Innovations in the financial services industry, come in various degrees—from incremental to breakthrough to disruptive. Among the rising stars in the disruptive category is the emergence of robo-advisors.
Robo-advisors are basically artificial intelligence driven, algorithm-based online systems capable of providing automated advice without the need for any human intermediaries, anytime and anywhere.
Rapid artificial intelligence technology advances in robo-advisors has attracted high level of investments and excitement. In this short blog, I would like to shine the light on two industries where I have noticed recent acceleration of robo-advisors adoption – Investments and Insurance.
Robo- Advisors in Investment Management
In the investment management space, Robo-advisors not only perform advisory services such as risk assessments and portfolio planning, but also invests on customers behalf. Robo-advisors are increasing being deployed for automatic asset allocation, portfolio optimisation, dividend reinvestment as well as tax loss harvesting for investor’s profit maximisation.
The journey typically starts with robo-advisors asking a host of questions to determine investor’s appetite for risk and preferences then, via advance algorithms allocates the money across a range of investment funds. Not only are the advance algorithms highly optimised for self-learning, but it`s also continuously adapting and responding to new market patterns, behaviors and investors changing needs. Some of the techniques used by the advance algorithms include machine learning, simulation modelling and deep-learning.
The advantages of robo-advisors are clear, primarily being the lower fees. The fees are commonly much cheaper than professional investment advisors and does not usually demand a minimum balance. This is certainly an attractive proposition for the millennial, who are seeking out for investment opportunities with smaller portfolios. The second significant advantage is clearly the online nature of robo-advisors, which is accessible 24 & 7, giving investors total flexibility and convenience for investing. In short, robo-advisors are more directly-accessible offering hands-off investing service for modern investors with all budgets.
Although they are many of such investment firms which has leap-frogged with robo-advisors, some that stand-out include Betterment, Wealthfront , WiseBanyan, CharlesSchwab, Future Advisor, Blooom, Vanguard, Personal Capital, Hong Kong’s 8 Securities as well as China’s Xuanji.
Robo-Advisors in Insurance
Robo-advisors has also gained popularity amongst insurance carriers, as they race to simplify product offerings and increase personalisation to win millennial and mass-affluent segments. Using techniques such as natural language processing and unsupervised machine learning, robo-advisors are providing product recommendations that best fits customer’s needs and profiles based on customer’s life stages and events.
For an average customer, navigating the various insurance offerings is often a complex & time-consuming experience with widening gaps in the advice they receive from various intermediaries such as brokers and intermediaries. There are often swathe of exclusions to digest, substandard terms of coverage such as deductibles, low limits, co-payment losses to interpret, and pricing to compare. This is exactly where robo-advisors has been of immense value to offer consumers a highly personalised and customer-centric tool for managing all of their protection needs, best suited to their individual needs and budgets. Robo-advisors are also increasingly popular as they are well positioned for unbiased comparison to carrier’s range of superior products, eliminating any subjectivity.
From an insurances perspective, this is fantastic opportunity to strengthen the omni- channel strategy as well as drive increasing engagements within the entire customer journey. A rising number of robo-advisors has also been actively positioned in the improving customer journey through the claims process. With robo-advisors, insurers are now capitalising this opportunity round the clock while enhancing their reach to wider market segments while enhancing customer experience.
The Bottom Line
These are somehow only the tip of the iceberg. As the field of artificial intelligence evolve, robo-advisors is poised to evolve into much more disruptive and wide-ranging forms of advice and industralisation.
As a matter of fact, robo-advisors capable of dispensing highly personalised and automated advice, would be very soon be a standard expectation of a typical consumer in the mass-affluent segment in the entire financial services value-chain including financial investments, wealth & asset management to insurance.
One thing is for sure! Robo-advisors are here to stay and the prizes are only getting larger…