The Rise of Robo-Advice in Insurance Companies



In about half a decade, all big financial institutions will become technology companies. The future of the insurance workplace will be machines and humans working together where machines will be owning certain processes. Legacy insurers who have built their systems using legacy systems would have integrated all their systems using bus and added layers of cloud, mobility, Internet of Things (IoT) and Artificial Intelligence (AI). The initiatives to please their customers will also disrupt industry, transform society and create new business models. Process and workflow automation initiatives such as Robotic Process Automation (RPA) that are already being adopted by many insurers will be re-imagined and merge with AI. These changes will benefit customers to draw deeper insights on products and automate buying and investment management decisions. Adding Robo-advisors to existing customer service channels could be a very powerful way to leverage these technologies and knowledge base.

Robo-advisors – Robo with a human touch 

A Robo-advisor is an online platform that produces automated advice based on algorithms without the need for any human intervention. In financial context, it is an online wealth management service that provides automated, algorithm-based insurance and investment/wealth management advice without the use of human financial advisors. It should be noted that both Robo-advisors and human advisors are important.

Robo-advice can be integrated in every step of Insurance. Even though the term is “Robo”, it is not impersonal. If you can translate the type of advice a human insurance advisor would deliver over a cup of coffee into an algorithm, then you can deliver tailored advice in a self-service, automated fashion. Robo-advisors could automate the insurance sales cycle, underwriting process, policy management, claims process and customer support everywhere in-between. According to survey by AXA, 34% of millennials want to interact with their insurer solely online, and 8% don’t want to interact with them at all. Customers are now more than ever open to robo-advice. On the other end of the spectrum, there are customers who donot trust online advice, so they would rather work with a human financial advisor.

The Robo-advisor Race

A survey of 33,000 customers reveals the popularity of robo-advice. The customers are more open to robo-advisors than the insurance industry thinks:

  • Almost three-quarters of customers for insurance purchases.
  • Over three-quarters for investment allocation.
  • More than two-thirds for retirement planning.
  • For complicated transactions or complaint-handling, two-thirds expect top-notch human interaction.

Interestingly traditional insurers, asset managers and wealth management companies have shown great interest in Robo- advisors. German insurance and wealth management company Allianz invested in Robo-advisor company Moneyfarm. Allianz believed that they are extremely efficient and low cost compared to physical distribution and will increase its footprint in Fintech space.

Other initiatives in this space includes Northwest Mutual acquiring Learnvest, Vanguard launching Personal Advisor Services, Charles Schwab launching Scwab Intelligent Portfolios, Fidelity Investments launching Fidelity Go and the list continues to grow.

The other leading Robo-advisors in Fintech include Betterment, Wealthfront, Personal Capital, WiseBanyan, Wealthsimple, Future Advisor.

The decision for traditional financial institutions to compete with robo-advising is, on the one hand, almost obvious, while still involving some complex considerations. Some traditional customers may never be at par with Robo-advisors. In these cases, Robo-advisors can free human work forces to an extent and increase their productivity, thereby being available to their high value customers to offer more personalized services.

Take an X and Build AI on Top of it

Robo-advisors’ capabilities will increase over time to allow more complicated decision to be automated. Machine learning and technology advancements will enable Robo-advisors to handle complicated situations better.

Current vs. Future capabilities of Robo-advisor (the capabilities is measured in numbers from 1-5, where 5 is highest capability and 1 being the lowest):

Robo-advisors are here to Stay

Insurance is a large, complex industry. Robo-advisor is one of the incremental changes to insurance industry that could not only make buying easier, but also can bring in significant efficiency to the entire value chain. Love them or hate them, Robo-advisors are here to stay. The low cost and passive investment strategy promoted by the financial institutions and Fintech alike, attract many customers, especially millennials who take quick advantage of these.

Robo-advisors are estimated to control about $3 trillion of assets by 2020, from $50 billion in 2015. The scale of this shift is unprecedented and  increasing with more venture capitalists who are pouring in to fund more companies in robo-advisory space. Traditional financial institutions are also building and seeing success in this space. Whilst human financial advisors and agents are scaling up for advising sophisticated products to more traditional and ultra-high net worth families, Robo-advisors are gaining importance with the rest of the world. The mass adoption of Robo-advisors will begin when the “future” features come into play. But the way to get ahead is to start now.

As an insurer or a technology expert, what are your thoughts?


Radhakrishnan NR

Practice Head, Fintech, RapidValue


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