Insurance trends. 17 top directions for digital transformation in the insurance sector
The insurance sector is under extreme pressure today. The current geopolitical situation and raging inflation, along with the associated evolution in customer behaviour and demands, are forcing a change of approach in the sector; insurers need to refresh their product portfolios, optimise and automate their processes, and look for and deploy new technologies. Read on to learn about the top 17 digital transformation trends that will be shaping the insurance sector in the next few years.
New insurance management methods
1. Predictive analytics
Insurers have always tried to predict the future and identify risk factors to price their insurance products accordingly. Today, with the emergence of new data sources and tools, the potential of predictive analytics has increased even further. With variable, personalised product portfolios, the ability to quickly revise pricing strategies takes on ever greater importance.
2. Artificial intelligence
Artificial intelligence has also been on the rise in the insurance sector. With a range of new technologies, insurance companies can now use AI to boost the performance and quality of their services and manage insurance risk.
One of the most important applications of AI in insurance is in the analysis of large data sets to identify trends and patterns and help take informed business decisions. Insurers now rely on machine-learning algorithms to identify risk and estimate the likelihood that customers will want to take out an insurance policy.
In this way, they are better able to tailor their portfolio to their individual needs and thus increase customer satisfaction and boost sales. Artificial intelligence is also used to combat fraud. Machine-learning algorithms help detect and prevent insurance fraud, which ensures plain dealing and promotes trust.
3. IoT in insurance
The Internet of Things (IoT) supports insurance technology by providing real-time data. This makes risk estimates more accurate, increases the precision of policy price estimates and helps add elements of assistance services to traditional insurance products.
However, IoT deployment involves many challenges, such as the need to manage large data volumes in real time and ensure adequate security. New innovations can soon be expected to help deal with these setbacks.
4. Cultural shift
Until recently, insurance was a relatively conservative industry. However, the situation has now turned around with an influx of new agents: digital insurers, tech giants and innovative start-ups.
There has been a marked shift in the mindset of insurance leaders and experts such that the need for innovation is now recognised throughout the sector. The industry has been gradually moving away from a conservative attitude to an intense focus on innovation and digital culture.
All this is meant to ensure better customer and employee service, greater flexibility and innovative applications of existing technologies to the eternal problems of insurance (risk estimates, claims settlement, policy sales, etc.).
Trends in insurance – spotlight on customer experience
Insurance has always been a customer-oriented business, but digital transformation and growth have provided customers with even more opportunities, such as product and price comparison engines and an ability to buy insurance without contacting an agent.
This has motivated the sector to focus more attention on the customer, create personalised insurance products, automate processes and enable digital policy portfolio management services.
5. Custom digital products
Product customisation is not a new idea, but it has risen to new heights with technological progress, and especially with the growth of data analytics and machine learning. An important role today is played by flexible solutions, known as product factories, which enable insurers to build dedicated sales packages.
Based on increased customer data volumes and new data sources (including social media), insurers can now effectively use technology to continually expand their product portfolio. They can also add more distribution channels, which only several years ago may have seemed inconceivable.
One of the most important new insurance trends is that customers now increasingly expect to be provided with self-service options. With the growth of digital channels, such as websites and mobile apps, they want to be able to benefit from insurance without the need to pick up the phone (and talk to customer service specialists or agents).
In response to these demands, insurers have been investing in digital self-service tools with elements such as voicebots or chatbots. Solutions of this kind make customer service less labour-intensive, carrying out simple tasks so that employees can focus on more complex issues.
A survey conducted among European high-level insurance managers by McKinsey & Company in April 2020 showed that c. 89% expect digitisation to accelerate significantly in the coming years; most respondents also expect a further change in channel structure. It turns out that even processes that once seemed difficult to move online (such as physical signatures or medical insurance) are now being effectively digitised.
Today, customers can easily use legally binding electronic signatures, face-recognition technologies and telemedicine services, which bring the insurance sector a step closer to full customer self-service.
New business models in the insurance sector
7. Embedded Insurance
Embedded Insurance is a relatively new model that has been rapidly growing in popularity in the insurance industry. This innovative approach allows companies to offer insurance coverage as part of existing products or services that customers already use. The insurance policy is built-in into the product or service, which makes it easier for customers to purchase and manage their insurance.
Embedded insurance is also beneficial for companies that offer insurance coverage on top of their own products and services; it serves as an additional source of revenue and improves customer retention, as customers appreciate additional protection.
Embedded insurance is a model that may revolutionise the insurance industry by making insurance policies an integral part of products and services that we all use every day. As technology advances, we may expect even more creative and useful applications of this idea in the future.
8. Usage-based insurance
Usage-based insurance programs, such as pay-as-you-drive options, where customers are charged based on their mileage, have been growing in popularity. The model allows insurers to offer more affordable insurance to drivers with a lower mileage. It can also be used to encourage customers to change their driving style to reduce the risk of accidents.
9. Insurance telematics
Telematics systems make it possible to track vehicle motions and are increasingly used by insurers to collect data about their customers’ driving style. Insurance products based on telematics are now being developed in order to offer clients more personalised prices. By knowing when and how their customers drive, insurers are better able to estimate associated risks and price their products accordingly.
In addition, telematics systems allow insurers to add assistance elements to their policies, such as medical emergency calls or towing services in the event of an accident.
Insurance trends – IT in business
The role of IT departments in business has changed. They no longer generate costs, but help reduce expenses, support sales and increase customer engagement.
10. Low-code/no-code platforms
Low-code/no-code solutions are yet another widely publicised insurance trend. In the segment of small and medium-sized insurance societies, no-code solutions are now practically the order of the day. Large societies and institutions continue to rely on more traditional systems, but this is also beginning to change.
This is caused, on the one hand, by the growing maturity of low-code platforms, including their strong focus on security. On the other hand, shifting some of the burden from IT departments onto business users, while maintaining supervision and control, means lower costs and more time to deploy innovation and further technological progress.
11. Continued API development and standardisation
Another growing trend in the insurance sector is transmission of data to external solutions via standardised APIs. This is used, e.g. to build hyper-applications, which collect and release functionalities and services that are not directly related to the main business activities of the organisation, or embed insurance coverage (embedded insurance) in solutions that have nothing to do with it at all.
12. Hybrid cloud architecture
Organisations increasingly turn to hybrid cloud solutions, which enable better data control, greater flexibility, more effective resource use and lower costs. A hybrid cloud is particularly attractive to insurance companies that require greater flexibility and scalability than is available with a private cloud, but also want to have better control over their data than that provided by public cloud options.
The Markets and Markets survey reports that the hybrid cloud market is expected to double in the next five years, reaching 97.6 billion dollars in 2023. According to Flexer, hybrid cloud solutions are now used by 72% of businesses in various industries.
13. Rise in customer data volumes
Digital channels are getting more and more popular, which means a greater volume of data that need to be collected and processed. Using customer data effectively can give insurers a competitive advantage, but before it does, they need to deploy and tap advanced analytics tools, as well as verify their data quality and data collection methods.
It’s still worth it, because this will directly translate into better profiling, lead and campaign generation, effective up- and cross-selling, easier and more accurate underwriting, and even better claims and damage settlement.
Workplace culture and technology in insurance sector
14. Remote work models
Before the COVID-19 pandemic, home office was the exception, not the rule. However, the model now seems here to stay. A PwC report shows that 55% of employers are planning to increase the proportion of remote work in their companies.
For insurers, this means they need to support their employees working from home. Manual workflows were outdated even before the pandemic, but today, more than ever, there is no more room for paper-based workflows that require the physical presence of agents (with some exceptions, of course).
15. Paperless services in insurance
Paperless services have taken on a new importance since the pandemic, when direct contact was restricted. The expansion of digital channels has accelerated our move away from paper, giving the green light to the development of new tools and the standardisation and acceptance of existing ones.
Since electronic signatures and digital forms are now being normalised, customers expect to be able to go through almost all (if not all) processes, from opening an account to policy renewal, remotely via digital channels. Insurance societies must bear that in mind and adapt to market demands.
Challenges for the insurance industry
As the market grows, competition becomes more intense. The arrival of new players, such as digital insurers and tech giants, makes the competition for customers even more difficult. At the same time, customers are becoming more demanding and expect their insurance providers to deliver higher-quality services.
In order to remain competitive, insurers need to adapt to new market conditions. They need to provide excellent customer service and deploy new technologies that will make them more effective and agile.
In a rapidly evolving world, the insurance sector is under pressure to keep up with the change. New entities emerge in the market and offer new products at a rate much faster than current insurers are able to deliver. In order to stay relevant, existing businesses must step up and work faster. They need to be able to quickly develop and release new insurance products, enter new markets and flexibly scale their portfolio.
Digital transformation is no longer an option. It is a necessity. In order to remain competitive in this new world, insurers must tap digital technologies and use them to their benefit.