Reimagining insurance in the digital age

Insurance is entering a truly transformational phase — one in which customers, providers and new entrants are collectively redefining the nature and boundaries of the industry. In an increasingly global society that emphasizes mobility and connectedness, this transformation is enabled by digital technology and data, which are both advancing at an unprecedented pace.

But these changes have not altered the fundamentals of insurance. It’s still a relatively simple business focused on a transaction between two parties that centers on consideration of a payment proportionate to risk.

While the insurance mission remains the same, everything else has changed. Fueled by advances in IT, greater connectedness and a continuous stream of rich, real-time data, it is now much easier to price and transfer a customer’s risk, and that resulting transparency and openness is driving three major trends.

The changing nature of competition

Brokers, insurers and reinsurers are now under increased pressure to demonstrate value. As a result, incumbent players are forced to radically redefine their value propositions, transform operating models and complete acquisitions as they search for sustainable growth. Traditional players are evolving, but many are increasingly augmented by InsurTechs. Among the new competitive set are market leaders in other industries like Walmart or BMW, and technology leaders like Google and Amazon.

Brokers, insurers and reinsurers are now trying to demonstrate unique value in what is still at the core a transaction between two parties. Consider, too, that “simpler risks” continue their march to direct distribution instead of involving intermediaries, which leads brokers to take on greater underwriting responsibility and increased control of policies. Aimed by better technologies, brokers are also positioning themselves more as active risk managers and trusted advisors.

Insurers are now seeking greater relevance and engagement with policyholders to extend their value propositions as they compete for the role of trusted advisor. Some insurers are broadening their product portfolio. Others, through new partnerships, are moving away from pure indemnification to risk management and avoidance.

Increasing customer expectations

Customers are different today than they were 15 years ago.  With a smartphone in hand, they can now:

• Research any product online
• Consult their online social network for advice on potential purchases
• Receive automated, tailored suggestions for items to buy based on previous purchasing history
• Enjoy fast delivery — often within 24 hours from the time a transaction is completed

The insurance industry hasn’t always been quick to pick up on new technologies. However, today, data from sensors and social media is enabling the real-time pre-rating of policyholders and, when needed, remote inspections can often be undertaken using Artificial Intelligence (AI) algorithms.

Insurers are beginning to make strides to close the IT gap, with 60% of companies now offering mobile self-service capabilities. Insurers are also using existing data to generate a more complete picture of customers. As we look to the future, transformational technologies — including robotics, AI, sensors, blockchain and wearables — will dominate.

The changing nature of risk

Risk itself is becoming less predictable. For example, increasing global wealth is leading to greater insurance demands as the number and value of insured risks rise, thereby increasing market penetration for P&C insurance. This rise in wealth is being driven primarily by the economic recovery from the 2008 financial crash and the rapid expansion of the middle class., particularly in developing nations transitioning to industrialized, urban economies.

We’re also seeing the emergence of new types of risks such as cyber insurance, and the move to new technologies, such as autonomous cars and vaping, which will further shift the nature of risk for insurers. Additionally, the risk environment is becoming more complex with the spread of terrorism and impact of global warming.

Digital transformation strategy

Digital transformation in insurance is redesigning the traditional value chain as cross-industry ecosystems emerge. This level of change will require insurers to forge new partnerships.

Partners must be truly integrated, able to consume services seamlessly or offer their services seamlessly back to insurers. This external consumption marks the start of platform-based services, which are set to become more dominant in the insurance industry.

Platforms, enabled with seamless API integration, will increasingly become more common, and insurers will need to connect — to engage — more broadly than ever before.

To thrive amid these sweeping changes, insurers must embrace not only new products and services, but also a clearly defined strategy to invest in digital transformation, prepare for future trends, operate more effectively and discover new opportunities.

What does this mean for insurers?

With the market growing complex and customer expectations rising, how can insurers accelerate digital transformation?

First, insurers must engage customers more thoughtfully, using data to discover accurate predictors of risk and thereby reduce the number of questions posed to consumers. Insurers must also develop a more comprehensive offering for policyholders by providing value greater than just pure indemnification. At a minimum, this should encompass risk advice and mitigation, as well as contract management after a claim. Another step forward to digital transformation can be undertaken by extending core offerings into related markets and by developing a compelling ecosystem on a broad-based industry platform.

Additionally, insurers must embrace simplicity and transparency across their value chains —from the products they offer down to infrastructure. Increasingly, simplification will be driven by AI, especially in customer servicing. Predictions indicate that 50% of talk time will be with automated systems within the next five years, and AI and predictive analytics are expected to drive a 70% reduction in back-end application incidents over the same period.

So, what are leading organizations doing to deliver a compelling and sustainable operating model?

Most insurers are investing heavily in redesigning their customer experience capabilities. There is also a greater focus on data for individual-level customer underwriting and a greater adoption of pay-as-you-use insurance. And finally, insurers are beginning to differentiate on speed and ease, providing fully underwritten products direct to consumers through online processes that maximize the efficiency of the buying cycle.

Phil Ratcliff (pratcliff@csc.com is vice president and general manager of DXC Technology’s global insurance business. These opinions are his own.

See also: Top insurance technology issues nagging at industry leaders