The insurance industry is in the midst of a sea change. From cost savings to faster product development, the benefits of digital insurance are rapidly becoming more apparent to insurance carriers.
Traditional methods of person-to-person insurance delivery are being replaced by digital-first experiences powered by real-time data and automation. What’s causing this transformation? Changing consumer preferences.
Buyers now prefer a self-service experience where they can select a policy without ever interacting with another person. Of course, this necessitates a big change by insurance carriers regarding technology, customer experience, and product innovation.
Still, the payoff is worth the effort. The more intuitive the customer experience, the more likely insurers will gain a competitive advantage.
In this post, we’ll cover the benefits digital insurance offers to companies, unpack its challenges, and outline the tools necessary to keep pace with new changes that are revolutionizing the insurance sector.
What Is Digital Insurance?
Put simply, digital insurance refers to an insurance business model optimized to deliver products through digital channels. Digital insurance covers the entire value chain of insurance delivery, from distribution to underwriting and servicing.
Digital insurance is more than just a buzzword. It’s a sign of the times. More and more customer interactions happen online because consumers expect insurers to provide exceptional digital experiences across multiple channels, like email, chatbots, mobile apps, and more.
The Competitive Advantages of Digital Insurance
The shift toward digital insurance offers a number of benefits for insurance companies looking to stay competitive in a digital-first world.
Enhanced Customer Experience
These days, policyholders expect insurance buying to be as intuitive as online banking or shopping. This concept is known as liquid expectations: Once consumers have an intuitive experience in one realm (like online shopping), they expect the same level of service in other interactions.
Digital insurance can fulfill modern expectations by offering seamless, multi-channel experiences that buyers can start from any device. Utilizing real-time analytics to make the quoting and buying process fast and simple can greatly enhance the value buyers receive from interacting with insurers.
And the better the customer experience, the better the business results. Customer experience leaders in the Property and Causality industry outperformed their peers by 65% in total shareholder return (TSR) over five years.1
Lower Operating Costs
By automating claim processing, incorporating data analytics to improve risk assessment, and streamlining administrative tasks, digital insurance solutions can significantly reduce operational costs for insurance carriers.
Many of these cost savings rely on implementing a modern policy administration system, which enables automation to replace manual tasks and processes created as work-around for legacy system limitations.
Organizations that modernize their core systems can realize 41% lower costs than those with legacy systems.2
Faster Speed to Market
Digital insurance platforms allow for agility in the face of market changes. Insurers can more quickly adapt and roll out new products or updated versions in response to new regulations, industry shifts, or business requirements.
Due to the commoditized nature of insurance products, being first to market is one of the primary ways to gain a competitive advantage in new markets.
More Efficient Workflows
Adopting digital insurance also opens up opportunities to implement automation throughout your organization. From claims processing to data entry, there are a number of insurance tasks that used to require manual data tasks that can now be automated.
Implementing more efficient ways of working not only increases your business agility but also reduces human error. By spending less time on manual data entry, employees can focus on my strategic and impact work. Moreover, introducing automation and modern policy administration systems can lead to significant productivity gains.
Insurers utilizing modernized IT systems can deliver 40% more policies than their peers.2
Better Analytics and Innovation
Digital insurance platforms give carriers more data about their buyers than ever. From sensor data in vehicles to demographic data to claims trends by region, the pool of data insurers can utilize to make decisions is vast. (And it keeps growing.)
By pulling out insights from this ocean of data can lead to more precise claims processing, predictive modeling for forecasting, and a host of other use cases. Of course, this requires a sophisticated business intelligence program, but the potential is still extremely potent for insurers trying to integrate data more centrally into how they operate.
For example, Solaris reporting allows insurers to analyze transaction activity, payment, invoicing, user activity, compliance, and hit ratio reports to gain insight into the lifetime performance of insurance products.
The Tools and Applications of Digital Insurance
Insurance companies can’t practice digital insurance without utilizing the correct tools. A careful blend of core systems, insurance APIs, and low-code tools can speed up the transition to digital insurance and make it easier to practice.
Policy Administration Systems with Microservice Architecture
Too many insurers are burdened with legacy systems they adopted decades ago. These systems employ a monolithic architecture, meaning changes or updates to one function affect the whole system.
Modern policy administration systems employ a microservice architecture that enables different aspects of the system to function independently. In essence, each individual component of the system is powered by its own script. That allows updates to occur in one area while the rest of the system keeps running.
Low-Code/No-Code Tools
Agility is a critical factor for digital insurance, so once products are deployed, being able to quickly make changes is important. Low-code and no-code development tools are ideal because they allow insurers to create and customize products without the need for in-depth programming knowledge.
Low-code / no-code tools also help with regulatory compliance, lower insurers’ total cost of ownership, and help get products to market faster.
Insurance APIs
Application Programming Interfaces (APIs) connect various software applications and enable them to share data and functionality. In the context of digital insurance, insurance APIs are crucial for integrating different systems and tools to create a cohesive digital ecosystem.
APIs can be extremely useful for modernizing legacy applications without replacing the entire system. APIs can also connect disparate data sources, breaking down data silos and allowing a more complete picture for insurers to base their decisions on.
Challenges to Adopting Digital Insurance
The benefits of adopting digital insurance are clear, but creating digital-first products requires overcoming a number of hurdles. Some of these challenges, like legacy system modernization and change management, are significant, but the business impact is worth the effort.
Here are the most common problems insurance carriers face when trying to embrace digital transformation.
Legacy System Modernization
Legacy systems are far too common in the insurance world, and they drive up the total cost of ownership and the amount of time and resources it takes to develop new products.
And moving on from a legacy system is complicated. These platforms are often decades old and house critical data that insurance carriers need to operate.
Many insurance companies are encumbered by legacy systems that are not easily adaptable to digital integrations. Modernizing these systems requires not just financial investment but also strategic planning and organizational restructuring.
Cultural and Organizational Change
The transition to digital insurance necessitates a change in organizational culture. It’s easy to apply a “shift and lift” approach where old processes are moved to a new system. This is the path of least resistance, but it’s also the approach that promises the least return.
Transitioning to digital insurance is more than adopting new technology: It’s an opportunity for business transformation. That requires careful planning and consideration for how insurance carriers want to operate in order to enhance the user experience and optimize business operations.
Lack of IT Talent
There’s a shortage of IT talent across most major industries.3 For insurers, this makes the transition to digital insurance all that much more difficult. That doesn’t mean it’s impossible, though.
One way to address the problem is to invest heavily in recruiting and keeping IT talent. Another is to partner with a service provider who can do the heavy lifting while your team focuses on customer acquisition and business growth.
Digital insurance presents an exciting opportunity for insurance companies to modernize their operations, improve customer service, and enhance their competitive edge.
Although the benefits are obvious, transitioning to digital insurance is not without its challenges. By approaching the process with care and applying the right tools and processes, insurance providers can position themselves at the forefront of the digital transformation, reshaping the insurance industry.
Sources:
- McKinsey, Elevating the Customer Experience: A Win-Win for Insurers and Customers
- McKinsey, IT Modernization in insurance: three paths to transformation
- MIT Technology Review, New Approaches to the Tech Talent Shortage
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