Digital wallets and personal AI will turn the insurance sector upside down

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This is the PERSPECTIVE edition, a regular take on the future of digital customer relationships.

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Digital wallets and personal AI will turn the insurance sector upside down

Last week’s?Customer Futures Perspectives?was about how?insurance businesses are really ‘future you’ machines. They help the?company?predict your risks, and then help?you?when Things Go Wrong.

It described how soon, with Personal AI,?customers themselves?will be empowered to take action?before?they need to make a claim. All because they can create - and improve - their own personal risk models.

As a follow-up, I want to dig deeper into how the insurance industry will be impacted more generally?by digital wallets. And what role?decentralised (or ‘self-sovereign’) identity?will play.

In 2019 I co-wrote a chapter on this very topic for the landmark book about?Self Sovereign Identity (SSI) by Alex Preukschat and Drummond Reed . Credit also goes to my co-author,?David Harney, Board member at Canada Life, and CEO of Canada Life UK.

With permission, I’m reposting the full book chapter here in today’s?Perspective edition.

The main takeaway:?SSI will soon send digital shockwaves across the entire insurance supply chain. Digital wallets and decentralised identity are going to fundamentally change how insurance is designed, how it operates, and how it is experienced.

You can buy?the SSI book here. Customer Futures readers can get 35% off the full price until July 23rd using the code SSID35.?And if you’d like to chat about this or any other aspect of Customer Futures - just?get in touch.

Introduction

Put simply, self-sovereign identity (SSI) will transform how insurance is designed, how it operates, and how it is experienced.?

Expect services to become completely seamless and personalized. New processes will change how data is sourced and shared, with individuals becoming the couriers of their own data. In fact, data portability will become table stakes.

The world of connected things won’t be left behind either, as SSI will usher in a new generation of intelligent devices ‘at the edge’, disrupting everything from supply chains to personal healthcare.

SSI is going to matter deeply for insurance companies.?

They’ll be able to develop richer, longer-lasting relationships with customers, and develop smarter insights to inform pricing and risk analyses. SSI will help organizations reduce fraud (1), lower costs (2) and ultimately get better at data compliance. They will also be able to innovate with new insurance products and services, for example around data integrity and authenticity.

Individuals, too, will experience the impacts of SSI - accessing cheaper, more personalized and smarter insurance products and services. Over time, they will be better able to understand their lives through data, to help them decide what coverage they really need, and how much they actually need to pay.

Finally we’ll see a new breed of insurance providers emerge across the sector.?

Armed with new disruptive business models, they might very well re-shape the entire structure of today’s insurance market. By being able to assess risk and price more effectively, and in more trustworthy ways, new entrants will drive disruption across the whole insurance value chain, where insurance products will increasingly blur with other products and sectors.

A radically new customer experience

These predictions about the insurance sector are lofty, grand, and futuristic. So let’s consider these shifts through the lens of a real-life scenario: a family buying a new house.

Meet Susan, Dan, and their three children, currently right in the middle of moving home.?

As is typical of these things, they are spending their evenings and weekends doing all the administrative activities that must be sorted ahead of the Big Move.

But what’s not typical is how they are doing it.

As part of the moving process, Susan—who manages most of the house accounts—has downloaded a?digital wallet,?where she’s keeping all the information related to the home move and about the family.

When anyone involved in the move—from lawyers, estate agents and bank employees to insurers, utility providers, and removals people—needs to see or access the data, Susan is able to share it directly, securely, and privately with them. And she can be certain who the recipient is and have a record of what’s been asked by whom, and what’s been shared and when.

Sorting insurance for their new home

First, Susan needs to get the new property insured. She has updated her digital wallet with a ‘moving home’ credential that she’s received from her mortgage provider. This details her new address, move-in date, and other relevant features about the new house (number of rooms and so on). With Susan’s permission, this information has been shared anonymously with the insurance market to see who will offer her the best home insurance price.

An offer comes through nearly immediately from a brand she’s already connected with. It’s an excellent deal so she signs up with one click. A few moments later she receives a verifiable property insurance credential. This proves that she has the right level of insurance in place for the new property and from the relevant date.?

The ‘moving home’ credential is updated with a link to this insurance information and is automatically shared with her legal team who can use it to complete the next phase of the paperwork.

Next, Susan and Dan need to organize insurance cover for their things. Susan and Dan decide which high-value items they will be taking to the new address, and which she will be putting in temporary storage while they carry out some renovations. All these items have digital receipts stored in their digital wallet.

Once again, Susan broadcasts this anonymised insurance information to the market and a range of known insurance providers, who can instantly verify this is a real request from a known home-mover. When required, they can also instantly verify any receipts for items being insured, and check the no-claims bonus that Susan and Dan have.

Over the next 30 minutes they receive a number of offers for new contents insurance policies and decide which one best meets their needs. They register for the policy and accept the key terms in a few taps. Their digital wallet automatically updates their ‘household contents’ credentials.

Telling everyone

Susan and Dan now need to update all their online accounts with their new address. Since this information is now stored as a verifiable credential in their digital wallet, they can update all their details in only a couple of taps.?

Susan enters her future contact details into the wallet app and sets the permissions so that all the relevant organizations are automatically sent their latest contact details credentials and new address.?

Each organization gets notified instantly and can automatically update their CRM systems because the notification is digitally signed and can be verified as coming from the authentic homeowner.

This process is not only painless, seamless and efficient, but there’s an unexpected side benefit: on receiving Susan and Dan’s new address (and the date from which it will be valid), Susan’s car insurance company automatically offers her an updated, cheaper policy. Susan accepts the new terms with one tap, and the updated policy document is sent to her digital wallet.

Getting the right policy at the right time

Triggered by the change of address, Susan’s life insurance company also gets in touch to see if she wants to update her policy to match her new circumstances. She discusses this with Dan and they agree to stay with her current provider. She uses her personal, private, and secure communications channel to message her life insurance provider and set up a short call with a policy advisor later that day. Susan answers a few questions and agrees on the right policy.

Helpfully, Susan is able to share her existing Know-your-Customer (KYC) credentials from her bank, plus other lifestyle and medical credentials from her other accounts that she’s collected in the digital wallet.?

Once off the phone, Susan receives an offer of an updated policy, which she accepts, and the digital wallet is refreshed with the new policy schedule of benefits.

It’s possible with self-sovereign identity tools today

This might all sound like futuristic science fiction, but SSI tools can do all of this today. Let’s look at the different aspects of SSI to see what changes and why.

New digital credentials

Today’s insurance organizations already capture and share millions of data points about customers; from account details and know-your-customer (KYC) checks to behavioural risk factors and affordability profiles. Most of it is collected, processed, analyzed and stored for compliance.?

Much of it is handled manually, and at best it is emailed to and from customers through a mix of pdf attachments, photos and self-declared information. But all of this rich customer data is effectively locked in a silo, unavailable and unusable by others.

With SSI, new digital credentials can be given directly to customers, converting the many bits of paper issued today into secure, private, cryptographically verifiable credentials.

Customers can then prove things about themselves, anywhere, any time, and to anyone. This makes data portability possible at a scale never before imagined.?

SSI will forge new levels of trust between customers and businesses and will enable rich, new consented data to come from an array of different sources including from customers, connected devices and other organizations.

New digital relationships

Digital credentials can be shared over new peer-to-peer, digital connections based on decentralized identifiers (DIDs).?

But here’s what’s intriguing: these private and secure channels can be used to share anything, not just verifiable credentials. For example, individuals could share documents like policy summaries or customer records; they could respond to customer surveys; and even handle log-in credentials, meaning no more usernames and passwords.

This means that SSI has the potential to transform customer experiences and back-office costs everywhere, not just for insurance companies. And by keeping customers in digital channels, service providers can reduce much of the friction experienced with manual, fragmented paper processes (3).

New seamless data flows

Once the customer has a digital wallet, data can flow securely point-to-point, with automated workflows configured by the business. This will take out many of the heavy and costly processes associated with policy updates, changes of address, and complex sales journeys like those Susan experienced.

And today’s data silos—where organizations are unable to share data across domains or business units—can become rich new data ecosystems. Customers can share their data with multiple organizations at once and orchestrate new data flows between them.

Governance Frameworks

All this customer data will be shared under new, agreed terms: defined in a?governance framework?(covered in depth in chapter 11 of the book).

These policy and regulatory frameworks will become a cornerstone of new SSI ecosystems. They’ll describe what the different credentials mean, who can issue what to whom, and the conditions around issuance (including what happens if it goes wrong or there is fraud). They’ll also protect from mis-use of SSI tools e.g. limiting who can ask for what data, from whom, and for what reason—for example, to avoid discrimination.

Soon governance frameworks themselves will become machine-readable, meaning that both business and consumer tools will be able to ensure their technical solutions automatically follow the rules of the particular ecosystem—for example the KYC rules for a particular jurisdiction.

Overall, governance frameworks will give individuals and regulators more confidence that personal data is shared under the right contexts, with the right consents, and according to the relevant regulations such as data protection or the handling of sensitive health data.

What this means for insurers and the industry

Once consumers have digital wallets, and organizations are confident they can verify digital credentials instantly and securely, SSI will remove huge amounts of friction and ultimately lower costs for insurers (4).?

Fraud will reduce, improving margins and lowering prices for businesses everywhere, not just in the insurance sector.

And as new and rich verifiable credentials come to market (think bills, insurance claims, customer records, and risk information), insurance companies’ own digital transformation programs will be able to re-design customer journeys—from customer registration and on-boarding to claims management and customer retention.

In the short-term, SSI will mean smarter, better experiences for consumers; and cheaper, more secure and compliance data sharing for organizations.?

In the medium-long term, SSI will unlock new levels of data sharing by individuals—about their behaviours, their activities, and even their locations. Insurers will then be better able to develop insights about their customers, about specific groups, and about markets.

Looking further out, many organizations will potentially see less data flow into their systems than today. However that will be a?good thing. Customers will be able to use their SSI digital wallets to assert facts about themselves without having to share their data directly.?

For example, customers will be able to prove their level of income without having to share their precise salary. This means insurers will only need to store specific facts rather than raw data about the individual i.e. a ‘Yes’ or ‘No.’ regarding a claim for example.?

From a compliance perspective, this is great news. It’s the data protection principle of ‘minimum disclosure’ in action (5).

Overall, insurance businesses will be able to make better decisions about risks and pricing, and offer cheaper and more personalized insurance policies to a wider range of customer groups. These insights and opportunities will also flow to the reinsurance market, meaning great transparency of insurance portfolios and better risk management across the industry.

Longer term, as customer data flows more freely, these efficiencies and changes will attract new competitors to the market. We will see new digital propositions from legacy players, new insurance providers from adjacent markets, and new technology companies entering the insurance market for the first time, building on their existing customer relationships (6).

Perhaps even more disruptively, as insurers gain better insight and understanding of customers, they can begin to invest in smart preventative action.?

This would lead to a paradigm shift for the industry at large: where investment and capital flows toward personal recommendations and behavior changes to improve and address risks, rather than just cover claims and pay-outs.

The health insurance market is already exploring these models, for example with customer wearables, which can track real-time health data and help ‘nudge’ customers towards healthier lifestyles. With SSI, this becomes possible at scale but provides better protections against many of the privacy and security issues witnessed over recent years.

A full reboot of the insurance industry

Just as SSI will reimagine the relationship between customer and insurance provider, the advent of new digital propositions and the arrival of new technology competitors could in fact lead to a full reboot of the insurance model.

Insurance companies are the central players in the current market largely because only they have the full information needed to build insurance pricing engines. They do this by linking customer risk factors with claims experience. But in a world of readily-available digital credentials, such as is made possible with SSI, the barriers to building insurance pricing engines start to reduce.

It is possible that new, open-platform organizations will emerge to disrupt and democratize many aspects of the insurance market. For example, anonymized and aggregated pools of credentials could be made available to new investors seeking returns on capital, and to freelance adjusters, who can better understand the risk in those pools.

Such disruption becomes possible only when individuals can share verifiable credentials in new ways with regulated organizations to be used in trusted and transparent transactions. These new platform models, as shown in Figure 1 below, could transform the pricing accuracy and efficiency of the insurance market.

The key to unlock such a system is the availability of digitally verifiable credentials because it creates a trusted ecosystem of risk factors, and therefore allows new players to concentrate their resources fully on assessing the right price for risk.

The development of a more-efficient and transparent system such as the platform model described here could also lead to an expansion of the role of insurance in our lives.?

You can imagine an invisible insurance market for products where insurance is automatically baked into the price, much in the same way as product support is currently.?

The model presented in the figure above has some similarities with—but is arguably better than—peer-to-peer lending platforms because the platform provides transparent risk information to external parties to assess. This could lead to a greater role for insurance in the provision of credit.

With this approach you can see how personal Artificial Intelligence (AI) assistants could help individuals and small businesses by recommending what digital credentials to place in the credentials pool to source the best insurance - see Figure 2.?

These personal AI assistants could also monitor behavior and recommend courses of action that would improve the attractiveness of future digital credentials.

The challenges for SSI across the insurance industry

It’s important to recognise that alongside the changes and opportunities covered in this chapter, SSI will introduce a number of new challenges not only to the insurance industry, but the digital economy and our society at large.?

Below we’ve highlighted just a few of the important themes that must be addressed by SSI technologists, regulators and the insurance industry generally—especially if SSI is going to enable the huge transformation promised across the sector.

Higher-risk customers excluded from affordable cover

As insurers enjoy richer and more trusted data to improve the accuracy of their pricing of customer risks, affordable cover may not be as available for customer groups with difficult-to-cover or higher risks (for example those with pre-existing conditions).

Societies will need to continue to decide what risk factors insurance companies are allowed to include in their pricing and supervise compliance. However it may be difficult to prevent companies targeting some individuals with specific risks through advertising and distribution strategies to avoid insuring those groups and risks.

A digital divide becomes a data divide

It is clear that a large number of individuals may not be able to participate in these rich new data ecosystems, either because they have no mobile device, or perhaps no digital footprint at all. As a result they won't be able to connect and share data with insurance companies, excluding them from these new insurance opportunities; unable to access better policy coverage and lower and smarter premiums (7).

The wealthy can afford their privacy

If insurance companies decide to?lower?the premiums for those individuals able to share data more data—for example providing additional information about specific activities like driving—then logically those same businesses will likely charge a premium for those who don't want to (or can’t) share their data—because the business can't risk-assess in the same way.

Inevitably the wealthy will be able to afford those premiums to maintain their privacy, whilst poorer customers will have to declare everything. As many predict, data may become 'monetized' for those that can't afford it.

Over-collection by design

If past experience with the Internet is any guide, if more data?can?be collected, then it?will?be collected (...and perhaps even mandated by businesses when customers take out a new policy).?

Insurance companies will need to balance efforts to build ever-larger troves of personal data, with the use of SSI to improve data security, minimise data collection and enable transparent customer data strategies.

Conclusion

As we described at the start of this chapter, SSI is going to fundamentally change how insurance is designed, how it operates, and how it is experienced.?

The reason is simple: data is the core raw material at the heart of the insurance industry. With new SSI-based processes, both the norms and the tools for how businesses and customers access, exchange, and control customer data will change. This is why SSI will potentially send digital shockwaves across the entire insurance supply chain.

Personal, friction-free insurance that reduces risk will be a game changer for consumers. But for an insurance ecosystem with intense analysis of customer experiences and behaviours, it is going to be a paradigm shift for the whole data supply chain, from underwriters to investors everywhere.

Bottom Line

Insurance organisations will be able to transform onboarding and customer experiences, not to mention open up data innovation, also?improving pricing and risk.?Together these will drive improved margins and revenue growth across most service lines.

Business Efficiencies

Not only will SSI reduce back-office overheads, but it will drive new incentives for customers to share high-quality credentials. This will in turn vastly improve today’s broken, manual and fragmented internal business processes.

Seamless customer authentication and automated workflows will further improve business efficiencies. These experiences will not only improve customer NPS but will even further reduce cost-to-acquire and cost-to-serve.

User Experience & Convenience

Customer experiences will be reimagined across the insurance sector, especially where insurance products are baked into other products and services, and where sales referrals come from 3rd parties.

One-tap registration and customer onboarding will have a huge impact on customer satisfaction, alongside new digital experiences that until now have not been possible due to today’s technical and policy constraints.

Relationship Management

Insurance organisations everywhere will need to reset and re-build digital relationships with their customers. From redesigning data flows when onboarding new customers, to seamless security and identity checks when dealing with a customer claim, to smart customer renewals and retention, to new data-driven innovation. And these trusted digital relationships will extend to the whole insurance supply chain.

Regulatory Compliance

SSI will play a major role in the transformation of data compliance and regulation. From changing what data is asked for when, to updating the rules about what data is stored where and why. It’s likely SSI will shape a new generation of policies and regulation around sensitive customer data—especially around data protection.

Finally, SSI will enable new capabilities to handle customer data in a compliant and consent-based way. By dramatically decreasing the cost of capturing and using data within the business—while at the same time increasing data quality—it will free up the ability to use data to drive future growth that has been all but impossible with traditional approaches.

References

1. According to Javelin Strategy & Research’s 2018 Identity Fraud Study, 16.7 million U.S. consumers were the victim of identity fraud in 2017 (up 8% on 2016) and the amount stolen rose to $16.8 billion.
2. According to the World Bank 2018 report “Private Sector Economic Impacts from Identification Systems”, in Europe, KYC costs the average bank $60 million per year, with individual transactions ranging from $13.40 to $134 per identity check.
3. According to McKinsey Global Institute, “Digital finance for all: Powering inclusive growth in emerging economies”, the cost of offering customers digital accounts can be 80 to 90 percent lower than using physical branches for financial services providers.
4. In a consumer survey carried out by Experian in 2014, it found that 45% of UK adults will abandon an online transaction due to the length and complexity of the identity validation and security checks.
5. According to the Ponemon Institute “2017 Cost of Data Breach Study”, the average global cost of data breach per lost or stolen record is $141.
6. Willis Towers Watson in its Article “So maybe you figured out what blockchain is — but what can you do with it?”, envisages a tech platform that serves a “community administration” role where risk placement relies on “multiple other blockchain based solutions that tokenize social capital, behaviour and ultimately, risk.
7. This disenfranchisement could be substantially addressed by SSI solutions for digital guardianship, discussed at length in chapter 11 of the book.

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