The digital transformation of financial services has been happening for years but bringing about change in the insurance industry seems to be particularly challenging. This is largely due to the way information and data is collected from many sources and shared across firms.
From regulation and policies to contracts and training, insurance industry operations have become a patchwork of differing requirements and documentation. This disparate information is typically not conducive to digital transformations, which rely upon seamless communication, transferable data and a common lexicon. In order to achieve greater modernization in our industry and reap the associated benefits – including reduced risk and more efficient processes - there are three areas in which we should collectively focus our efforts.
Operational Efficiency Begins With Automation
When the pandemic hit in 2020 and the world quickly shifted to remote work environments, the insurance industry was no exception. In many ways, COVID-19 was another catalyst to adopt electronic straight-through processing and automated solutions in our industry. For example, wet signatures were unquestioned traditions across the industry. But in March 2020, when the world was first adjusting to lockdown policies, overall business in the insurance industry dropped by 40%, according to DTCC data. This was likely in part because producers couldn’t get in front of clients to collect those signatures.
Another area which is largely manual and was impacted by the shift to remote working was policy replacements for annuity and life insurance contracts. For example, if an advisor helps determine that a client’s existing life insurance contract doesn’t have a feature or benefit that is in their best interest, the client may choose to replace their existing contract with a new one that better suits their needs. Obtaining the required authorization and gathering the necessary paperwork to make this change can take weeks or even months – a process that could be dramatically accelerated through automation.
Simplifying Compliance Around Training Requirements
Our industry is a maze of training requirements because of the different compliance regimes at the federal, state and local levels. This is even more cumbersome for certain insurance products, including annuities. The many layers of training requirements can become quite complex as each insurer’s compliance is very specific, depending on a myriad of factors – which often include a state’s own unique twist on the type of training it requires. It can be extremely challenging for producers to keep track of the training that is required for each situation. In addition, producers must obtain insurance licenses and securities licenses to sell annuities. Over the years, we’ve seen heightened scrutiny as complex regulations take effect, making it daunting for producers to continually ensure they’re licensed to sell a product.
A single utility solution – that centralizes training information across the industry – would automate and help to simplify the compliance process. A centralized information hub could store details of a producer’s training and licensing in one place, making it much easier for producers to verify that he or she has the proper training and licensing to sell a particular product in a particular state.
Tapping Into The Data Goldmine
Within the insurance industry, there’s certainly no lack of data. Insurers collect a wealth of data, the volume of which has increased exponentially in recent years as more insurance companies conduct business online. However, it’s tough to gain valuable and actionable insights from data that’s unfiltered and unstructured. Compared to other industries, insurers have been a bit slower to adopt robust operational abilities to collect, share and analyze this information. This limits transparency and insights into compelling data that could help drive strategic business decisions.
In response to this need, third-party providers have begun offering automated solutions that allow insurance firms to submit the data they’ve collected throughout the lifecycle of their insurance policy records. This enables users to view a powerful analysis of that data, which can help them make critical decisions.
It’s important to note that there is nothing from a technology perspective that is prohibiting the industry from moving many manual processes to electronic systems. It is a matter of organizational prioritization, obtaining budget and making sure everyone is aligned on the best way to achieve change. Although the insurance industry has made progress over the years, there’s still work to be done before firms can truly reap the benefits of modernized business processes.
Now is the time for the industry to further embrace technology and automation to reduce manual processes, simplify compliance and maximize the use of data. Doing so will streamline operational processes and reduce risk, help firms to be better prepared to navigate evolving compliance mandates, and provide them with the tools they need to better collect, analyze and share insurance data. This ultimately leads to better meeting client needs and driving increased satisfaction.
Barbara Smith is executive director and head of insurance and retirement services at DTCC. She may be contacted at [email protected].