Jan 03, 2020 | 7 min read

Digital Transformation in Insurance Industry: Why It Matters

Pavel Kaplunou, Marketing Communications

“The only constant in life is change”, goes the famous saying by Heraclitus. For the insurance industry today that change is digital. The traditional insurance space has long been on the cusp of a digital revolution. The time of digital transformation culminates now, with the disruption caused by a growth in insurance technology, rising customer expectations and evolving business models.

The rise of telemetry, cloud computing, machine learning and advanced insurance software solutions have enabled companies to transform their digital strategies. Advanced analytics have allowed companies to tap into the vast volumes of disparate customer data to produce actionable and coherent analysis. The resulting decision support systems and frameworks enable insurance companies to better evaluate risk and make informed decisions based on deep-data insights.

Deloitte predicts insurance digital transformation to sweep the industry as technology penetration finally reaches peak levels. Other forecasts show that carriers will partner with emerging insurtech startups to digitize customer engagement and develop new products and services. Digital innovation has been rife in narrower verticals, such as financial services, car and healthcare insurance. Yet more and more companies begin to embrace digital transformation.

Insurtech startups

It is easy for a large insurance company to assume that insurtech startups come readily equipped to tackle the technological challenges of digital transformation. The assumption stems from insurance executives, who operate traditionally non-digital businesses. While sometimes true, it can also lead to the conclusion that all startups possess a one-size-fits-all technology solution to address all needs.

However, it is almost certain the industry will have to keep pace with digital innovation. Be it through introducing technologies like the cloud and AI for data mining or through partnerships with insurance technology startups, the insurance industry might likely one day become the defacto insurtech industry. In order to stay relevant and competitive traditional insurance companies will need to adapt to address growing customer requirements.

Anorak Life-insurance and Sterling Bank

An emerging player currently cooperating with financial services companies is Anorak, a company founded in 2017. Anorak’s software suite is made up of a life insurance recommendation platform powered by proprietary algorithms and predictive machine learning to customize policies for individuals regardless of net worth. In other words, it can assess a person’s expenses and income to generate bespoke insurance offerings.

The company is currently a partner of Sterling Bank, UK’s leading digital bank, where it gains insights into the data of customers, who are eager to share it in exchange for personalized advice. Moreover, the integrated APIs and a digital-first approach let Anorak deliver recommendations directly through digital channels, which found favor with tech-savvy insurance customers.

Anorak’s scope of services does not end there as it can also leverage its APIs to process data from customers’ money and personal finance apps, mortgage brokerage firms and investment platforms to provide tailored options.

Google-backed health insurer Clover Health 

According to Crunchbase, Clover Health was in the top 11 companies with the most investment capital raised in 2019. Ranking seventh, the health insurance startup supplies a personalized Medicare Advantage that caters for senior citizens.

Service subscribers receive tailored health coverage and treatment options through a proprietary platform that collects, organizes and analyses health and behaviour data in real time. It then provides medical advice to subscribers aimed at reducing out-of-pocket expenses on insurance claims.

The healthcare insurtech startup space seems to be taking advantage of AI and Machine Learning—technologies that have seeped into other industries. Companies like Aetna have put it to good use to settle insurance claims. The technology has allowed the company’s employees more room to manually focus on high-priority claims.

Vehicle and self-driving car insurance

Even since 1998, car insurance companies have leveraged telemetry and trackers to keep a vehicle usage log and record geolocation data. The technology helped identify and penalize problem drivers with higher premiums, while at the same time rewarding law-abiding drivers with lower insurance fees.

The use of such IoT trackers never really took off until about 2016, when the number of cars connected to the internet skyrocketed to about a third of all the cars in America. Auto-insurance cars were now seeing more customers, who were willing to offer up their data and be tracked with the promise of bigger savings. Though, at the time, Pew Research Center findings showed that drivers were still skeptical of the way technology encroached on privacy and gave them a rating, similar to how banks determine creditworthiness. 

Come 2020, the auto-insurance segment is now facing a major change with the popularity of the automated vehicle. Mass-market adoption will mean that new and even more flexible business models will need to be implemented for risk-assessment. In essence, self-driving cars will entail a new way of determining accountability with a slew of new datasets, as well as insurance products and services.

Benefits of insurance digital transformation technology

On the one hand, insurance companies cannot be blamed for the slow pace of digital transformation. The industry has long considered person-to-person interaction an essential component of the customer journey. On the other hand, the rise of digitization across all major industries leaves insurers disconnected from a large digital-first customer segment.

Insurers who do embrace insurance digital transformation technology in their line of business can expect a plethora of benefits. 

First and foremost, the switch from legacy systems to innovative technologies will grant long-term savings by reducing operational costs. Manual claim processing can be automated, while face-to-face interactions supplemented by conversational AI. Insurance provider Lemonade has already managed to secure a loyal customer base thanks to its intelligent insurance application.

If there is anything motivating loyalty among customers, it is a high customer satisfaction rate. In claims related scenarios customers expect prompt responses and utmost care. In emergencies, they need contextually relevant advice and great customer service from providers. And that requires automated and optimized workflows.

What is more, using technology solutions, insurance providers can increase operational efficiencies through better claims management and customer care. For those who take up the path of innovation, the results will also reflect in improved competitiveness and decreased employee turnover.

Main insurance digital transformation trends

What technologies are governing the insurance digital transformation trends? According to Accenture, the technologies that will play a pivotal role in the digital transformation of the space are advanced data analytics, cloud networking, blockchain and AI, along with agile development.

Insurance Digital Transformation Trends

Based on this data, we can infer that IoT sensors and trackers connected to cloud networks will, for one, fortify current telemetry practices. Data gathered from vehicles and wearables will account for flexible usage-based insurance plans, with many P&C insurers already introducing such practices.

Mobile insurance applications will become the norm for quick claims management and processing as mobile penetration nears 80%. Given the 2020 insurance trends, where demand for services skyrocketed, insurers will maneuver quicker towards digitization than previously anticipated.

Key takeaways

While slower than other financial services domains, the insurance sector will gradually move closer towards introducing new operational practices. The industry’s shift towards digital innovation will receive a boost from the exacerbating challenges brought on by the world healthcare crisis.

Insurance trends in 2020 have shown that customers will look towards their insurance carrier in times of crisis. In order to rise up to that challenge and put the customer first, insurers will have to:

  • adopt new business models and practices
  • offer digital insurance services for a digital-first customer base
  • embrace digital transformation can expect to be the ones to capture a larger market share than that of their competition.
  • strike partnerships with existing insurance technology startups or establish new insurtech divisions in-house
  • improve customer care and increase customer satisfaction rates

Insurers who vote out of digital transformation plans risk losing relevance with a growing segment of younger customers accustomed to using technology to solve problems. Straying from innovation could result in drastic market shifts as younger players score favors with insurance customers, while industry mavens begin to dissolve. It is inevitable that going digital will significantly benefit insurance companies and the customers they serve.

03 January 2020

WRITTEN BY

Pavel Kaplunou , Marketing Communications

Pavel is Smart IT's Marketing Communication Manager. He oversees content creation and is in charge of the official Smart IT blog. Contact Pavel to learn about potential media and content collaborations. p.kaplunou@smart-it.io

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