Gradually, customers are showing interest in insurers who offer seamless experiences and complete transactions virtually and instantly. Thanks to growing middle class of the society. “Through technology, there are massive improvement in business operations. Procedures are being streamlined whiles costs are being reduced”. The insurance sector continues to be disrupted with new customer-oriented innovations. With all these opportunities to leverage on, many domestic carriers are facing serious challenges. As some insurers are experiencing steady growth, others are hard hit since they are unable to meet the cost of capital in technology. They are struggling to sustain growth, and pressure to boost performance has become urgent. The increased in competition, expected market consolidation, and volatility in the markets requires insurers have to make significant improvement in their business operations.
The current impact of digital revolution
From implementing AI and machine learning, to big data, through to combining information from connected devices, the possibilities and opportunities for digital and analytical concepts have become endless. The digital revolution is transforming how business environment interacts with business deals. With high level of competition experienced in the industry, some insurers are gradually digitizing their operations in line with the technological revolution. The center of the transformation is largely connected with customers “who expect to select from the products of a vibrant marketplace, driven by their needs, convenience and preferences”. These insurers are taking the lead in growing their businesses by navigating and taking advantage of those forces to help rapidly achieve change, and ultimately secure a competitive advantage.
Most insurers have introduced some forms of digital platforms and mobile apps in addition to their existing social media handles and mobile technologies. The innovative strategies are in line with their business expansion strategy aimed to advance technology and improve business performance. The digitisation of business processes and procedures have enhanced the fundamental transformation of their underwriting, claims management, marketing, distribution, service delivery and the overall customer interactions and engagement. Mobile phones, advanced analytics, the global positioning system, the Internet of Things, artificial intelligence, cloud computing, and other digital platforms “are providing new ways to measure, control, price risk, engage with customers, reduce cost, improve efficiency, and expand insurability”.
The future impact of digital revolution
“Infrastructure and productivity, advanced analytics, online sales applications, machine learning, the Internet of Things and virtual reality are already disrupting the insurance industry”, of which the impact is believe to accelerate in the future. Insurers stand to benefit if they are able to capitalise on digitalization to improve their operations from underwriting, through customer service, to claims management. In the future, the digital transformation will cause customers to demand for simple, transparent and flexible products and services online. Below are some of the future implications:
Underwriting and Risk Assessment
Emerging risks are increasing the demand for new insurance products and services. Future digital disruption will increase smart home connectivity and create risks that homeowners’ cover will have to address. Therefore, “additional risk mitigation concerns will call for adjustments to policies”. The need for insurance will continue to be prioritised, and have impact on pricing. Demand for more innovative products and services will increased in some years to come. Risks from cyber security issues will fuel the need for risk coverage from enterprises and corporations. Advancements in artificial intelligence will revolutionize underwriting factors and processes. The traditional approach for premium calculations and other judgements based on vast stores of data, with actuarial tables, and manually entering information would become old-fashioned. Therefore, responsibilities will be placed on insurers to execute fast and accurate digital processes and procedures that impact risks and underwriting decisions.
One area that will continue to benefit from digital revolution is claims services. It is usually wearisome but factual than ever. As advertising budgets are becoming bloated, there will be the need to turn to claim services to promote and differentiate brands. This will only be attainable through end-to-end digitization of claims processes. First notice of loss will “automatically be transmitted by connected devices all the way to the payment” digitally and instantly. In every step in the processing, digital solutions will be adopted and integrated into claims platforms at immediate speed. Due to numerous procedures and human interventions, claims payments have always been complicated and slow. Issues relating claims delays are sensitive and undermines the reputation, customer base and profitability. Integrating new claims payments systems electronically is likely to solve those challenges with touchless and virtual claims processes, where claimants will also be able to monitor the stage of their claims processes.
A new wave of digital messaging platforms, voice assistants, chatbots and more had emerged and will be widespread in the future. Recently, there was a virtual insurance event in the US where participants were asked of their interest and objectives concerning digital communications. It was found out that “75% expect digital communications to improve customer experience. 72% of businesses said, improving customer experience is their top priority. They found that each single point increase in customer service is likely to translate into millions in annual revenue.” In a digital transformation seminar dubbed “Powering the Great Reset”, the World Economic Forum stated that the world is moving “more online due to the coronavirus pandemic, and has resulted in 50% to 70% increase in global internet usage.” Therefore, serving customers on the digital channels will no longer be an option. Making it an option means losing customers to competitors who will make it their priority.
Marketing and Distribution
The ability to support new channels and expand will begin to be redefined due to the impact of the new waves of digital revolution. It has been found in a s that “leaders are expanding channels at a staggering rate of 20% more than followers, and 60% more than laggards.” This means that the digital revolution would expand market reach, where insurers can increase their customer base and revenues if they invest more in digital technologies. Market success would increasingly depend on multi-channel approaches, including supporting traditional agent and broker channels with new strategic partnerships that are crucial and have the ability to maximise growth strategies in the future. Channels and partners will significantly expand reach, improve customer engagement and brand. More marketing and distribution opportunities would be available due to the numerous big data and media channels which previous generations could not imagine. Ad campaigns will have narrowly defined demographics where personalized products and services would be customised for insureds, rather than general campaigns based on broad demographics.
If data is oil, digitization is then the processing plant, pipelines storage facility and the distribution network. Through digitization, dots are connected with individual information from numerous sources, looped together in an electronic chain, and arrive at a critical outcome. These play a crucial role in insurance quotes, repair estimates, identification of potential fraud, among others. All these would be mandatory to make, shape, activate and maintain the business performance. In the near future, digital technologies would enhance the insurers’ ability to build more “improved ecosystem and implant insurance offerings that motivate innovation culture.” In the advanced world, digital transformation has allowed agility where vehicles can be linked with telematics. This in turn will produce cross-functional insurance products and services that links auto manufacturers, intermediaries, service providers and drivers. There will be more personalized insurance products, services, rates, deeper engagement, more certainty of safety and property repairs, and faster claims services.
Challenges come with opportunities, and digital revolution can be harnessed as a source of growth strategy. As the current traditional business model is disrupted in the future with both internal and external forces, it is possible insurers will face growing pressure to innovate and adapt. Business operations would be shaped with deep implications for policyholders and competitors. The same way as customers’ needs, expectations and knowledge have expanded exponentially over the past decade, the revolution would create new kind of consumers who will be digital in nature. This will place much responsibility to provide products and services that will meet those personalized needs and expectations. Competition will contribute to endless choices, and consistent change would be common with ratings, comparison quotes and recommendations. With a click away, delays in sign-up processes will make customers change one insurer to another.
Attacks, hacks, and data privacy
It is important to note that threats and vulnerabilities associated with digital revolution are not totally new. It is seen in the frequency and severity of cyber-attacks, especially in this time of the coronavirus pandemic. Even though digitisation has its own opportunities to leverage on to gain competitive advantage in the marketplace, it is not entirely protected against cyberthreats, fraud, ransomware attacks and data breaches. “The Cybersecurity Ventures has projected the world economic cybercrime costs to increase by 15% per year over the next three to five years. This is believed to reach US$10.5 trillion by 2025.” As digitisation is being revolutionised, the cybercriminal world will also advance at a fast pace. Criminals will use automation and artificial intelligence to create synergies and exploit weaknesses. Therefore, insurers would not be spared from the exploitation of their IT weaknesses, especially in the areas of data analytics, controls, security breaches, and others.
Institute of International Finance (2016). INNOVATION IN INSURANCE: HOW TECHNOLOGY IS CHANGING THE INDUSTRY.
McGiffin, G. (2018). “Digital transformation in underwriting: what it means and how to get there”.
Gideon Sarfo is a chartered insurance risk professional (CIRM) with the Chartered Insurance Institute, UK, and an Associate Member of the Chartered Insurance Institute, Ghana. He is also a member of the Society of Underwriting Professionals, UK.
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