How logical data fabrics can keep insurers covered
Logical data fabric can alleviate problems insurers face when consolidating data and provide a visualized, unified view of critical information.
As insurers entered 2020, they seemed well-positioned for growth in most markets, according to Accenture. Global premiums had just reached their all-time high of $5 trillion, and U.S. GDP was expected to rise 1.6%.
However, the industry continued to face the classic pressures of “compressive disruption” with low growth, slowly declining earnings before interest, taxes, depreciation, and amortization (EBITDA) and increasing barriers to entry. Since the COVID-19 outbreak, insurers have suffered a severe financial hit, with aggregate valuations dropping on average 20%-30% across global markets.
There is no doubt that people working in the insurance industry have faced significant challenges in recent months. As in many other industries, one of the immediate hurdles to overcome was the massive shift to a new model of remote working. For insurers, the historical reliance on face-to-face communications, in-person exams for new policyholders and physical paperwork have made this transition far from easy. To make matters even more difficult, many insurers have also seen a dramatic increase in the volume of customer claims. From business interruption and shutdowns to personal health and life coverage, new business and claims continue to come in.
Across the sector, the pandemic has brought to light multiple practices and systems that are no longer suited to their purpose. It has forced companies to reassess and evolve in order to survive the current climate and prepare for an uncertain future. For many, part of this development has been adopting new technologies and digitizing services.
How modern technology approaches drive formidable change
Although the insurance industry had been growing steadily for several years, the challenges posed by the pandemic have resulted in a significant increase in technology investments and adoption. Investor appetite for insurance technologies has been reported to have broken all records in the third quarter of 2020, with $2.5 billion raised in 104 transactions worldwide, according to a Willis Towers Watson report.
COVID-19 aside, the digital economy is also having a major impact on the insurance industry. Time-consuming deals or claims-related interactions with agents are getting replaced by self-service insurance portals and sometimes by bots. The growth of IoT technology and the usage of sensors in wearables, cars, houses, agriculture, transportation and many other areas are promising to make risk profiling and precautionary measures much better and faster. The sharing economy brought about by Uber, Airbnb and many other services is making insurance tricky since multiple people should be insured for the same product or services.
To embrace these digital trends and provide appropriate insurance products and services in times of unprecedented change, insurance companies must rely heavily on data.
Unfortunately, many are heavily dependent on legacy tools and methodologies for their enterprise data architecture. With rigid physical data-oriented architecture such as extract, transform, load (ELT) in place, this makes it almost impossible for insurers to make real-time decisions on a claim, engage in predictive analytics with the most current data, or underwrite the right insurance product for the right client.
On top of that, M&A and other forms of corporate restructuring are constant in the insurance industry, and legacy data architecture poses a huge threat to post-merger data architecture consolidation. Like other industries, cloud adoption is also becoming more attractive to insurers.
According to our second annual cloud usage survey, cloud adoption was gaining momentum across industries, as 36% of organizations said they were in the process of migrating to the cloud while close to 20% considered themselves to be in the advanced stages of implementation. The cloud will be both transformational and disruptive in the post-COVID-19 world, offering savvy insurers improved scalability, efficiency, and security. However, insurers must move aggressively on their strategy and transformation roadmap if they are to gain a true competitive advantage, according to the aforementioned Accenture report.
Modern technologies are helping insurers provide their services faster and more effectively while complying with the latest government guidelines. For example, because customers cannot come to the office for face-to-face meetings, authentication processes have been revised. Insurers are now implementing identification apps to securely and conveniently ensure that people are who they say they are.
In the meantime, and in another effort to limit direct contact with customers, drones are used in the event of property damage in order to collect digital images needed to submit a claim for compensation.
Other insurers are applying artificial intelligence and predictive analytics to assess risks effectively and set prices. For example, during national and regional closures, non-urgent medical examinations cannot, of course, take place face to face. Before the pandemic, this was often a requirement for life insurance policies. Therefore, many companies have turned to past medical data, using a mixture of artificial intelligence and predictive analytics to gather the necessary information.
Leveraging logical data fabrics to protect productivity and profits
As insurers continue to realize the benefits of modern technologies like the cloud and logical data fabrics, their use across the industry is bound to increase. After all, they could open a world of possibilities for businesses and their employees, both in terms of convenience and competitive advantage. The data-driven insights they generate could help increase productivity, improve the customer experience, and increase profitability.
However, the long-term success of any modern technology depends on having the right infrastructure in place to support it. To reap the rewards in the future, insurers will need to lay the groundwork today. Traditionally, data integration — or the process by which users can make sense of data — has been a long and tedious process. Consolidating all data within an organization to provide a single, unified view is a challenge. When new technologies are added to the mix, IT teams can struggle to keep up.
A logical data fabric, which relies on data virtualization, can alleviate this problem as it virtually stitches together data that is often spread across different applications, databases, and on-premises and cloud environments in real-time as and when an end-user query comes in. This is a critical capability for the insurance industry due to the enormous amount of personally identifiable information (PII), such as credit cards, healthcare and social security numbers, credit scores and banking info in play.
PII and other confidential data are legally required by an increasing number of governments to be secure and properly managed so not replicating the data helps ensure compliance with GDPR, GRC and other initiatives. In fact, data virtualization is the glue of the data fabric as it helps organizations connect disparate sources of data, create a virtual abstraction from them to make use of data coming from different locations, and govern the data across both on-premises and cloud deployments.
This creates an architecture that is both agile and able to adapt to modern approaches while making the impact of the technological changes negligible. By producing a single logical view of all data stored in an organization — regardless of its location or format — insurers can access critical information quickly and easily. The ability to do this is imperative for providers and carriers, as every piece of information must be considered when assessing risks, whether it’s medical records, web browsing or even sensory data from buildings and cars.
While the past few months have presented many challenges for insurers, they have also created many opportunities. Modern technologies and the newly established openness to adopt them are likely to have a lasting impact on the entire industry, and companies will continue to reap the rewards for years to come. However, when it comes to digital transformation and preparing for future success, insurers should prioritize creating an architecture that incorporates agility and data virtualization. Only then can they be ready for the future.
Saptarshi Sengupta is the director of product marketing at Denodo, a leading provider of data virtualization software. For more information, visit www.denodo.com or reach out to the company on Twitter.
Opinions expressed here are the author’s own.
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