Digital transformation in the insurance industry is about integrating disparate systems, automating manual tasks, and enabling real-time decision-making. Insurers are already seeing some benefits of this shift, including lower costs, improved customer experience, better risk management, and more efficient claims handling.
In a low-interest, high-cost environment, insurers have to look for efficiency everywhere they can. This includes looking into areas like data analytics, software development, IT infrastructure, and operational processes.
Digital transformation is the process of creating new or modifying existing business processes to meet changing customer and market requirements. It is an organization-wide change that affects every department, from marketing to finance and product, aiming to optimise operations and improve revenue.
In insurance, this means improving the speed and seamlessness of services to provide policyholders with the instant gratification they are looking for. Insurance customers want immediacy from every step of their customer journey, from receiving a quote to receiving reimbursement. By investing in digitalising and optimising services, insurers respond to their customers’ needs and ensure improved customer satisfaction.
Increasingly more enterprises are investing in digitalisation. In fact, according to Gartner, nearly half of enterprises surveyed plan to spend $100 million or more over the next three years on digital transformation initiatives. But what exactly does digital transformation mean? Let’s take a look.
The pandemic accelerated the move to digital. It had visible impacts on the retail industry in particular, with retailers investing in technologies to improve the online shopping experience for their customers. But e-commerce isn’t alone: every other sector was affected by this speedy adoption of technology because customers started demanding convenience from every product or service they bought.
This technological adoption meant companies were pushed to digitalise their processes even faster to meet customers’ needs. According to a KMPG report, 85% of Insurance CEOs say COVID-19 has accelerated the digitization of their operations and the creation of next-generation operating models. 78% of CEOs say it has turbo-charged progress on creating a seamless digital customer experience. CEOs also mentioned the urgency of bringing in new business models and revenue streams. We are already seeing the impacts of digitalisation processes in various insurance areas and services, but they also come with challenges.
Insurers’ most significant challenge is keeping pace with rapid technological advancements. Most insurers rely on their legacy IT systems that have been powering all operations for decades. Changes to these systems are highly complex, costly, and risky, making insurers reluctant to update their software and advance their digital transformation efforts. Equally, these modifications are very time-consuming. Innovation across sectors spreads widely and quickly, so there is added pressure to speed up digitalisation. Below are some of the biggest challenges insurers are facing:
Various technologies are gaining momentum and offering game-changing benefits to insurers. Some of these technologies include IoT (Internet of Things), SaaS, Big Data, AI, and Machine Learning. Below we discuss some of the most significant impacts digital technology has had and will continue to have on insurance.
Customer expectations are shifting toward a more personalized experience, and businesses are finding ways to deliver it. This includes offering add-on products and insurance solutions. These changes mean that the old one-size-fits-all model of doing business is obsolete. Finally, AI can be used to create customized policies. For instance, if you own a car, you may want to know when your vehicle will likely break down. You can get this type of information through an app or website.
Predictive modelling helps adjust pricing based on historical data. It also allows insurance companies to identify potential risks before they occur. Insurance companies can use technologies such as AI to automate underwriting, claim processing, and other functions. For instance, an insurer might use machine learning to predict whether a policyholder will file a claim within a specific time frame. If so, the company could offer discounts or waive fees.
Insurance companies are also using modern technologies to streamline operations. For example, they can analyse large amounts of data from various sources, such as social media posts, weather reports, and traffic patterns. This information can be used to make decisions regarding coverage and pricing.
The rise of technologies such as artificial intelligence (AI) has changed how companies approach customer service. For example, AI-driven chatbots are being developed to provide customers with answers to their questions 24/7. They also help agents answer calls faster and handle multiple requests at once.
The rise of insurtech brought about a new trend that has been proven fruitful for insurers: partnering with innovative third parties that offer pre-built solutions, allowing insurers to speed up their efforts in digitalisation. Insurtechs like Imburse, for instance, enable insurers to access the entire payments ecosystem, avoiding complex, costly and lengthy integrations with payment providers and technologies.
Digital transformation doesn’t only affect systems and infrastructures; it also affects people. The end goal of a digital transformation journey may be to improve customer experience and ultimately improve customer satisfaction, retention, and revenue. However, such digitalisation processes have company-wide impacts, for instance, when it comes to culture and productivity. Digital technologies have transformed industries by enabling employees to communicate better, collaborate more efficiently, and solve problems quickly. The same principles apply to insurance companies.
By adopting digital transformation, insurers can:
• Improve customer service. Customers expect fast responses to their inquiries and complaints. By automating some tasks, insurance companies can speed up response times and reduce costs.
• Reduce operational expenses. Insurers can save money by reducing manual labour and eliminating redundant processes.
• Increase productivity. Employees who use digital tools can complete tasks much faster than those who don’t.
• Grow revenue. Digital transformation enables insurers to develop innovative products and services.
• Enhance employee satisfaction. Employees who feel valued and appreciated tend to perform better.
To successfully transform their business, insurance companies must adopt three key strategies:
1. Build a culture of innovation
2. Use technology to improve efficiency
3. Create new value propositions
Let’s take a closer look at each strategy.
Innovation is essential to any successful business. But it takes more than just having creative ideas. To turn them into reality, you need to build a culture that encourages experimentation and risk-taking. This means creating an environment where employees feel comfortable trying out new ideas. Imburse’s culture of “we make it work; we make it better” fits into this aim to motivate employees to challenge themselves by trying out new methods of doing things. By giving employees the freedom to fail, enterprises also provide them with the opportunity to learn.
Technology can make life easier for insurance companies. But it doesn’t necessarily mean that everything will run smoothly. In fact, many challenges arise when using technology. For example, if you rely too heavily on automation, you might miss important details. And if you automate too much, you could end up wasting time and money.
So how do you strike the right balance? Here are five tips for balancing technology and human interaction:
The best businesses offer customers something unique. They create new experiences that set them apart from competitors. Insurance companies have traditionally provided policies that protect against risks such as fire, theft, natural disasters, or even healthcare and car accidents. These policies have expanded and adapted to cover a broader range of threats. Parametric insurance falls into this scope, as it works differently than traditional insurance co such as commercial property.
With parametric or index-based insurance, insurers cover a pre-defined event, rather than actual losses. For instance, the pre-defined event may be an earthquake reaching a magnitude of 7.0. If this does indeed occur, a trigger is pulled, and the insurer is required to cover this event and pay out the agreed value to their customers. The actual loss that customers suffered does not play a role here – the only factor that is measured is the earthquake reaching 7.0 (the pre-defined event).
Insurance companies must adapt by offering products that meet these needs. This may require changing the way they sell insurance. For instance, instead of selling policies directly to individuals, they might start selling plans through brokers.
To succeed in this new world, insurers must embrace change. That means being willing to experiment with new approaches and technologies. And most importantly, they must focus on delivering exceptional customer service. After all, it’s the only thing that truly sets them apart from their competition.
Digital transformation affects various areas of the insurance value chain, despite most innovation being placed in customer-facing functions. By investing in digital transformation in core steps across the customer journey, insurers are enhancing customer satisfaction and loyalty – a crucial challenge to succeed at, particularly as more businesses become customer-centred and customer demand continues to change. Below are some of the areas that digital transformation will impact:
Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using various payment technologies and providers around the globe.
In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.
Reach out to our team should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.