Five major challenges of insurance digital transformation
Insurance players must become accustomed to these challenges as a way of doing business to thrive — and survive.
One of the most significant hurdles in insurance digital transformation has been getting people — both customers and employees — to embrace new ways of doing things. However, the pandemic has changed all that; now, many more people are willing to overcome their technological reluctance.
Nevertheless, just because people are willing doesn’t mean transforming your operation will be easy. Here are five challenges insurance industry players will encounter:
1. Multiple systems, combining the future and the past
Unless your company is a startup, you already have processes in place for writing policies, settling claims, and storing data. Just because you start something new, the old systems don’t automatically go away. You don’t want to lose customers who are comfortable with a certain way of business. You also cannot afford to lose the data needed for claims and accounting — the data that may need to be archived for many years.
Furthermore, even if you’re starting a new unit from scratch, technology is not static; it will keep changing. Your new unit’s current digital approach won’t be state-of-the-art forever. Some areas of change, such as data from Pay-How-You-Drive programs, are easy to foresee; others, such as a global pandemic and its impact on systems, may be less predictable. Having a team responsible for these problems — a team that works with those who control your company’s business plan — will give you an edge in meeting and mastering the continuous transformation.
2. User change acceptance and training
Although people may be more willing than before to do as much as they can digitally, this doesn’t mean they are automatically capable of everything required. You might need to design interfaces to be as easy and straightforward to use as possible, always remembering that consumers have many different systems and range from those who are eager to upgrade to the newest technology to those who are not. You should test your platforms on the experienced and the inexperienced and make sure they are as intuitive as possible.
Employees can expect to undergo more training and operate in a more standardized environment. They will be dealing with more complicated situations and will need the ability to master them. In both cases, you will have to dedicate resources to testing and training.
3. Exponential explosion in data
Digital insurance transformation means an explosion in the amount of data that is needed as well as the different ways of processing that data. For example, an insurance company updates catastrophe models every year; to manage risk, it needs to know how many homes and businesses are exposed so that it expands or retracts its writings accordingly. The catastrophe modeling world will need to expand to cover an even broader array of risks in the future.
Some of the new data being collected may lead to opportunities. For example, feedback to drivers on how well they are driving, such as speeding and hard-braking, can be welcomed by drivers, especially if you include rebates for safer driving. However, the delivery of this information has to be designed and implemented.
With the huge expansion of data and variables, it is important to make sure everyone interprets each item the same way; there are no data quality and completeness issues. For example, a single claim number could be assigned to an automobile accident, or it could be assigned to each party in the automobile accident. Different interpretations can lead to inaccuracies in results and predictions.
Furthermore, due to the multiple core systems, there is little data integration and, at times, no agreement on the critical data assets. You will need to assign staff to manage master data, to make sure data is entered, stored, and consumed consistently, and to develop a comprehensive data strategy across the entire organization to drive business results.
4. Attacks, hacks, and privacy
The number of cyberattacks has been increasing, and that increase will continue.
Cyberattacks fall into two broad categories. The first is the type that disables the target’s systems. An insurance company might suddenly discover that its website has been disabled and will only be released after a ransom, usually in cryptocurrency, is paid. The second is the type that gets into the target’s systems to either steal or manipulate data.
Insurance companies — especially those that write cyber insurance — have a special responsibility to safeguard their systems and data from being hacked not only as risk managers but also to avoid losing the confidence of their insured. Insurance companies need the right protocols to manage the personal data of their insured securely.
Dealing with the attacks and the privacy issues requires personnel and processes to deal with the multitude of potential risk scenarios.
5. Limited resources
In an environment where the GDP is contracting due to the ravages of the pandemic, you might also be dealing with constrained resources, conflicting priorities, and reduced investments.
Since all challenges will require an investment in time, money, and personnel to address, you will need to find creative solutions. To free up the resources, you may need to assess other expenses critically. For example, travel expenses during the pandemic have been shrinking for many companies. You may discover, too, that you need less commercial office space. Locating the right people can also be a challenge, and you may discover you need external assistance. Time, however, is theoretically available to every player in the insurance industry in the same quantity, except you need to consider disposable time. You can increase the time you have available by adding more people or by cutting other projects or responsibilities.
To effectively manage through the five challenges, your digital transformation requires setting priorities and monitoring the environment constantly to make sure the direction in which you are headed is taking where you want to go. Given the fact that we can expect digital advances to continue, players in the insurance industry must become accustomed to these challenges as a way of doing business. Only if they do so, will they truly thrive!
Priya Merchant (priya.merchant.writing@gmail.com) is a digital transformation and innovation expert with nearly two decades of experience in financial services and insurance. The views expressed here are the author’s own.
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