In fact, we love the insurance industry. This has provided us with lucrative employment throughout our careers, allowed us to grow and learn, forged many valuable relationships, and most of all, served our customers and communities in times of need and stress. We were able to proactively support the industry in providing services. Its products and services are critical to managing risk for everyone and are the pillars of every economic system.
What we hope to achieve with this article is to highlight the clear digital divide in the insurance industry, especially compared to other industries. Although often compared to financial services, especially banks, insurance appears to lag far behind.
We look at what it takes to focus and accelerate the transition from traditional analog-centric infrastructure to a digital world where other sectors operate successfully. Such changes will not only improve business and operational outcomes and improve employee skill sets, but also make insurance more recognizable to consumers, most of whom now live in a digital, virtual world. It also helps.
pile of documents
When we entered the insurance industry decades ago, the industry was full of manuals, paper, and specialized processes. The insurance office looked like a cavernous warehouse with rows of filing cabinets overflowing with file folders organized alphabetically.
Offsite storage was even more impressive. After all, documentation is essential for underwriting, claims, pricing, rate reporting, and most other insurance activities. There has been a lot of progress, albeit at a methodical pace in the insurance industry, primarily in streamlining the outside world, or the so-called “low-hanging fruit.”
However, the core or legacy processes themselves still remain largely the same. Translation: Insurance underwriting and servicing processes were designed for internal decision-making and related activities, not for policyholder self-service interactions leading to digitalization. But industries like banking and airlines, just two examples of end-to-end digital success, faced the same unique challenges as they evolved.
In defense of the insurance industry, there are several factors that are hindering progress. These include the siled nature of internal operations and data management, the patchwork of numerous non-integrated technologies acquired over time, the impact of legal and regulatory compliance across numerous jurisdictions, and the multiple including the never-ending struggle to secure funding for priority projects. Of these.
While the transformation of so-called legacy core systems was intended to replace a tangle of various add-on technologies, most carriers are engaged in a never-ending quest for modernization and consolidation.
Despite these major obstacles, the market is gaining traction with digitalization capabilities. Automated bill payments, policy changes, and claims reporting are just a few examples. Third-party API integrations are popping up everywhere, but this is just a step forward. Deployment, usage, and expansion are another story and very different from other digital-first modern experiences.
Digitalization drives business
Enhanced digital capabilities offer a variety of opportunities. Early efforts with use cases that automate standardized tasks such as data collection and analysis for underwriting, processing low-severity, high-frequency claims, and deploying bots for post-sale customer engagement will reduce costs. reductions have been brought about.
Most insurers aim to improve loss ratios by 3% to 8% and save up to 10% to 20% in other parts of the value chain. This includes (ranked by likelihood):
Claims; Loss Adjustment; Marketing and Distribution. Pricing and Underwriting. and administrative tasks.
Insurtech recruitment
One might argue that there is already significant carrier support for a wide range of new digital solutions with enterprise-wide use cases. While it is relatively true that there is a good “alignment” with insurtechs, the cycle times for sales, testing, piloting, and deployment of these projects are significantly longer and take longer to reach scale.
And even large, established information providers are experiencing painfully slow and tentative implementation of new services in which they have invested heavily. Accelerating digitalization requires all stakeholders to become more creative and overcome these long cycles.
Impact of the pandemic
Many believed that the pandemic would lead to an involuntary and overnight shift to working from home and a corresponding surge in the adoption of digital communication platforms, accelerating and facilitating the digitalization of businesses. It would have been.
In fact, this has happened and has given a boost to remote and virtual inspections and services. However, amid the disruption caused by post-pandemic supply chain disruptions and soaring inflation, the industry pulled back from many digitalization efforts in the short term as it scrambled to restore profitability and stabilize cash flows. . Practical needs led to further integration of digital and innovation teams, and previous visions of a digital revolution have largely come to a head.
Investing in industry value chains
More than a third of insurtech investments are in distribution technology. The key areas for digital investment are ranked as follows:
Perform insurance/MGA sales operations, administrative and billing of insurance services, and pricing and underwriting of new risk pools.
incremental conversion
Digital transformation remains an industry priority. While the initial investment focus was on digital distribution channels, attention has since shifted to other parts of the insurance value chain, including pricing, products, and the underwriting process.
The continued expansion of the digital ecosystem creates opportunities for business interruption and cyber risk pooling. For example, Swiss Re predicts that the global cyber insurance market has grown by 60% in the past two years and will increase by more than 50% in the next five years.
Jerome Hagel said, “For society, digitalization has the power to make insurance accessible to more people, thereby closing the coverage gap.For insurance companies, digitalization has the power to improve their underwriting operations. “The benefits of improvement, risk mitigation, and risk measurement improve the quality and efficiency of operations.” , Group Chief Economist at Swiss Re.
Risk reduction
New technologies can also be used to improve risk mitigation with the advent of prediction and prevention. Increased use of data and data analytics, especially sensor technology and the networking of factories, buildings, machines, and other physical objects, can better detect and reduce the frequency and severity of accidents.
Like driving behavior, climate-related exposures have received significant attention for obvious reasons. However, we rely heavily on digital means to connect risk detection with critical policyholder engagement. Otherwise, the ability to take action or change behavior to avoid or mitigate it will not be realized. For example, automated telematics research has demonstrated that driver safety is significantly improved when there is also active app engagement that pairs data with the driver.
What lies ahead?
Digitalization in the insurance industry is still in its infancy. Conversion is still pending. To ensure a positive return on investment, insurers must redesign workflow processes, invest in data engineering capabilities to maximize the enterprise-wide potential of digital data and algorithms, and meet regulatory requirements for data privacy and analytics. You have to adapt.
This transformation effort, previously considered strategically important by most carriers, is now becoming an survival priority. This is especially important in reducing losses and controlling expenses.
Although the insurance industry is less susceptible to change than most industries for a variety of reasons, ultimately a small number of successful competitors will be able to gain meaningful market share by changing the economic structure associated with insurance. All you have to do is start earning. Insurers that fail to act quickly will be replaced by more nimble and forward-thinking competitors within and outside the industry.
Stephen Applebaum is a Managing Partner at Insurance Solutions Group, a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the North American property and casualty insurance ecosystem.
Alan Demers is the founder of InsurTech Consulting and has 30 years of experience in property and casualty insurance claims, providing consulting services focused on claims innovation.
The opinions expressed here are the author’s own.
