Fear for the life and health of oneself and that of one’s loved ones, the economic crisis, the wave of layoffs — all this has led to an increased interest in insurance services with the outbreak of the pandemic. While concerned citizens sought security for the future, the industry faced two significant challenges: a sudden wave of customers and a complete shift to remote working. Time has shown that those insurers who understood the need to digitise their services even before the pandemic have coped better in the crisis. Let us ask ourselves why, in the remaining cases, obsolete IT systems proved to be the biggest obstacle?
- Situation on the insurance market
- Pandemic and digital transformation of businesses
- Challenges of the insurance industry in the age of digital transformation
- What lessons should the insurance industry (and beyond) learn for the future?
- Get out of legacy and make your business more effective
Situation on the insurance market
According to the Deloitte report: “Impact of COVID-19 on the Insurance Sector”, those insurance companies that had already invested in systems development and service digitisation before the pandemic were in a much better position during the coronavirus crisis. Restrictions, limitations on face-to-face contacts and customer visits meant that agile solutions that allowed people to operate online provided a huge competitive edge.
Following the outbreak of the pandemic, many customers were referred to digital service channels. Innovative systems for optimising operations allowed for fast and efficient remote service. Companies that did not have them, got into trouble: contact centres could not keep up with enquiries, and the result was overloaded and suspended systems.
As the Deloitte report reads:
“In companies, there are still many business processes that are done manually; in a crisis situation and with the need for staff to work remotely, there has been an overload. The problem turned out to be the lack of integration between processes, so that any process change (e.g. its relocation) had to take into account the introduction of changes also in all other related activities. This led to slower lead times, more errors and a growing backlog of work that could not be easily caught up with.”
The report also highlights that new technologies allow insurers to develop creative digital products that respond to new customer behaviours. A “pay per use” policy, for example, provides insurance in relation to the dynamic use of the vehicle.
The Deloitte report stresses that those insurers who understand the importance of digitalisation, and are even exclusively digital and therefore “more agile”, will become a significant new market segment. This will be quite a challenge for current organisations.
Pandemic and digital transformation of businesses
Recent years have been an accelerated lesson in technological transformation for most industries. Before lockdown, digitisation of services was not always the most important strategic objective for companies. Fear of the cost, time and complexity of such a project meant that most companies planned to spread it out over several years. As a result, when the pandemic began, a significant number of institutions were still relying on systems, processes and solutions that were only marginally adequate to meet the requirements of the new reality.
For example, like insurance, the logistics industry has also become vulnerable. In many cases, the sudden upsurge in interest in services has not turned out to be a stroke of luck at all, but a curse. The epidemic has changed the habits of consumers, who have started to buy more online and order to their homes (or parcel machines). This exposed many of the problems associated with outdated systems supporting supply chain planning and management:
- 44% surveyed companies noted that their systems are not well integrated with other systems;
- 43 % of companies found that their system lacked the ability to automate planning or optimise processes;
- 41% of respondents said that their system prevents them from implementing all the complex rules and exceptions they need in their daily work.
Challenges of the insurance industry in the age of digital transformation
Already the financial crisis of 2008 brought about considerable changes in the insurance sector, including an emphasis on the development of modern technologies. Companies have quickly learnt that it is the key to organisational security and building competitive advantage. The COVID19 pandemic accelerated what had long been talked about in the industry, and actions that had been planned for years had to become a reality in just a few months.
Companies that had already invested in technology were in a much better position at the start of the pandemic and more easily took up the challenges thrown at them. Those that delayed the transition faced serious consequences: reduced sales, reduced efficiency, delays, mistakes, and finally dissatisfaction and loss of customers. The months-long social restrictions alone have made it virtually impossible to sell insurance through traditional channels, making digitisation of business processes a necessity.
Despite the top priority, at the time of the pandemic, digitisation was significantly hampered by having an outdated system, the so-called legacy system:
- Remote working — lack of cloud solutions and integration between systems has translated into significant delays in implementing effective remote working. Employees were deprived of convenient access to data, documents or contracts. The transfer of information between departments and even individuals has been made much more difficult and prone to error.
- New product launches — pandemic is when the insurance industry experienced an influx of concerned customers. The release of new digital products (e.g. insurance for medical professionals) has become key. What mattered most to the agency was response time. Companies that could launch a new offering in a matter of days or so prevailed over those that needed much more time due to outdated systems.
- Data security — moving all processes online has also meant increased hacking activity. The insurance industry has always been (and continues to be) a target for attacks due to its financial operations and the processing of sensitive personal data. Unfortunately, legacy systems are prone to numerous bugs and security vulnerabilities and thus require a much greater investment in infrastructure to ensure an adequate level of security for customers.
- Lack of omnichannel activities — for the insurance industry it is crucial to build trust among customers. They need to know that in a crisis situation they will be met with help and support. When the pandemic broke out, the customer experience when using digital channels became even more important than before. Legacy systems were a significant obstacle: they caused delays, as well as errors and misunderstandings due to the lack of integration between different customer service channels.
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Maintaining outdated systems consumes on average as much as 70% of an organisation’s IT budget!
What lessons should the insurance industry (and beyond) learn for the future?
The priorities are quite clear — insurers must first and foremost make their operations more efficient by accelerating digitalisation and automating manual processes such as claims, payments and assessments, for example, while taking into account the customers’ perspective.
The most important areas for IT investment in the insurance sector remain:
- Speed and flexibility in adapting the digital offer to customers’ expectations and requirements. Introduce new insurance lines and evaluate their profitability to improve financial performance.
- Integration of systems and automation of business processes, which will result in an increase in operational efficiency among all employees of the insurance agency, as well as an improvement in the Net Promoted Score, which measures customer satisfaction.
- Cyber security in the face of digitisation and remote working — not only in terms of systems but also in terms of employee training.
- Analytics and Big Data to help predict market trends and help better prepare for ever-changing customer needs.
The situation clearly shows that today, technology is more important than ever for the survival and growth of a company. Collaboration between business, sales and marketing teams and technology teams needs to continually strengthen for the digital transformation process to have a chance to develop in the right direction. Implementing technological innovation is key to improving responsiveness, operational efficiency, customer service, expanding offerings and finalising sales.