Digital transformation in the insurance industry
Insurance Digital Transformation Trends
Currently, the sphere of high technologies, innovations, including in insurance, is becoming the main way for the creation and implementation of new competitive services and goods. The global insurance market is valued at $5 trillion. A modern insurance company can develop successfully only if its business is automated and the staff is responsible and highly professional. Investments in insurance tech are about $3-5 billion per year. In the coming years, the number will rise markedly, as insurance companies will strive to become fast and convenient insurance factories for their clients.
The market is on the verge of change. According to the estimates of the international research company Absolute Markets Insights, the value of IoT solutions implemented in the global insurance market, for example, will increase from $ 3.095 billion in 2018 to $ 84.428 billion in 2027. The insurance industry is increasingly using IoT technologies, advanced analytics and mobile technologies. The massive growth of new sources of data – such as geo satellites, social media, sensors and advanced data analysis techniques such as artificial intelligence, machine learning – are revolutionizing the way insurance products are created and distributed. Thanks to such solutions, insurance companies are able to understand and predict risk in advance.
Implementation of digital solutions is a chance to increase sales and profitability, including through remote settlement of claims payments. In addition, digitalization gives insurers the opportunity to reduce their dependence on intermediaries, primarily credit institutions and agency services. Intermediary services are expensive. For example, credit institutions in 2019 estimated their commission at more than 36%, which is 9.1% higher than a year earlier.
There are many ready-made technical solutions in the world that need only be adapted to the needs of the business or create your own platform, experts say. One of the most obvious trends in the global insurance market is the personification of work with clients. Now, insurance products related to biosensors allow reducing unprofitability by creating customer experience, promoting a healthy lifestyle – accruing bonuses for steps taken, reducing calorie consumption
Such products are often created based on solutions from technology companies. Thus, the British Lloyds Banking Group together with the American technological Trov Inc. launched a platform that, among other things, allows tenants to manage their residential real estate insurance contract, depending on whether they use the house in the current month or not.
Taiwanese Thaivivat Insurance is offering users to integrate an additional tracking device into their smartphones. The system starts working as soon as the user plugs it into the USB port in the car, the data is sent to the insurer. The service is intended for motorists who drive less than four hours a day. According to the developer, the service allows you to save up to 40% on insurance premiums.
American Progressive Insurance, together with a startup Zubie, offer drivers to connect a special device to the on-board computer of the car, with the help of which technical information is provided directly to the driver’s smartphone to help him make the safest decisions when driving.
By offering personalized products, insurance brokers have to gain the trust of policyholders who are not always willing to share personal data. In addition, many are accustomed to the fact that in personal communication with an agent there are more opportunities to negotiate a discount. Insurers, in order to change the situation, are ready to provide discounts and make personal offers in cases where the client is ready to provide his personal data.
The Progressive Insurance customer is offered to share data and get a discount on auto insurance. There are similar examples in other areas of insurance as well. Some insurers offer to share information from fitness trackers with them. In return, they are ready to offer individual offers in the field of life and health insurance
As the experience of Western markets shows, insurers usually fail to get off with symbolic bonuses. Thus, according to a global survey by Deloitte, in 2016, that is, at a time when personalized offers began to spread in the market, 47% of customers refused to share their driving information. Of those who agreed, 54% of respondents had to offer a 16-20% discount on the usual policy cost, and even more for access to telematic data on driving behavior.
What are the Prospects of Digital Transformation in the Insurance Industry in 2021?
The key impact that the coronavirus pandemic has had on the insurance market, and the entire financial one, is a very rapid digitalization. For many insurance brokers, the transition to online was carried out at an accelerated pace.
The coronavirus pandemic and its associated economic impact have radically altered the needs, habits and expectations of consumers and employees, while forcing insurers to transform their operations into near-instantaneous execution.
In insurance operations, cost management efforts that began well before the pandemic remain critical not only to offset the additional costs incurred in response to the outbreak, but also to fund faster innovation, accelerate recovery, and spur future growth. Most insurers re-prioritize, cut nonessential costs, and postpone lesser investments to free up capital for areas of current and future growth drivers.
Many insurers are in the early stages of underwriting transformation projects that go well beyond automating routine, time-consuming data collection and processing tasks.The ultimate goal is to make better use of artificial intelligence (AI), alternative data sources and more advanced forecasting models to empower the underwriter and ultimately shift them to high-level, multifaceted roles such as portfolio management and closer interaction with brokers and large clients.
A good example is Ping An Life Insurance Company (PRC) has a broad risk model on its smart underwriting IT platform, which served over 18 million clients last year and approved 96% of policies through automated underwriting, reducing the average turnaround time from 3.8 days of manual underwriting to 10 minutes.
Technology has been vital in helping insurers migrate to a remote work environment and provide employees with the tools to do business while staying in touch with distributors and customers.
Despite this, a Deloitte survey found that 79% of respondents believe the pandemic has highlighted gaps in their company’s digital capabilities and business transformation plans. This rate rose to 87% among respondents responsible for manufacturing operations that were likely to be hit hardest. At the same time, 95% of those surveyed are already accelerating or seeking to accelerate digital transformation to maintain the sustainability of their company.
According to the survey, most CIOs will reallocate technology spending as they re-prioritize ongoing and planned projects. Accordingly, cyber security is the area where investments are expected in the first place. More than 60% of respondents across all regions are looking to increase spending on cyber security. As the majority of employees work remotely and more data and applications move outside the traditional security perimeter, the risks of cyber-attacks continue to grow. Insurers should consider adopting “zero trust” principles by imposing verification requirements on anyone who wants to access data or systems, whether internal or external, while adhering to “safety by design” principles when developing technology.
While the move to cloud computing was already well under way before the pandemic, it now seems to be an even higher priority as insurers push to cut fixed costs. A consumption-based cloud cost model can simplify cost management by enabling the use of cloud services to drive innovation and agility.
Cloud transformation projects are expected to grow next year, as the creation of such a framework will allow insurance companies to quickly and cost-effectively implement advanced analytics and automation tools.Companies should remember that cloud adoption goes beyond IT upgrades. For benefits to materialize, they must be part of a broader business transformation, including people and processes as integral components.
Data privacy and security must also be a focus as insurers remain responsible for protecting customer data by encrypting and applying appropriate security and access controls to cloud applications. With the rise of data-related regulations and heightened concerns about cyber security, privacy is an increasingly high priority for insurance companies at the board level. 52% of respondents expect increased spending on data privacy. However, 27% do not anticipate changes, and 22% can reduce their privacy costs, which can be problematic given the emerging vulnerabilities. Insurers may also have to increase costs if they plan to move beyond their traditional focus on compliance and engage more actively and transparently with consumers, offering value to new types of data, thereby making privacy management a competitive advantage.
Cyber security and privacy is a major concern, not only because of the growing pressure from regulators, but also because of how rapidly the volume of data is growing through sensors, third-party aggregators and other alternative sources. Combined with advanced analytics, insurers can reconcile, combine and analyze data from multiple sources to provide real-time insights that were previously impossible from a technological or economic standpoint. So it’s no surprise that 49% of respondents (56% in North America) are looking to increase their investment in data analytics. The goal is to speed up underwriting and improve customer service. Building a data-driven organization requires a solid foundation that is secure and scalable, connects to multiple internal and external datasets (possibly as micro services), and supports advanced analytics and automation.
But faster insurance digital transformation also likely means more dependence on connectivity. While these dramatic operational changes may have been necessary, they created a risk management challenge for the industry and its policyholders. It also gives insurers a great opportunity to help mitigate and cover any emerging risks associated with so many clients undergoing similar digital transformations. This can happen in much the same way as cyber risk, a rapidly evolving problem that threatens data-intensive insurers and opens up a growing market for operators.
How insurers respond, not only to the impact of the pandemic, but also to long-term shifts in technology, economics and consumer preferences will be critical.