The insurance industry is going through a pivotal process of digital transformation, which is key to its future.
Investment in insurance technology is set to grow by more than 25% between 2022 and 2026, as organizations look to optimize operations and deliver better and faster for their customers. As the insurance landscape is increasingly adopting emerging technologies and digital solutions, let’s take a look at some of the key trends across the industry.
Digitization of the insurance value chain
Insurers are applying technology to both streamline and digitize multiple areas of the insurance value chain, such as underwriting, claims processing, and distribution.
One of the main benefits of digitalization is increased efficiency. If insurance companies are able to automate and digitize various processes, they can cut down on the time and cost that’s associated with more traditional methods. This can lead to faster customer service as well as more efficient operations for the organization.
A second key benefit of digitalization is that it gives insurers the ability to offer new products and services. Insurance companies can use technology to create customized policies that fit the unique needs of their individual customers. For example, companies can use data and analytics to assess risk and offer personalized premiums. At the same time, they can leverage digital channels for policy purchase and management.
Digitalization of the insurance value chain also lets insurers better serve their customers across digital channels. For example, the use of chatbots and mobile apps to offer fast and convenient support. It also includes the use of self-service tools that give more power to customers by being able to manage their own policies and have better access to information.
Data and analytics
The adoption of data and analytics solutions continues to expand within in the insurance industry to principally better understand and predict risk.
One of the main uses of data and analytics in the insurance industry is developing predictive models. These models use data that is associated with past claims (among other factors) to forecast future risk and inform pricing decisions. This helps insurance companies better manage their risk portfolios as well as set premiums that are competitive and profitable.
The use of data and analytics is also being leveraged to personalize insurance products and pricing. For example, car insurers are using telematics data from devices that are installed in the vehicle in order to track driving behavior. From this data, they can offer personalized premiums. As another example, health insurers are using data on individual health histories and lifestyles to offer customized policies, which are tailored to the specific needs of each individual customer.
Data and analytics are not only implemented in the underwriting and pricing process but also the claims process. Companies can analyze claims data to identify trends and patterns that could indicate potentially fraudulent activity as well as areas to improve the process. The result of this is reduced costs of claims and a general elevation of efficiency in the claims process.
Customer experience
Insurers are increasingly using technology to improve their customer experience. And for good reason, too. Insurers that provide personalized services can boost customer engagement by 89% and achieve a retention rate of 81%.
One area where insurers are enhancing their consumer experience (CX) is by developing and broadening their digital channels. Many insurance companies have launched mobile apps and other digital tools to make it easier for customers to purchase policies, file claims, and access support.
The claims process is a particular area of interest when it comes to CX. Insurers that provide fast and efficient claims service are more likely to be viewed favorably by customers. This can involve the use of technology, such as automated claims processing and digital tools for document submission, to streamline the process.
Companies that offer helpful, knowledgeable, and relevant support are more likely to be viewed positively by customers. And this, in turn, strengthens brand engagement and loyalty. For example, the combination of trained customer service reps with chatbots provides fast and helpful support.
Microinsurance
Microinsurance is a type of insurance product that is tailored to the specific needs and budgets of low-income individuals and small businesses.
Insurance companies are offering microinsurance with the aim of increasing financial inclusion, as many people and small businesses don’t have access to the more traditional insurance products because of the costs involved (among other barriers). By expanding the coverage of insurance to include those on lower incomes and budgets, insurers that provide microinsurance are also helping to expand access to financial protection.
For those that can be covered by microinsurance, it helps to protect against any financial shocks that can emerge from anywhere. For example, a natural disaster for a store or a medical emergency for a low-income individual can have major impact and ramifications. Microinsurance acts as a safety net that helps to soften the impact that these financial shocks generate.
From the perspective of the insurance industry, providing microinsurance can be profitable, helping insurers break into new markets and spread their risk portfolios.
Blockchain
Blockchain technology is a way of storing information in a secure, transparent, and decentralized way. It’s typically associated with cryptocurrencies, but its benefits are realized across a broader range of industries that include finance and insurance. In fact, over the last half a decade, more than 60% of insurers have started to use blockchain.
Some insurers are exploring blockchain as a way to improve the efficiency and transparency of their operations. Some examples include the use of blockchain-based platforms to securely store and share data and smart contracts to automate the claims process.
Blockchain also allows for the creation of smart contracts, which are self-executing contracts with the terms of the agreement written into code. This type of contract can be used to automate the claims process, and as a result, reduce the time and cost connected to manual claims handling – while at the same time increasing transparency by providing a secure record of transaction.
Thirdly, blockchain is being implemented to enhance security. Because it is based on a distributed ledger system, it means that blockchain is decentralized and not controlled by a single entity. This results in higher security than traditional systems, which are more vulnerable to hacks, data breaches, and fraud.
A fourth blockchain benefit is that it facilitates the secure exchange of data between different parties, such as insurers, reinsurers, brokers, and policyholders. This helps to improve the efficiency of the insurance value chain and the creation of new products and services.
Finally, blockchain is breaking into new areas to create new business models in the insurance industry, for example parametric insurance and peer-to-peer insurance. Parametric insurance is based on predefined triggers, such as the occurrence of a natural disaster, and pays out automatically when the trigger is activated. Peer-to-peer insurance lets individuals pool their risk and purchase insurance directly from each other, without the need for a traditional insurer.
It is apparent that the digital foundations of the insurance industry are undergoing deep transformation. Companies are grabbing hold of emerging technologies to rethink and rebuild their operations to better serve their customers.
As these trends continue to evolve and shape the industry, we’re seeing that their impacts are not only going to be felt this year but will have ramifications far beyond 2023.
If you’re looking to take advantage of these trends and implement them into your business strategy, then contact us. We hold deep experience in the insurance industry, helping our clients implement a broad range of solutions for sustained success.
Interested in learning more about the technology trends shaping the future of insurance? Check out this industry webinar: From Data to Customer Experience – How Digitization is Shaping the Insurance Industry.
