The impact of digital transformation in the insurance industry
In this article, we will break down exactly how digital transformation applies to the insurance sector, benefits and challenges faced by the industry as a whole, as well as what we can expect for the future.
An industry-wide shift
The insurance industry has faced tremendous changes not only in the last few years, but also in the last decade or so. Historically low rates in the past 12 years have meant riskier investments for insurance companies, and firms were further put to the test by an increase in claims in 2020-2021 due to the coronavirus pandemic. Beyond that, customer expectations are shifting at the rate of digital–and service providers are expected to keep up.
According to a recent study, 43 percent of customers would leave their current provider if it became difficult to obtain support or service (Accenture, 2017). Digital transformation can help insurers meet new customer expectations and needs by enhancing product development and offering channels, such as digital-first experiences and 24/7 support. Additionally, digital capabilities can aid in meeting operational goals such as fraud prevention and assist Integrated Risk Management (IRM) initiatives.
What is digital transformation, anyway?
In essence, digital transformation is the process of using technology to create new–or improve existing–business processes, products, or services. This can be done through the use of new technologies, such as Artificial Intelligence (AI), big data, the Internet of Things (IoT), and robotics.
Evolution of digital transformation in the insurance sector
One of the earliest examples of digital transformation in the insurance sector is the use of scanners and complex algorithms to price insurance premiums more accurately. This increased accuracy resulted in insurance companies becoming more profitable, and also allowed them to better manage risk. In the late 1990s, insurance companies began to use the internet to sell insurance products directly to consumers. This generated a new source of revenue for insurance companies, and also helped to increase customer loyalty and retention.
In recent years, insurance companies have been using digital technology to drive further transformations in the way they do business. For example, insurance companies are now using data analytics to better understand customer needs and preferences, and to identify new opportunities for growth.
Further factors driving transformation include the increasing digitization of the economy, the rise of new technologies such as the Internet of Things (IoT), and the changing needs and expectations of insurance customers. The insurance sector is now more focused on customer experience, data-driven decision making, and providing innovative products and services that meet the needs of a digital world. This transformation is set to continue in the years ahead, as insurance companies increasingly adopt new technologies and approaches that will help them to remain competitive in a rapidly changing market.
The need for digital transformation in the insurance industry
The insurance industry is under pressure to digitize in order to remain competitive. Consumer expectations have changed and customers now expect a digital experience from their insurers. In order to meet these expectations, insurers need to digitize their products and processes. This digital transformation will enable insurers to improve customer engagement, streamline operations and drive growth.
Challenges of digital transformation in insurance
The digital transformation of the insurance industry is well underway, with insurers embracing digital technologies to drive efficiency, improve customer engagement and create new business opportunities. However, digital transformation is not without its challenges, and insurers need to be aware of the potential pitfalls as they seek to digitize their businesses.
The main challenges insurers face in digital transformation include:
1) Data privacy & security
This is one of the main challenges as insurers hold large amounts of sensitive customer data. This data is increasingly being stored in the cloud, making it more vulnerable to cyber-attacks. In order to protect this data, insurers need to have robust security measures in place, such as data encryption and multi-factor authentication.
In order to support digital transformations, companies need the right IT infrastructure and processes. This can be a significant investment for insurers, who need to ensure that they have the right skills and capabilities in-house to achieve IT modernization goals.
A major challenge for insurers is the regulatory environment. Insurance is a heavily regulated industry, and digital transformation can bring about changes that may fall foul of existing regulations.
For example, the use of data analytics to price insurance products could be seen as discriminatory if certain groups of people are charged higher premiums based on their data profiles. Insurers need to work closely with regulators to ensure that their digital transformations are compliant with all relevant regulations.
4) Operational risks
Digital transformation can lead to increased operational risks, as processes become more reliant on technology. Insurers need to have robust risk management processes in place to mitigate these risks.
Overall, digital transformation presents both challenges and opportunities for insurers. While there are some risks that need to be managed carefully, digital transformation provides an opportunity for insurers to drive efficiencies, engage with customers in new ways and create new sources of revenue.
Benefits of digital transformation in insurance
The insurance sector has been one of the most traditional and conservative industries for many years. However, digital transformation is starting to change that, as insurers are beginning to adopt new digital technologies in order to remain competitive.
There are a number of benefits that digital transformation can bring to the insurance industry. Digitalization can help insurers to better understand their customers through data analytics, which in turn can help them to develop more personalized products and improve customer retention.
In addition, digital technologies can help insurers to automate manual processes, resulting in increased efficiency and reduced costs. Digital transformation is therefore essential for the insurance industry in order to remain competitive and deliver the best possible customer experience.
Further benefits include:
1) Improved customer engagement
One of the biggest benefits of digital transformation is that it can help insurers to improve customer experience and engagement. By understanding their customers through data analytics, insurance companies can develop more personalized products and improve customer retention. For example, digital self-service tools can make it easier and faster for customers to get quotes or make policy changes. In addition, digital channels such as social media can be used to proactively engage with customers and build relationships.
2) Increased efficiency and reduced costs
Digital technologies can help insurers to automate manual processes, resulting in increased efficiency and reduced costs. For example, the use of Robotic Process Automation (RPA) can help to automate repetitive tasks such as data entry. In addition, digital technologies can be used to streamline claims processing, reducing the time and cost associated with manual processing.
3) New revenue opportunities
Digital transformation can also help insurers to identify new revenue opportunities. For example, the use of data analytics can help insurance companies to develop new products or services that are better tailored to customer needs. In addition, the internet of things (IoT) is providing new opportunities for insurers to offer pay-as-you-go insurance products based on real-time data.
4) Improved decision making
Another benefit of digital transformation is that it can help insurers to make better decisions. By harnessing the power of data analytics, insurers can gain insights into customer behavior, claims trends and other areas that can help to inform decision making. In addition, the use of predictive analytics can help insurers to identify risks before they occur, allowing them to take proactive measures to mitigate those risks.
5) Enhanced fraud detection
Digital transformation can also help insurers to detect and prevent fraud. For example, data analytics can be used to identify patterns in claims data that may indicate fraud. In addition, the use of biometrics and other identity verification technologies can help to ensure that only genuine customers are able to access insurance products and services.
6) Improved risk management
Digital transformation can help insurers to improve their risk management processes, by providing better data and insights into risks. As with any business transformation, there are a number of risks associated with digital transformation in the insurance industry. These risks need to be carefully managed in order to ensure a successful transformation.
Overall, there are many potential benefits of digital transformation for insurers.
Examples of insurance companies that have undergone successful digital transformation
In the insurance industry, digital transformation can take many different forms. For example, some companies have implemented digital customer service platforms that allow policyholders to submit claims and track the status of their claims online. Others have developed mobile apps that make it easy for customers to access their policies and contact customer service. Still, others have used digital technologies to streamline the underwriting process, making it easier and faster for customers to get coverage.
There are numerous examples of insurance companies that have undergone successful digital transformations. Some of the most notable include:
- State Farm
All three companies have invested heavily in digital customer service platforms and mobile apps. As a result, they have been able to improve customer satisfaction rates and increase market share. Progressive has also been a leader in using digital technologies to streamline the underwriting process. As a result of its digital transformation efforts, Progressive is now one of the largest insurance companies in the United States.
Transforming life insurance
Digital transformation is also starting to take place in the life insurance industry. One company that has been at the forefront of this trend is John Hancock, which is owned by Manulife. In 2015, John Hancock made a major strategic decision to focus on digital transformation. As part of this effort, the company launched a new digital platform called myJH. myJH allows customers to manage their policies, submit claims, and contact customer service all in one place. The platform also provides useful features such as a policy tracker and an interactive chatbot. Since launching myJH, John Hancock has seen a significant increase in customer satisfaction rates.
The rise of insurtech
In recent years, there has been a surge in the number of startups that are focused on the insurance industry, known as insurtech companies. These companies are using new technologies to challenge the traditional insurance business model. For example, some insurtech companies are using data and analytics to provide customers with hyper-personalized insurance products. Others are using the sharing economy to create new insurance products that are geared towards specific needs, such as ride-sharing or home-sharing. Still others are focused on simplifying the claims process or making it easier for customers to compare different insurance policies.
The rise of insurtech is starting to have a major impact on the insurance industry. In particular, it is forcing insurers to re-think their business models and embrace digital transformation. Insurtech companies are also starting to partner with insurers in order to offer their products and services to a wider audience. For example, in 2017, Allstate announced a partnership with Lemonade, an insurtech company that offers renters and homeowners insurance. Under the partnership, Allstate will offer Lemonade’s insurance products to its customers.
What does the future look like for digital transformation in insurance?
The future of digital transformation in the insurance industry can be broken down according to the following parameters:
The insurance industry is currently undergoing digital transformation, with many companies implementing new technologies to improve customer service and streamline operations. One of the most important changes has been the move from paper to digital records (digitization). This has not only made it easier for insurance companies to store and manage customer data, but has also allowed them to provide more personalized service. In addition, digital channels such as online portals and mobile apps have made it easier for customers to access their policy information and make claims.
AI & analytics
The future of digital transformation in insurance looks very promising, with many companies investing in new technologies to improve efficiency and better serve their customers. In particular, the innovative use of big data and analytics is expected to grow significantly, as insurers look to use these tools to better understand their customers and their needs.
In addition, the use of chatbots and artificial intelligence is likely to increase, as these technologies can help insurers to automate customer service tasks. Ultimately, digital transformation is expected to bring many benefits for both insurance companies and their customers.
As the industry becomes more digitized, we can expect increased efficiency, improved customer engagement and even new sources of revenue. While there are some risks associated with digital transformation, these can be mitigated with proper planning and execution. Ultimately, digital transformation presents a great opportunity for insurers to stay competitive and improve their operations.
Despite being more traditional and slow-moving than some other industries, the insurance sector will continue to evolve with digital transformation, ultimately changing the way business is done. Optimized operational workflows as well as more personalized offerings will contribute to improving customer experience. Ultimately, it’s important for companies to be aware of both the challenges and opportunities that exist within this space, the latter of which are abundant.