The latest World Insurance Report (WIR) finds a wave of new digital technology is confronting most insurance sectors. While disruptive, the InsurTech movement is forcing insurance companies to rethink their business model and customer relationships.
Basically, the InsurTech movement presents more technology-related opportunities than ever seen before, highlighting the need for traditional insurers to design a balanced strategy which ensures a return on their investments in innovation without a loss of focus.
The WIR report, published last week by consulting giant Capgemini and non-profit industry body Efma, found that nearly one-third (31 percent) of customers relied on InsurTech solutions, either independently or in combination with an established insurance company.
What is InsurTech?
Insurance is one of the oldest businesses in the world. Generally, insurance companies use actuarial tables to assign policy seekers to a risk category. A particular group is then lumped together to ensure that, overall, the policies are profitable for the company. In this method, some people end up paying more than they should based on the level of data used to group people.
This is where InsurTech comes into the picture. An offshoot of the financial technology (fintech) sector, it’s a rapidly evolving movement aimed at simplifying and improving the efficiency of insurance, making it more personalized.
InsurTech companies are utilizing a number of emerging technologies such as artificial intelligence (AI) and blockchain, along with the technology behind driverless cars, drones, and voice-recognition software. They act as catalysts for this InsurTech revolution and are driving a myriad of innovations in digitization, data and analytics, and insurance-as-a-utility.
InsurTech startups have introduced a vast array of products, from a system warning ships of nearby pirates to an app offering to buy sleepy drivers a coffee on the highway, all in an effort to save on the cost of insurance claims. As a result of this, the market has become highly competitive.
Continued reliability on technology
According to the WIR report, over 100 senior executives from various insurance firms in 15 markets were interviewed, and a strong majority (75 percent) said that developing InsurTech capabilities would help them better meet customers’ evolving demands. More than half (52.7 percent) agreed that having InsurTech capabilities would help them quickly design personalized products.
According to the report, AI, blockchain, and drones were among the driving factors of the InsurTech revolution. “The continued reliance of consumers on digital technologies that support mobile apps, social networking, on-demand services and the like makes it clear that the mass market has entered a new phase,” Vincent Bastid, secretary general at Efma, said in a press statement Wednesday.
“The insurance industry serves the masses and must adapt to the new terms of engagement. Collaborating with InsurTechs is an optimal way of incubating and accelerating digital innovation.”
The risks in using InsurTech methods
Interestingly, there has been some backlash, despite the rapid growth of InsurTech in the U.K. and Europe. The biggest growth was seen in Britain, where despite the vote to leave the European Union, it hit $279 million in the six months to end-June, from $9 million a year earlier, an analysis by Accenture of data from CB Insights showed.
In the rest of Europe, investments in InsurTech grew from $97 million last year to $134 million. Some insurers are even forming partnerships with InsurTech firms.
In Britain, InsurTech firms put their focus on social media to assess the probability of claims, fueling concerns about data security. Last year, Admiral, an automobile insurance company in Britain, had to abandon its plans to take data from Facebook to set insurance premiums following objections from the social media company.
The Federation of German Consumer Organisations (VZBV), also sees big risks from using big data in fixing insurance rates, fearing the trend will end up assigning risk based on social media norms, something many people see as discrimination. Needless to say, insurance companies are being told to consider the legal implications of using social media data.
Why private label banking apps and products are on the rise
Private labeling has long been a pervasive strategy in retail, where products are made by third party manufacturers and sold under a retailer’s name. The cost to manufacture is often much lower than reselling another brand name, resulting in higher margins and increased revenue for sellers.
Retailers who implement this strategy also maintain wholesale control of the brand, including packaging and pricing, which generates product exclusivity as well as promotes customer recognition of and loyalty to the brand.
Possibly the biggest benefit of private labels, however, is that they eliminate the pains of having to design and build a new product — especially when entering a new market. By outsourcing the entire process and leaving those details to the experts, sellers can instead focus on what they excel at: branding and marketing the finished product.
Because the benefits of this strategy are so multifaceted, it’s no wonder private labeling is moving beyond consumer goods and gaining traction in service-based industries. Businesses looking to develop new offerings and product functionalities can now easily outsource entire technology stacks and tedious regulatory administration.
As tech giants like Apple, Amazon, and Google deepen their financial services plays, banking and personal finance tools have become a prime opportunity for fintechs and smaller firms to leverage private labeling to compete, and for established players to unlock new revenue streams.
Here’s a look inside how private labeling is transforming the banking industry— and which products are on the rise.
What is white label banking?
White label banking is another term for private label banking or banking-as-a-service (BaaS), in which banks open up their application program interfaces (APIs) to let third parties build their own financial products with existing infrastructure. White label banking accelerates the builder’s go-to-market strategy by removing regulatory, legal, and technical obstacles.
White label banking services
White label banking services enable fintechs and third parties to showcase a sleek, company-branded frontend, while leveraging an established bank’s license, regulatory compliance, and technology on the backend to offer core banking features that rival major institutions’.
Common white label banking services include:
- Savings and checking accounts
- Current accounts
- Debit and credit cards
- Simplified bill payments
- Online payment transfer systems
- Personal loans
- Bank statements with transaction details
- Balance notifications
White label banking apps
Some examples of mobile banking apps built with white label features include:
- Albaraka Mobil
- Börse Stuttgart App
- Compte CO2
- Knotist business banking
- Nationwide Mobile
- Score Kompass
- Trade Republic
- Van Lanschot
- Vitesse Mobile
- Xero Accounting & Invoices
Future of white label banking services
Across industries, digital technologies are democratizing information to spur more competition and innovation. Because of this, the trend towards “open access” will only become more pervasive. In the banking industry, particularly, the open banking movement has been unfurling from its epicenter in the UK and stretching across the globe for the past few years.
White label banking and BaaS technology are no longer brand new technologies in the industry, but firms that get involved now will still be ahead of the curve by the time regulation becomes mainstream. The UK’s Competition and Markets Authority has already enrolled the nine biggest banks and building societies in its Open Banking Directory, and others are coming soon. After that, it won’t be long before other countries follow suit with their own regulations.
Per Accenture estimates, €61 billion ($70 billion) or 7% of total banking revenue in Europe will be associated with open banking-enabled activities by 2020. Incumbent banks around the world that invest in open banking platforms now – before it’s mandated – will be rewarded with new revenue streams, an early boost in demand, partnerships with tech-savvy fintechs, and an overall competitive advantage against newcomers in the space.
To stay ahead of trends like white label banking, Business Insider Intelligence is launching a Banking coverage area in September. Tailored for top decision-makers in the financial services industry, this vertical covers digital transformation across the industry, including open banking and BaaS, consumer and business banking, mobile and online banking, digital account opening, and neobanks.
This article originally appeared on Business Insider and is reprinted with permission. To read the original article, visit this link.
Measures to put the digital transformation of banks back on track
Banks were doing well with digital transformation in the early stages, but the deployment of digital banking transformation is slowing down as things move from IT departments to other parts of the organization, according to a new survey.
The survey from the Digital Banking Report indicates the second wave of digital banking, where technologies are being rolled out across departments, is not keeping pace with the first phase where technologies are selected and on-boarded.
As the report notes, cultural factors are the culprit impeding digital transformation and the solution is to use cross-functional teams to breakdown legacy silo perspectives.
Digital technologies to change the customer experience
While technologies such as artificial intelligence and automation are being applied across organizations, the next phases are likely to include greater use of cloud, analytics and blockchain to assist with data gathering and assessment. In addition, both the Internet of Things and augmented reality are being called out as technologies that will change customer experience.
Getting this right is important, since almost all of the banks surveyed said they were increasing the range of different digital technologies.
Four pillars for DX success
While cultural factors and indecisive leadership are presenting obstacles to digital transformation, there are measures that banks can put in place to help keep their digital strategies on track. For banks to be successful with digital transformation, the Boston Consulting Group recommends they focus on four priorities (what they term as pillars), including:
- Reinvent the consumer journey, using the example of how banks can become more like Amazon.
- Leverage the power of data. This includes looking at how data analytics can enable banks and credit unions to best understand consumers, plus to identify business opportunities and lower costs.
- Redefine the operating model. This involves striking the right balance between human interaction and digital and self-service functionality for consumers.
- Build a digital driven organization. Here digital needs to be seen as the new norm. To do this banks need to recruit the right talent, discover agile ways of working and construct an organizational culture that is willing and able to take risks.
Some banks have been successful with digital transformation. As an example, analysts at Forester single out BBVA, the Spanish bank, for balancing functionality and enjoyable user experience whilst maintaining the necessary security checks.
Unskilled staff threaten banks’ ability to digitally transform
Only four percent of bank business and IT executives believe that the impact of technology on the pace of banking change has stayed the same over the past three years, while 96 percent said it has either significantly accelerated or accelerated, according to a new report from Accenture.
This technological disruption has a large effect on how banks operate, and it seems unlikely that the pace of change will decelerate anytime soon.
Here’s what it means: Some technologies will have a bigger impact than others, but it will require substantial work from banks to stay on top of them.
AI is the most promising technology to transform the banking space. Forty-seven percent of respondents said AI will have the biggest impact, followed by just 19 percent saying the same for quantum computing and 17 percent for distributed ledgers and blockchain. The disappointing outcome for blockchain appears to be in line with recent announcements from banks: Citi has abandoned its plans to launch a crypto and Bank of America’s tech and operations chief has expressed skepticism on the benefits of blockchain.
Banks’ workforces appear to be at different stages in terms of tech savviness.Seventy-four percent of banking respondents either agree or strongly agree that their employees are more digitally mature than their organization, resulting in a workforce waiting for their organization to catch up. However, 17 percent of respondents said that over 80 percent of their workforce will have to move into new roles requiring substantial reskilling in the next three years, compared with only 5 percent saying the same for the last three years.
Additionally, banks don’t know as much about third-party partners as they perhaps should. Over one in 10 banking respondents believe that their partners’ security posture is extremely or very important, as well as that their consumers trust their ecosystem partners. However, only 31 percent of respondents say they know that their ecosystem partners work as diligently as they do, while 57 percent of them simply trust their partners and 10 percent hope that they are diligent.
The bigger picture: Banks need to prepare for a future that will require them to put in a lot of resources, and some might struggle.
To make the most of AI opportunities in banking, incumbents need to upskill their workforces. While AI is the most promising technology to transform the banking space, this promise can only be realized if banks have the necessary talent in-house to adopt new AI solutions. As such, they should make it a priority to upskill their staff to make AI transformation a success — which may be difficult for those players that have to upskill a majority of their workforce.
And banks need to up their security efforts since open banking is becoming a global trend.Open banking makes working with third parties more frequent. This will force banks to double down on their security efforts, as a security breach with their partners could affect customer trust in a bank’s overall services. If employees aren’t up to date with new technologies — including application programming interfaces used for open banking, and AI — they can’t keep a bank’s network secure.
This article was originally published on Business Insider. Copyright 2019.
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