How Will Digital Transformation Change The Insurance Industry?
By Tom Tormey
Digital technologies are transforming how customers interact with businesses in nearly every industry. The insurance world, specifically, is being impacted by disruptive innovations. Consumers are looking for more personalized insurance policies and greater control over their coverage. For example, a survey of life insurance purchasers showed that 90% of consumers have a preference for self-management of current policies via digital channels.
Insurers are facing pressure to digitally re-engineer their own internal operations and embrace emerging technologies in order to attract new digital consumers. To date, insurers have launched digital initiatives introducing customer portals, digitizing individual services and enhancing analytics capabilities.
More insurers are turning to digital connectivity and advanced analytics to narrow the application-to-closing process, seeing an invaluable opportunity to lower onboarding costs and minimize the consumer attrition rate. Technology is enabling the industry to settle claims more quickly, dramatically improving the customer experience. This in turn strengthens the policyholder-insurer relationship and brand loyalty.
As insurers look to harness emerging technologies to meet the evolving demands of customers, an important area of focus is payment processing. Many companies are recognizing the need to accept a broad range of payment types in order to provide customers with the greater degree of choice they have come to expect, while reducing the cost of acceptance, enabling them to optimize revenues. Today’s consumers are looking to pay via different payment channels and on a multitude of devices. They also want to be able to set up recurring payments for monthly premiums. Insurers need to ensure they have systems in place to meet this demand.
An additional area of concern is data privacy and security. With near daily data breaches throughout the broader commerce marketplace, it is little wonder the insurance industry is paying close attention to how it protects sensitive customer information – especially as it relates to payments. State-of-the-art encryption and tokenization solutions are now available to help protect sensitive card-payment data throughout the entire transaction lifecycle.
Beyond protecting sensitive information, insurers are seeing opportunities to leverage customer data to understand and predict customer behavior. Predictive analytics is increasingly being used for pricing and risk selection, identifying customers at risk of cancellation, identifying outlier claims, and anticipating new customer trends and needs. New solutions are enabling companies to use data-driven insights to create more personalized offers delivered in real-time, when they are most relevant.
As millennials, who are price conscious as well as tech-savvy, seek greater control over their coverage, insurers are under pressure to modernize and personalize policies with swifter rollouts and more customization of offerings. This has opened the door to disruptive new technology upstarts. More than $4 billion was invested in insurtechs in 2018, according to The Wharton School at the University of Pennsylvania.
Of course, these new entrants to the marketplace also are providing enticing partnership opportunities for traditional insurers. McKinsey & Company reports that 63% of commercial Insurtech companies are focused on enabling the insurance value chain and partnering with incumbents.
In a quest to further improve back-office efficiency, the industry is increasingly turning to cloud-computing to deliver the speed, flexibility and scalability needed to meet transformational pressures. Artificial Intelligence and machine learning are being leveraged to improve claim turnaround cycles and automate cumbersome policy administration and risk assessment processes, fundamentally changing the entire underwriting process. Several large insurance carriers and consortiums are looking to launch blockchain initiatives that likely will reshape insurance operations. This may set the stage for a much wider blockchain adoption across the industry in 2020 and beyond.
As the world becomes more digital and more connected, the insurance industry is undergoing its own unique transformation. Companies are embracing new technologies that promise to dramatically improve economics, internal operations, reduce risk, attract digital native consumers and enhance the customer experience. These advancements hold tremendous potential for greater efficiency and growth across the industry.
Tom Tormey is senior vice president, insurance solutions, with Fiserv. Tom may be contacted at [email protected].