Much has been written in the press about how Amazon has disrupted the traditional retail sector. Is the financial services industry next?
According to Capgemini’s World Insurance Report, published in July of this year, insurance firms are ‘missing a trick’ when it comes to customer service, causing almost 30% of customers globally to switch their loyalty to Big Tech firms like Google or Amazon to buy their insurance products.
Richard Pryor, head of life, pensions and investments at Accenture UK, says: “With millennials and Generation Z consumers used to consumer experiences offered by tech firms, appetite for digital services is increasing. This generation is also more experimental in their approach and have a decreasing sense of brand loyalty, instead opting for the best services at a given time.
“While incumbents are working to bridge the divide with their next generation of customers, disrupters have been quick to seize the opportunity to capture their centennial audience, catering to their changing expectations. Customers live digital lives and expect intuitive, relevant experiences from every interaction, including in their financial services. Customers, including consumers and intermediaries, expect services to be automatic and flexible, engaging and personalized in an easy-to-understand way, at the same time as providing all the information via on-demand digital access. Therefore at its core, financial institutions need to treat their customers as individuals.”
Insurance is playing catch-up
According to the Capgemini report, insurance firms are ranked third after retail and banking on cross-industry customer experience scores, with the greatest difference among ‘Generation Y’ (customers aged between 18-34 years). In relation to their insurer, ‘Generation Y’ had a less positive experience (26%) in contrast to their bank.
The report found that ‘Generation Y’ were more inclined to switch loyalties from traditional insurers citing lower positive experiences with traditional firms, more likely to change their insurance provider within a year and they also said they were more ‘open’ to buying insurance products from Big Tech firms.
Evolving customer preference
Anirban Bose, global head of financial services and member of the group executive board at Capgemini says: “The use of data and being able to offer a truly digital customer experience are both critical for the insurer of the future, something Big Tech firms like Amazon and Google excel at. The threat from such entrants is more real than the insurance industry might want to admit. More than 80% of insurers cite evolving customer preference as the most critical factor driving digital agility.”
Two-thirds of insurance firms are testing smart watches and wearables, more than one-third have deployed telematics, and more than 55% are investing in speech recognition and block chain, with robotic process automation currently the most highly deployed core digital technology among them.
Dave Dewey, managing consultant, insurance division of Heat Recruitment says: “Consumers want the ease of being able to use price comparison apps on their mobile devices not only for new premiums but also to access their documents and purchase products with ease. Something Amazon can already provide. People are looking to purchase their products from tech-savvy companies where they can store and amend details easily online using secure portals and Amazon already has this tried and tested through its multi-distribution platform.
“You only have to look at what Aviva are doing in the insure-Tech arena already. If an insurance giant like Aviva is looking to invest and improve the customer journey through AI and technology, then Amazon are definitely in a position to take advantage of the digitalisation of insurance and potentially lead the market.”
How can insurers become ‘future-ready’?
The Capgemini report says insurers must foster digital agility, develop operating models to deliver superior customer service and bring together digital and traditional channels. In addition to this insurers need to enhance the customer experience with personalisation to connect with the customer.
Martin Bamford FPFS, chartered financial planner and managing director, Informed Choice: “There’s been rumours for years about Amazon, Google or another large online player invading the financial advice space. Financial products are becoming increasingly commoditised, so it makes sense for technology companies to move into distribution.
Clare Farrell, Northfield Wealth Management: “Products like protection and mortgages are largely rate driven, but still require a great deal of advisory input to ensure suitability. With artificial intelligence continuing to improve, it will only be a matter of time before consumers buy all of their life insurance, investment products and loans online, probably from established global businesses like Amazon, rather than from smaller, fintech start-ups.
“Financial Planners have little to fear from this development, when it happens, assuming their focus is on the aspects of service clients really value. As a small IFA firm I am not threatened by Amazon coming into the financial services market, there are already a range of online options that consumers can choose [from].”
Disadvantages for Amazon?
Dewey, however highlights potential problems for Amazon trying to break into the market, he says: “The big question, and most prominent disadvantage for Amazon is perhaps whether they will be able to leverage their customer data to help develop something that’s currently not available on the market, particularly facing new GDPR compliance.
“Whatever complications with ‘red tape’ that may arise, this move for Amazon doesn’t come as a surprise at all. This is a natural progression for them as they continue to dominate the online retail market whilst making their mark in food retail and real estate, among other markets. Their major strength is connecting sellers with buyers, and a comparison site, fundamentally, is no different.”
Sabuhi Gard is an investment writer for Incisive Works
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