Digital transformation is no longer a buzz word that industries have not yet encountered: from manufacturing and retail to hospitality and healthcare, industries across the board have embraced it, and how. However, Insurance has been one industry that has been a bit slow in adopting modernization. Technology has brought disruption to the insurance industry in several ways and insurance leaders have started making investments in the latest technologies that will help them to become more customer-centric, cost-efficient and create operational excellence.
Then why this industry has been slow to adopt modernization. You might ask? It is because insurers had to cope with forces from outside their industry that are profoundly shaping and influencing customer expectations. When customers interact with an insurer, their benchmark is not one carrier versus another, it is their experience with online retailers and service providers. This has resulted in customers expecting a much faster, transparent, and more intuitive experience ever before.
Technology and the Insurance Market
Gone are the days of customers calling insurance companies and asking for a quote over the telephone. Today’s customers are digital natives and want everything on a single click to get the best pricing. This is all thanks to technology and its impact on the insurance industry. Some emerging technologies prominent in the insurance industry are:
1. Artificial Intelligence (AI)- AI has changed the traditional insurance operating model. It can be used to assist with distribution of insurance policies (such as using chatbots to sell insurance policies directly to customers or to identify gaps in coverage), underwriting (such as automated data analysis and pricing) and claims assessment (such as reviewing policy wordings and automated claims assessment), among other things.
2. Big Data and Predictive Analytics- There is a massive amount of data generated exponentially. Big data and advanced analytics help to manage, analyze, and understand data, and make forecasts, which helps companies to make data-driven decisions to drive profitability to their business.
3. Blockchain- Blockchain uses advanced cryptographic techniques to create a secure ledger of information that prevents the unauthorized modification, addition or removal of data. It provides a single source of truth.
4. Internet of things (IoT)- IoT enables the real-time collection and analysis of data from the physical world, which provides an unprecedented opportunity to improve accuracy, reduce costs, and prevent fraud.
Challenges Preventing Successful Digital Transformation
Despite all the technological advancements, the road to becoming a digitally transformed business is paved with its own set of challenges. For instance, a lot of modernization is required for a broker to be able to visit his customers with an iPad instead of a file folder. A survey carried out by Bain & Company identified that “More than two-thirds of the world’s non-life and life insurers were still using systems from the 1970s and 1980s.” There has been a lot of modernization in the industry since then, but the change has not been fully embraced and is not universally deployed. Here are few challenges faced by the insurance industry:
Providing seamless customer experience: There was a time when insurers’ primary channel to interact with customers was through their insurance agents or brokers. In recent years, insurers have rolled out digital applications that enable consumers to check policy information, review benefits, compare costs, pay bills, initiate claims, and even apply for coverage from their mobile phones or desktops. Today’s consumers, providers and insurance professionals expect convenience—both in terms of ease in using digital services and in the ability to obtain service at any time and from anywhere. A poor customer service or a lapse in security can have a significant impact in this competitive industry.
Rise of Insurtech competitors: Creating new ways of pricing, producing, distributing, and servicing insurance policies, Insurtech is surely turning insurance on its head through technology like GPS car tracking or the activity trackers on wearables. Research suggests that 31 percent of consumers would consider choosing a Neobank or a tech giant like Amazon, Google, or Facebook. This figure rises to 41 percent among Generation Z consumers. This has become a biggest threat to the traditional insurers.
Analysis of customers data: According surveys conducted by Accenture, 50 percent of insurance customers are willing to provide additional personal data in exchange for benefits such as favorable premiums, lower interest rates, or other financial benefits.
With so much data at their disposal, sometimes it creates a challenge to properly collect, treat, and store customer data. Despite having AI to effectively process those data, it seems there has been a lack of automation at the back-end process to populate data automatically.
Legacy system modernization: The insurance industry has battled with legacy systems for a long time, resulting in higher costs related to maintenance and system upgrades. It is becoming difficult to get rid of the legacy systems, as there is a risk of losing crucial customer information. Research says that 68 percent of companies find legacy systems as the biggest obstacle to digital transformation.
Increased cybersecurity: Cybersecurity is the utmost primary concern a customer keeps in mind when selecting any insurance provider as they have access to incredibly sensitive customer data. They need to protect it to comply with privacy and data breach laws, as well as to maintain their customers’ faith. As insurers find new and innovative ways to analyze data, they must also find ways to secure the data from cyber-attacks.
Lack of collaboration with IT: An obstacle to success is the lack of alignment on what exactly digital transformation means to the business and to IT. Many insurance companies are suffering the negative effect of a disconnection between the IT role and the business strategy, which in return increases data fragmentation and security and compliance risks and decreases transparency and clarity across the whole organization. Aligning IT with the business functions helps to eliminate data fragmentation and siloes, thereby providing smooth flow of data which creates an omni-channel experience for the customers.
Change is not optional – to survive, it is imperative. Digital transformation can be both a threat and an opportunity for any industry. Although it is conveniently used to package and sell technology because it sounds progressive and modern, the real scope of digital transformation is much harder to accomplish because it does not only mean implementing state-of-the-art technologies, but also changing the culture and the behaviors of people along with the core business and operating models and also the critical part i.e. the insurer-customer relationship which is a valuable competitive differentiator throughout the entire customer journey from the initial consultation through to support and claims.
Want to learn how Compunnel Digital can help overcoming these challenges? Visit our Insurance section.