Digitalization in the insurance industry. An analysis

Term Paper (Advanced seminar), 2017

27 Pages, Grade: 2,3



Table of contents

1 Introduction

2 Key aspects of digitalization
2.1 Definition and development of digitalization
2.2 Essential facts of the insurers
2.3 Challenges for the insurance industry

3 Digitisation of the sales processes (application/contract)
3.1 Analysis and possibilities of implementation
3.2 Opportunities and risks

4 Digitisation of claims settlement
4.1 Analysis and possibilities of implementation
4.2 Opportunities and risks

5 Conclusion

List of literature

List of illustrations

1 Introduction

Digitalization is without doubt one of the most important and largest megatrends of our time. It changes all areas of life for people, and at an extraordinary speed. Communication and information retrieval are increasingly taking place in new ways. Examples of this are smartphones, iPads, Google, Wikipedia, WhatsApp and video conferences. In particular, professional life is changing significantly. Generations grow with new possibilities and realities. Wherever stamp cards and dial telephones were used in the plants, digital time recording systems and smartphones are now preferred.

Working on the computer and being reachable by email/cell phone and social media have become an elementary component.

Occupational pictures disappear and new ones emerge. In the technical field, the technical tasks of machines are increasingly being taken on, and in return, there is an increased need for engineers.

The economies combine fears and hopes with digitalization. The consequences of this development are not yet known.

Various books, newspaper articles, articles and discussions of the recent past prove that the topic is up-to-date. New products such as the Dash button, which can be used to reorder everyday products at the touch of a button, underline this fact. It is obvious that almost everyone is affected by this.

This work deals with a sub-area of the megatrend, namely digitization in relation to the insurance industry.

Essential aspects of digital transformation are described first. Starting with a comprehensive definition of digitalization in general, as well as a description of the development to date in this area. In the course of the essential aspects, a presentation of comprehensive facts of the insurance industry and its special challenges follows. This serves as the basis for the industry-specific problem to be treated subsequently.

In the following, the necessary and possible changes in the sales processes as well as the claims settlement of an insurance company are dealt with. This is followed by an exact analysis. Insurtechs are analyzed and evaluated as a new distribution channel. The importance of Insurtech is justified by the fact that these are new ideas and possibilities in a decisive area of the core business: sales. New app applications are analyzed in the area of claims settlement. Likewise, the possibilities of implementation and execution are determined and evaluated. The associated opportunities and risks are described in relation to this.

Insurance companies are forced to focus on insurance technology due to the sharply reduced opportunities for capital market returns and the increased number of stormy1 events.

This further increases the priority of digitization.

The entire work is ultimately concerned with the following holistic questions.

How does the insurance industry deal with digitization, which approaches and implementation options exist? Which implementations have already taken place and which opportunities or risks are associated with them? In what direction could the further development move?

2 Key aspects of digitalization

2.1 Definition and development of digitalization

There are various interpretation options for the concept of digitalization. Traditionally, digitalization is understood to be a transformation of information in an analogous form to digital storage. It also makes the shifting of the task carriers the subject. This means that tasks previously taken over by humans are transferred to computers.2

The digital upheaval also opens up new possibilities for the insurance market, which leads to a change in traditional business models.

In the past, the existing business was primarily improved by technologies. However, the number of opportunities is now increasing and with it the ambitions of the customers. Many insurers want to open up new markets through digital technologies over the next three years.

Digital transformation also improves the analysis of user friendliness and the possibilities of individual product developments. With innovative products, completely new customer groups can be addressed. Cooperation with companies from the technology sector will be expanded in the future.

Improved customer experiences are likely to make a more significant contribution to business success in the future. Many insurers and brokers worldwide are still focusing on products and distribution channels. The customer needs are less respected, although their focus could create true values.

These conditions ultimately require a fundamental digital change.3

2.2 Essential facts of the insurers

The insurance industry is one of the most important economic sectors in Germany.

This is reflected in the risk hedging and the ratio between gross domestic product and premium income. This relationship has changed significantly in recent decades. At the beginning of the 1960s, the share of the premium income from gross domestic product was just under 3%. In recent years, this share was between 6% and 7%. It has therefore more than doubled. It must also be taken into account that the gross domestic product also rose significantly. In 1960, this amounted to 154.77 in billion euros and 3,032.82 in 2015. 4

429 million insurance contracts have been concluded. 529,000 employees are employed by 460 insurance companies.

The total annual contribution income amounts to 194 billion euros.

The insurance industry is therefore one of the best-selling sectors. 5

Allianz is the largest German insurance group with 122 billion euros in premium income. This is followed by Munich RE with 49 billion euros in premium income and the Talanx Insurance Group with 28 billion euros per year. 6

Allianz Deutschland AG consists of around 8,300 representatives and around 30,000 employees.7 The Munich Re Group currently employs around 45,000 employees8 and the Talanx Group employs a total of more than 21,500.9

This is followed by a more specific subdivision of the key data. A distinction is made here between the areas of life, property and accident insurance and motor vehicle insurance.

Life insurance

This generally refers to the accumulation of capital to private pension schemes. In addition, risks such as death and occupational disability can be insured. As part of this service, there are currently 91.0 million contracts, services in the amount of 83.3 billion Euros are provided and 92.7 billion Euros are paid.10

Property and casualty insurance

This provides comprehensive insurance cover in almost all areas of life. In this area, there are €304.3 million contracts, service provision in the amount of 48.1 billion Euros and income of 64.2 billion Euros.11

Motor vehicle insurance

This is the largest line of indemnity and accident insurance.12 This includes both vehicle insurance13 and motor liability14 insurance. The corresponding key figures are the following: 112 million contracts, 21.9 billion Euro benefits and 25.2 billion contribution income.

2.3 Challenges for the insurance industry

Digitization has long since arrived in this sector. 15 Many companies already have innovative online presences and actively offer various apps. The Allianz claims app and also the digital insurance broker16 are examples of this change. The sales force is increasingly enjoying digital end devices.

In this respect, however, it must also be mentioned that changes within the academic structure have always been associated with negative consequences and the willingness to participate is therefore not pronounced. Previously, changes have always been related to cost-cutting programs that mean employee releases. As a rule, however, no redundancies were issued, but rather severance agreements were concluded. The disadvantage of this method is that as a result the departure of flexible and well-trained employees was observed and the employees fixed to stability remained in the company.17 The first challenge is to involve employees in the change.

In addition, the fundamentally changed customer needs are neglected in the digital age. A detailed analysis of the possible customer needs is often missing. Distribution and communication channels are often operated separately from one another. For example, it is possible that insurance agencies communicate with the policyholders they serve via WhatsApp, but sales arguments for new products are only mentioned in a personal conversation. Contract extensions can also often only be made by signed documents. 2,500 insurance customers were surveyed as part of the Bain study. The result of this was that approx. 60 percent consider digital interaction to be significant in the future. Customers with strong contributions in particular expect a broad digital offer for individual use. Equal rights of the communication channels (online & offline)18 are required. This concerns addressing, concluding the contract and claims settlement. In the author's opinion, it is interesting that independent agents and insurance brokers continue to be rated as important contact persons in the eyes of the customers. Personal advice continues to be decisive and is also described in this context as a moment of truth. This will allow further challenges to follow with regard to the necessary collaborative work on further development. New technologies and their changing providers also require constant and high-quality market monitoring in order to meet the prevailing competition. Satisfaction and loyalty of insured persons are the maxims in the age of digitalization. Customers of the future expect that all information is immediately available and that constant contact is possible. Further development of IT will be essential. For this purpose, it is necessary to determine which information is to be retrieved via which channels and which data is to be processed. Customer-oriented application structures will be placed in the foreground in order to ensure19 the satisfaction and loyalty of the insured.

Abbildung in dieser Leseprobe nicht enthalten

The customer expectations regarding future channel usage are shown in the following Fig.1. 20

Fig.1 21

It can be seen that personal contact on site and the internet have the largest share of the aforementioned channel use. This applies in particular to the conclusion of contracts, administration and claims reports. Personal contact remains important, especially since the population, as usual, wants to minimize the personal risk and provide for future phases of life.

Fairness, security and individual advice are the top needs of the insured. It would therefore be deceptive to only bet on digital channels. Consequently, both this and personal support must be promoted and further developed in the future.

In this regard, it is to be expected that offline and online channels merge together. This is justified by the increasing pressure of expectations due to similar mergers in other economic sectors. For example, the submission of application documents via app can be expected in the future after an individual consultation.22

Furthermore, a shift in power from producers to consumers is predicted. This should be created through the possibility of exchanging experiences with companies and in view of the simplified possibility of changing providers. Extensive exchange of experience is made possible through internet forums; change of provider is increasingly achieved with a few clicks in the course of digitization.23

In contrast to the cross-sector average speed, changes in the insurance industry are delayed. This can be attributed to long-term contracts, such as those of life insurance.24

From the perspective of the employees, the findings and the challenges of the DGB index Good Work 2016 can be briefly mentioned.25

Abbildung in dieser Leseprobe nicht enthalten

Fig. 2 26

The evaluation shows that 82% of all employees in their daily work are affected by digitization. In 60% of the respondents, this influence comes to light to a high or very high degree. These persons perceive an increased workload, work quantity and more multitasking. Increased monitoring of work performance is also perceived. On the other hand, an improvement in the work-life balance caused by digitalization is only perceived by a minority.

What is positive is that potentials of the possibilities for the compatibility of work and family are described. These are particularly in the area of employees with caring tasks (children, people in need of care).27

It can be concluded that there are or will be challenges in the technical, organizational and human areas.

3 Digitization of the sales processes (application/contract)

3.1 Analysis and possibilities of implementation

Traditional insurance sales are divided into regional sales units (district offices). Different positions must be assigned in these units. This involves a management, various specialists and several inspectors. These act as a link to the predominantly independent field service. The independent field service is disputed by so-called insurance agencies.

Precise sales targets are set by higher authorities.

The inspectors supervise a specific presentation to insurance agencies and support them with regard to the achievement of targets. The so-called specialists provide support for demanding technical questions. They have in-depth knowledge of various insurance sectors. Examples include positions as a life insurance specialist, health insurance specialist and property insurance specialist. Due to their training/continuing education, these specialists support high-quality sales discussions and thus represent comprehensive professional competence. District directors lead the specialists and inspectors, and they are also contact persons in overarching topics. They also represent the interests of the top management, the salaried and the independent sales force.

Insurance brokers, multi-company and single-company representatives are available in the independent field. Insurance brokers and multi-company representatives broker insurance products from different companies. On the other hand, a single company representative only represents one insurance company. Legal independence is given in each of these forms.

Certain insurers also rely on structure sales, exclusively salaried sales representatives or other forms of organization in their sales organization. The preceding lines are based on the personal work experience of the author.

All previously proven structures and processes are facing major changes in the course of cross-sector digitization.

“Anyone who does not react to the changes due to the progressive digitization of our society will be in trouble in the future, summarized Dr. Jörg Dahmen from Generali Germany. Insurance companies must now move and take the issue of digital innovation seriously – all participants in the panel discussion agreed on this.”28, the pressure to act is clarified on the basis of such statements. Furthermore, competitive pressure, especially affecting the sales area, is increased by new digital inventions and business models. These business models include online insurance brokers, among others. These acts, for example, under the names Chief Finanzchef24, Check24 and Verivox. Such sales models sometimes appear as alleged comparison portals. In my opinion, such a way of addressing customers is morally and legally questionable. This impression is underscored by the decree of the Regional Court of Munich with respect to the comparison portal Check24. The regulation stipulates that consumers will have to be informed more extensively in the future when brokering insurance products. This concerns both the characteristic as an insurance broker and the associated income from commissions.29

At the same time, new apps are always coming onto the market. With these, it is sometimes possible to overview and manage all insurance policies. Extensive paper folders are no longer needed, especially since all contract data are also available in detail. This overview usually refers to a single person, a family or a company. The optimization or cost reduction of insurance coverage is supported. With the support in optimization and cost reduction, it is meant that comparable products of other companies are shown and the change of insurer is facilitated. In the background of these apps, usually qualified specialists from the insurance industry are active.30 As an example of such a novelty, I would like to list the apps from GetSafe, Clark and Knip.


1 Pure insurance business, excluding financial assets, the profit of which is the difference between premium income and various costs (damage/personnel et al.)

2 cf. Enzyklopädie der Wirtschaftsinformatik, (Digitalisierung), retrieved on 18.12.2016

3 cf. KPMG, (Transforming insurance), retrieved on 18.12.2016

4 cf. Statista, (gross domestic product (GDP) in Germany from 1950 to 2015 (in billions of euros)), retrieved on 27.11.2016

5 cf. Gdv, (Zahlen und Fakten), retrieved on 05.11.2016

6 cf. The investment, (these are the largest insurers), retrieved on 27.11.2016

7 cf. Allianz Deutschland, (Zahlen, Daten und Fakten zur Allianz Deutschland AG), retrieved on 27.11.2016

8 cf. Munich Re, (employee key figures), retrieved on 27.11.2016

9 cf. Insurance training, (Talanx. Versicherungen. Finanzen.), retrieved on 27.11.2016

10 cf. Gdv, (Zahlen und Fakten), retrieved on 05.11.2016

11 cf. Gdv, (Zahlen und Fakten), retrieved on 05.11.2016

12 cf. Gdv, (Zahlen und Fakten), retrieved on 05.11.2016

13 The insurance of the vehicle itself, also known as partial & comprehensive insurance

14 The motor liability insurance protects against possible claims for damages by third parties (traffic participants).

15 cf. Bain, (Die digitale Herausforderung), retrieved on 09.11.2016

16 Digital insurance brokers are the collective term for various apps/comparison portals that make customer service and the conclusion of the contract digitally possible.

17 cf. Zimmermann, G., Changemanagement in Versicherungsunternehmen, Munich 2014, p. 20/21

18 An online channel is, for example, communication via app, while an offline channel would be personal support.

19 cf. Bain, (Die digitale Herausforderung), retrieved on 10.11.2016

20 cf. Bain, (Die digitale Herausforderung), retrieved on 10.11.2016

21 Bain, (Die digitale Herausforderung), retrieved on 09.11.2016

22 cf. Bain, (Die digitale Herausforderung), retrieved on 10.11.2016

23 cf. Bain, (Die digitale Herausforderung), retrieved on 10.11.2016

24 cf. Bain, (Die digitale Herausforderung), retrieved on 10.11.2016

25 cf. Dgb, (Gute Arbeit 2016), retrieved on 10.11.2016

26 Dgb, (Gute Arbeit 2016), retrieved on 10.11.2016

27 cf. Dgb, (Gute Arbeit 2016), retrieved on 10.11.2016)

28 Msg Group, (Inscom Report 2014, p. 8.), retrieved on 15.11.2016

29 cf. BR, (Klage gegen Versicherungsportal Check24), retrieved on 16.11.2016

30 cf. Get Safe, (Deine Versicherungen, eine App), retrieved on 20.11.2016

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Digitalization in the insurance industry. An analysis
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digitization, digitalization, insurance industry
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Anonymous, 2017, Digitalization in the insurance industry. An analysis, Munich, GRIN Verlag,


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