COVID-19 has sped up the transition towards a "frictionless" consumer economy

The consumer economy has been for the last few years innovating on two fronts: making physical buying as “frictionless” as possible and making e-commerce as nimble as possible.

COVID-19 broke old habits and sped up that evolution. Innovation in real world shopping appear to be moving in the direction of “self-service” checkouts. Once people get used to the convenience of contactless payments, it’s likely they’ll continue using those methods.

These are base trends in an increasingly frictionless environment. What does that mean for our understanding of risk?

New advances in technology, the fallout from 2020, and an evolution in the way we develop technology alongside hybrid working models have resulted in major changes and challenges for businesses.

Creating a frictionless environment one of the big business objectives as employers move to hybrid working models, looking to maintain productivity, better standards of communication and heightened security.

According to a report by Jisp, a technology company, it comes down to “basic decision science” – so what are the implications for the modern shopping experience? Barriers to shopping reportedly cause cognitive stress, which leads to consumer’s decisions becoming slower, causing them to doubt the wisdom of their purchase. Any barrier or disruption to this process causes “decision doubt” that results in customers walking away. Hence the popularity of technology such as Amazon’s 1 click patent that enables customers to purchase goods almost instantly from it’s site.

A study by Alliance Data reports that 76% of customers give brands only two or three chances before they decide to stop shopping so time is of the essence. In this environment, the retailers that provide the best - most effortless - customer experiences will be the winners.

Too Risky?

Some industry obervers believe that companies like Amazon Go are the ‘future of retail’ as their ‘just walk out’ system gets a grip on the nation’s shopping habits. In this version of the future, consumers will take items and skip checkouts as automatic payments are charged to their Amazon account in what is described as a truly frictionless experience. This kind of shopping is not to everyone’s taste, with a recent report titled Lost in Transaction: Payment Trends 2018  finding that 59% of UK shoppers consider checkout free stores to be too risky. These shoppers are not quite there yet as far as Amazon Go is concerned.

That is not deterring the remainder of brands which are seeing the positive impact that Amazon Go is having on consumers as they look to integrate this frictionless approach into their business strategy. High street stalwart Sainsbury’s, for example,  has opened a checkout-free shop in London, in a bold experiment that makes use of new technology which does away with checkout areas and tills. The Sainsburys experiment is more a case of dipping a toe in the water than a full naked plunge into the rivers of online consumer progress, so the jury is still out as to how shoppers respond to this frictionless environment.

According to independent security consultancy Cornerstone, ‘frictionless’, in a security context, has come to imply ‘simple to use’, ‘enhanced user experience’ and possibly ‘slicker’ or ‘more contemporary.’

Unintended Consequences, Unexpected Outcomes

But as the search for innovation progresses, we must be mindful of the concept of unintended consequences whose unexpected outcomes are not always immediately evident. Jon Roadnight says: “If we allow the concept of frictionless security to continue on its current path, unabated by sound security design principals, there will be unintended consequences. There is already a strong privacy’ lobby that has significantly impacted physical security design globally.”

He argues the ‘polarising’ concept of ‘big brother’ surveillance which has influenced law and policymakers’ has serious implications for the security industry with consequences for public concern regarding areas of privacy and the right to anonymity.

‘Facial Recognition’ algorithms that unlock access-controlled doors, identifying individuals on watch lists, children walking with their parents and guardians, all require consideration and understanding. Public opinion must be brought onside when it comes to the use of such technology in terms of thinking about the unintended consequences, which has potential knock-on effects for risk managers, insurers, compliance officers and regulators.

Frictionless Insurance

Most physical security measures are just about tolerated by most people, in the same way that policers or even traffic wardens are empowered by the consent of the population. The difficulty comes with the application of technology which must consider all the consequences, intended and unintended, particularly from a liability point of view.

 The manifestation of this frictionless world has implications for digital insurance where it applies to the customer experience and simple products with no underwriter intervention. Frictionless Insurance looks at a whole lifecycle which embraces processes, people, and technology. 

As has been reported on frequently at many insurance conferences far too many processes remain burdened with friction points, whether it is launching relevant new products to the broker/insurer, distribution processes or underwriters reviewing submissions which are all the same eight times of ten. 

What is ‘frictionless insurance’?

According to Richard Miller for Accenture, the age of traditional business partnerships is long past. Everything now competes with everything else, as customer expectations for insurance are set by digital leaders from other industries. To the layman, frictionless is when a process flows smoothly, without issues or problems. In other words, it is effortless. 

And when applied to insurance, according to Miller, one key problem is that legacy organisations and tech systems: “weren’t built to support tech-based partnerships. Organisation and systems were built in silos, intended to operate within one business, with the assumption that change would be slow and steady. They now simply can’t keep pace with the rapidly growing and shifting landscape of the digital age and the horizontal change required across the silos.”

Even within these silos, insurance and reinsurers must be more pragmatic when assessing the legacy friction that is part of the loss exposure analysis, according to Miller, who writes:

“Underwriters are the lifeblood of the industry and essential at assessing risk. Straight through processing for many products particularly within commercial is unrealistic.

However, a huge amount of unnecessary friction can be taken out without compromising the value of the Underwriter or the performance of the book. Through a frictionless approach leveraging technology, 80% of the risk assessment could be managed automatically letting the Underwriter focus on the 20% that matters.” 

Insurance industry solutions

Insurers must remove friction from the process which is why initiative such as Future at Lloyd’s are a core driver of digital transformation projects.

One way to achieve this will be to provide an effortless digital user experience for everyone in the (re)insurance ecosystem, which includes corporates, brokers, and underwriters. In this connected risk environment, it is becoming more important to allow people from the business access to the latest data analytics and insights to manage risk more effectively and adapt current products that can be launched in weeks.