement after an event to one engaged in ongoing assistance. The Internet of Things (IoT) and rapid expansion of data could lead to a new model of “preventative” insurance, whereby insurers use this technology to help policyholders take pre-emptive steps to protect themselves and prevent a loss.
Mutual insurers could also naturally benefit from this shift as many have been long engaged in risk management, prevention and educational programmes to improve the societal well-being of their members. Mutuals with close links to the local community and niche affinity groups are more likely to know the risks most associated with a particular group in or a particular area, and so have a greater knowledge to help prevent the need for insurance claims.
Technology in a growing digital world will also likely impact the distribution strategies of insurance companies. Mutuals have traditionally relied on agents and intermediaries to distribute their products. In a recent survey on the topic of distribution channels by the International Cooperative and Mutual Insurance Federation (ICMIF) of its members, over 90% of collective business was generated through tied agency and broker channels.
While the agent-broker model may suit existing customers who value the personal relationship and professional guidance of intermediaries, new generations of insurance buyers are likely to demand more direct, online and omni-channel distribution. This was also evident in the responses to the ICMIF survey, as 38% of mutual companies expected a lower proportion of sales through tied and captive agents in the next 10 years, and 84% expected digital (online) distribution to increase.
This is likely to lead to somewhat of a dilemma for mutual insurers: do they maintain a focus on agency and intermediary channels, where there is likely to be a greater opportunity to build a sense of affinity with customers, or do they risk losing this mutual advantage by looking more towards online sales? Will technology disrupt mutuals’ long-standing and successful distribution models which have been serving members, in some cases for hundreds of years, or are there ways to combine digital distribution with traditional mutual values?
On the whole, technology may create just as many challenges as it does benefits for mutual insurers. Whilst it will undoubtedly help mutuals provide a better service and experience for their members, the challenge comes in maintaining customer loyalty and trust as technology inevitably breaks down the personal relationship between the insured and insurer.
This blog was originally written for and published by Insurance Day in a special feature on technology (published 30 April 2018). The blog is reproduced here with the kind permission of Insurance Day.