Historically, when it comes to technology adoption, the insurance industry tends to be a “follower” compared to other industries. A variety of factors contribute to this, (legacy technology, paper-based processes, risk averse tendencies, etc.) but when faced with unprecedented change the insurance industry is at a pivotal inflection point. Over the next year, if not already, many insurance companies will experience a massive shift in their traditional business model, likely driven by one of their top business challenges including:
- Competition: The growth and expansion of the “InsurTech” is driving industry disruption and innovation in an increasingly competitive space. Legacy insurance companies are forced to compete with new entrants leveraging advancements in artificial intelligence (AI), machine learning (ML) and the proliferation of sensors and IoT devices. This allows niche providers to model risk in new ways while opening the door to offer pay per use insurance, or parametric policies, paying only upon the occurrence of a triggering event. While once seen as simple startups, large to mid-size competitors are choosing to partner with or acquire these early-stage companies rather than compete against them. The InsurTechs don’t need to have all the fun. Insurers who rely on AI to provide computer generated policy advice, or ML to accurately price and analyze risk, or widespread Application Program Interface (API) to connect disparate technologies can create a more connected and competitive insurance ecosystem.
- Legacy systems: One of the largest, most common challenges is the variety of legacy systems – both technology systems and (manual) operating systems. Translating paper-based information into a digital format has traditionally been a bottleneck for insurance companies attempting digital transformation initiatives. In addition to paper records, insurance companies often have many core technology systems, none of which communicate with each other. This leaves the company with gaps in information, endless spreadsheet analysis and overall wasted data management. Insurance companies that can take control of their existing data and prepare for the growing pool of unstructured data will gain a competitive advantage over those that stick to analog processes.
- Rising customer expectations: “The Amazon Effect” has left its mark on more than just deliveries and consumer goods. Consumer expectations are rising across the service industry too. Consumers have indicated a preference for greater customization of their property and life insurance packages. Particularly, younger buyers have shown interest in purchasing wider-ranging policies, including one covering all types of transportation rather than being tied to one vehicle. Focus on the customer is driving innovation and changing how insurance services are rendered. Insurers who can leverage new technologies to model, manage and deliver tailored customer solutions can gain traction and compete in the new era of insurance delivery and support.
- Reduced and remote workforce: Attracting and retaining talent has been a challenge in the insurance industry for many years. Recent events and career changes have only accelerated matters. To successfully adapt to the remote work model with a reduced workforce, technology must be the backbone. It requires not only a robust infrastructure to support a virtual workforce, but all the digital transformation necessary to meet the demands of consumers. Only with technology can the insurance industry support a national workforce, seamlessly share information in real time and safeguard a customer’s private data – all while delivering a tailored customer experience.
The maturation of the InsurTech subsector has recently forced traditional insurance companies to think digital. The insurance industry is shifting from its paper-based, or legacy systems, that are no longer functional to systems that will allow them to harness their data for new insurance business models, new products and even “yet to be invented” lines of business. This shift is made possible by developments and adoption of emerging technologies which help solve today’s top challenges and allows more companies to transition to a digitally driven business.
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