The modern insurer’s guide to profitability

Insurance companies have thrived with legacy platforms, but over time these systems have incurred high maintenance and support costs.

Fusing traditional insurance technologies with digital tools increases efficiency, reduces costs, and grows business in today’s highly competitive insurance market.

Here are the answers to common questions about insurance company modernization.

Question: What is hindering profitability in the property and casualty industry today?

Answer: Due to the nature of the industry, insurance companies experience a number of factors that threaten profitability on a consistent basis.

• This year in particular, they have seen a noticeable increase in the volume and severity of claims due to a higher frequency of catastrophic events. In 2018 alone, Hurricane Florence and Matthew ripped through the southern United States, closely followed by the ongoing destruction of wildfires in California. As natural disasters become more common in highly populated areas, where entire homes and vehicles are at risk of being destroyed, property and casualty insurers are being challenged to manage multiple waves of costly claims while maintaining profit margins.
• A perennial challenge to profitability in the insurance industry is accurate and individualized pricing segmentation. Insurers that make mistakes in this area by overpricing some customers while underpricing others, leave companies vulnerable to competitors who offer fairer premiums to low risk individuals. These competitors lure the overpriced customers away and force companies to raise base rates, driving even more customers out the door and decreasing overall profitability.
• Lastly, the insurance industry is largely slow to rock the boat with new technology, leaving insurers paying for outdated systems and missing out on opportunities that modern, digital solutions can provide. Not engaging with emerging technologies as they appear on the scene is one of the greatest threats to profitability, but it is surprisingly common among insurers who are set in their ways.

Question: How can insurers manage the increasing volume of claims while mastering pricing segmentation?

Answer: Insurers can manage the first two challenges I mentioned by investing in automation, predictive analytics, and cognitive computing.

• Companies that implement automated processes in the front end of claims management are setting themselves up for success before disaster strikes. Automation can handle a higher volume of claims with greater consistency and fewer errors than manual management can, helping insurance companies respond effectively to every individual seeking help, no matter how many there are, all while keeping operation costs low.
• Cognitive computing takes this service one step further by bringing human-level reasoning to claims management in a highly efficient way. Cognitive technology is a self-learning system that coupled with image recognition and natural language processing, can perceive the extent of damage from customer images and videos, calculate cost, and determine the necessary next steps. This accurate and speedy pricing serves the customer’s needs as much as the insurer’s loss ratios.
• Predictive analytics also helps insurers prepare for these coming fluctuations in claims by detecting warning signs and patterns from a combination of newly collected and historical data. Perhaps more importantly, predictive technology applied to specific locations and individual customers, can yield precise risk evaluations down to the customer level. This allows insurers to tailor pricing segmentation to each individual, providing fair premiums that keep customers happy and insurance companies in control of their profits.

Question: How does modernizing legacy systems increase profitability?

Answer: In the past, insurance companies thrived on legacy platforms, but over time these systems have incurred high maintenance and support cost challenges, coupled with long product times to market. These systems are inflexible in terms of accommodating new product offerings, making it difficult for them to expand to the needs of this constantly changing industry. My team and I have been modernizing legacy systems for over 50 active insurers, increasing savings to five times their original value and opening up countless possibilities for new lines of profitability. By updating old systems with a digital framework, insurers can not only conserve budget on managing and maintaining policy administration systems, but also improve agility, operational efficiency, and margins.

Question: What are the common barriers to entry for this technology, and how can insurers side step them?

Answer: Insurers are traditionally averse to risk; it’s their job to be. One of the biggest hurdles in choosing to adopt technology is making insurance companies realize that emerging technology does not correlate to untested or high-chance solutions. Implementation time is also a typical concern facing technology adoption at insurance companies. To side step these concerns, insurance companies need to seek out trusted providers with strong track records who will partner with them to create solutions tailored to their exact needs. Waiting to fuse the traditional with the digital only prolongs the process of modernization and give competitors a leg up. The time is now to increase efficiency, reduce costs, and remain afloat in today’s highly competitive market.

Question: What are your predictions for 2019? How should insurance companies protect their profitability?

Answer: I predict an increase in competition for property and casualty insurance, especially when it comes to attracting and retaining the younger customer demographic. Millennials are the largest consumer base in the world, and they are just now reaching prime insurance purchasing age. In order to appeal to this generation of customers, insurance companies will have to put their best foot forward with front-end digital technology, as well as leverage back-end technology to provide them with a unified experience they feel they can trust. Profitability will rely on customer retention and growth in 2019, to achieve this, engage with the emerging technology to scale, simplify, increase accuracy, and conserve.

Anurag Chauhan is the global head of Insurance at NIIT Technologies, a global IT solutions company based in Princeton, New Jersey and India with offices worldwide. These opinions are the author’s own. He can be reached via LinkedIn.

See also: 5 high-tech challenges (and solutions) for today’s independent agents