If 2020 will be remembered as the year of a global pandemic, it will also be remembered as a year for transformative remote working practices for the majority of the workforce worldwide. The world changed digitally, and we witnessed an era of lessened human intervention. Social distancing measures and work from home practices implied during the COVID-19 pandemic forced many industries to step forward in the world of digitalization to continue to serve their customers.
To meet the digital demands and stay updated in a competitive market, companies have started to invest in digital solutions with mobile devices, the Internet of Things, and big data. But the insurance industry has not been deeply drawn into the transformational course. The insurance industry has traditionally been slow to adopt digitalization, but the pandemic has forced insurers to embrace digital transformation. This old-fashioned industry has undergone considerable turmoil and change in the past two years than in the previous several years combined, and it is only accelerating.
Importance Of Digital Transformation In Insurance
Insurance being a very competitive industry, offers many complex products and has to prioritize the customer experience. Customers today expect services to suit their needs, and personalization is now essential across all sectors.
As stated in Accenture’s 2019 Global Financial Services Consumer Study – Insurance, more than 80 percent of consumers are willing to share personal data in exchange for benefits such as more competitive prices, faster and more accessible services, priority service, and more relevant advice for their circumstances.
This means insurers today have to digitize various aspects of their operations to keep up with the demands of their customers. The digital transformation in insurance – powered by predictive analytics, mobile services, artificial intelligence, the internet of things, machine learning, and live chat- enables insurers to do just that.
Challenges In Insurance Industry
Consumers demand more from their insurers across the board, regulatory agencies have tightened the parameters under which insurance companies operate, and the digital landscape is forcing the insurance sector to evolve. Here are a few challenges faced by the Insurance sector –
- Meeting changing customer expectations
- Driving change in IT
- Maintaining compliance and regulatory
- Addressing legacy systems
- Lack of standardized methodologies and metrics to assess the digital maturity
- Data Management
- Mitigating fraudulent claim attempts
- Assessing organizational readiness
It is now more crucial than ever for insurance companies to adopt an innovative business model focused on customer needs, more connected products and services, emerging technologies, and real-time data. However, there is always an opportunity to find new solutions where there are obstacles.
Benefits Of Digital Transformation
Digitization has been a complicated process for the insurance industry due to manual processes, difficult-to-digitize workflows, and strict government regulations. However, insurance companies have started leveraging digital technologies and data, and we believe that all these digital transformation efforts will result in the insurance industry’s evolution. There are many benefits of how the digital transformation of insurance has changed the industry. Some we have listed below –
- Faster access to market
- Process automation for core business operations
- Reduced cost and time
- Better and enhanced customer experience
- Improved claims processes and increased underwriting efficiency
- Big data analytics allow critical business insights to make faster decisions
- Increase sales, productivity, and profits
Apart from these, streamlining operations, customer interactions via live chat, automatic claims processing, and aggregating all the information to work faster and more accurately are more benefits of digital transformation.
Trends Driving Digital Transformation In Insurance
The change in the insurance industry has accelerated, and there are new unknown dynamics yet to be considered. As a result of the tremendous increase in data volume, the only practical manner of addressing the constant shifts is to be digital and use technology to meet consumers’ needs.
Here are some examples of technological trends that have transformed the relationship between insurers and their customers.
1. Shift to digital channels/mobile
The customer needs and expectations have changed, they have become increasingly willing to reconsider their insurance options. Customers now expect the best digital experience regardless of the industry they are interacting with. Customized products, hassle-free interactions, automated services, and 24/7 access to information are the new baseline of a satisfactory customer experience. As a result, many successful insurance companies invest in digital apps and tools that help streamline workflows and attract and retain consumers.
Since modern-day consumers move seamlessly on multiple channels, from email to phone to social media, companies are now providing omnichannel experience to customers to buy policies, process claims, and more on web and mobile devices. This helps insurers to drive customer engagement at multiple levels, allowing customers to engage with limited human interaction when possible.
2. Personalized Products
According to Salesforce research, 52 percent of customers expect businesses to offer personalized communications and services based on knowledge gained from previous interactions. Personalization capabilities give insurance companies a competitive edge.
Digital transformation empowers insurers with the tools they need to provide excellent on-demand services to customers without overextending their resources. Instead of a one-size-fits-all approach, insurers should offer personalized insurance covers through the digital insurance process. Insurance companies should utilize robust data analytics, machine learning, and Artificial Intelligence (AI) systems for creating a seamless, personalized experience. Creating omnichannel and cross-device purchase paths can drive customers to make the final purchase.
3. Cloud Solutions
Companies need to adopt cloud storage to fully leverage the power of their data. Cloud solutions can effectively handle the variety, volume, and velocity of accelerated data across the spectrum of legacy, third-party, and emerging connected sensors and systems. A cloud-based architecture improves speed and flexibility, allowing organizations to manage their data without the need for their infrastructure simply by taking advantage of the services and tools offered by cloud providers. A long-term, comprehensive cloud strategy is a must for any insurance company to reach the next level of maturity.
4. Predictive Analytics
Predictive analytics in insurance provides the capability to collect data from internal and external sources to better understand customers needs and predict their behavior. Along with anticipating the possible future customer behavior, insurance companies use predictive analytics to identify fraud risks, triage claims, anticipate trends, identify customers at risk of cancellation, and predict prices. As we advance, more and more insurers will use predictive analytics to help gain actionable insights into all aspects of their businesses. This will provide companies with a competitive advantage that saves time, money, and resources while assisting carriers in planning for the future more effectively.
5. Artificial intelligence (AI)
As said earlier, customers are looking for personalized experiences, and insurers are harnessing the results of AI to customize unique experiences for customers. Insurance companies turn to AI and machine learning to make strategic business decisions. Artificial intelligence and machine learning can help speed underwriting, improve the claim-filing process, reduce fraud, and deliver top-level customer experiences.
6. Machine Learning and Automation
According to a Mckinsey study, 25% of the insurance industry will be automated by 2025 and that’s because of AI and Machine Learning. Machine learning not only improves claims processing but also automates it. How? Machine learning technology allows digital files to be analyzed by programmed algorithms, improving the processing speed and accuracy.
Automating the processes can drive business transformation, increase efficiency and accuracy, and reduce the need for support and sales staff, which in turn reduces operating costs for insurance companies. With AI and machine learning, insurance companies can implement chatbots to automate customer interactions and suggest policies based on past purchases and future requirements.
7. Internet of Things (IoT)
Customers today expect companies to understand their unique needs and expectations and offer personalized products and services. For this, they are also willing to share their information, and IoT automates that data sharing. With IoT, insurers get access to a massive amount of real-time data of policyholders’ lives. IoT devices can be used as components of mobile technologies, smart homes, automobile sensors, and wearable technologies to determine better rates, prevent losses, and mitigate risk. By providing accurate data, IoT improves any insurance company’s ability to assess risk and allows policyholders to determine the cost of their premiums.
The Rise Of InsurTech
InsurTech (Insurance Technology) companies take advantage of the latest technologies. These companies are committed to innovation and developing new products and services to reduce costs, improve operational efficiency, and improve customer experience. InsurTech is reforming the way insurance services are structured. These fast-moving, digitally-enabled startups are capitalizing on the weaknesses of traditional insurers in fields such as Auto, P&C, Health/Travel, Life & Home, and Cyber Insurance.
InsurTech startups use emerging technologies, such as artificial intelligence (AI), predictive analytics, and the Internet of Things (IoT) to offer comprehensive data insights, greater speed, and efficiency to offer excellent customer experiences. With the help of these technologies, InsurTech will help insurers understand their usage and log their activities to provide custom insurance products and services for individual policyholders.
The Grand View Research report stated that the global InsurTech market size was valued at USD 2.72 billion in 2020. It is expected to expand at a compound annual growth rate (CAGR) of 48.8% from 2021 to 2028.
Such strong growth will encourage traditional insurers to partner with InsurTech companies or acquire technology capabilities. With an increasing demand for innovative products and services from customers, such collaboration will become crucial. Altogether, it will be a win-win situation as traditional insurance companies will benefit from faster results in establishing a tech culture and InsurTech startups will get access to a larger customer base, industry expertise, and funding.
Many companies are demonstrating the use of InsurTech today. Lemonade is one such company, assessing the claim by cross-referencing home information, comparing it to the customer’s policy, running fraud algorithms, and finally approving or rejecting a claim. The whole process takes up to three minutes and is approved within seconds.
Needless to say, Insurtech is transforming the market with newer solutions and better experiences.
The Time Is Now
Digital technologies have placed the traditionally slow-moving insurance sector under pressure than ever before. The only way to overcome this is to innovate. Insurers need to adapt to the ever-changing marketplace, which requires new products, tools, and models to provide customers with the best experiences. By improving the customer experience, insurers will find themselves at the forefront of digital transformation.
Spending on digital transformation will continue, but this needs to be an intelligent investment with efficiency in all business areas. Clear perspective, new thinking, and strategic vision are required as much as new business models. Different skill sets and cultural changes are just as crucial as technology upgrades.
Scalex understands digital transformation is necessary and how insurers should move forward. Our extensive industry experience, deep functional knowledge, and broad custom insurance offerings drive immediate value and set a strategic course to a fully automated, analytical, and highly innovative future.