Insurance Digital Transformation: Digitization in a Disrupted Landscape
According to a research report by Accenture, 87% of insurers agree that technology is no longer advancing in a linear fashion, but rather at an exponential rate, while 96% of insurers think digital ecosystems are having an impact on the insurance industry.
The insurance business is one of the most competitive industries. We are moving towards an era of lessened human intervention. Rapidly evolving technologies have brought huge disruptions with their digital platforms. Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), Blockchain, Data Analytics, and other emerging technologies are enabling many start-ups to compete against large counterparts. Thus, to win in today’s hyper-competitive market, the insurance players need faster time-to-market coupled with superior customer experience. And this is why the insurance industry is embracing digital transformation to mitigate complex challenges that it is facing from consumers, regulatory and digital landscapes.
Before we delve further into why digital transformation is critical for the insurance sector, let us look at the 10 key challenges of the sector:
- The rapidly evolving technological landscape
- Ever-changing consumer behavior
- The rising threat of insurtech entrants
- Reduced face-to-face interactions
- The cost of fraudulent claims
- The complexity of information management
- The hurdles of legacy systems and IT siloes
- Shift to hybrid working
- Ensure a connected digital ecosystem
- Deliver a unified experience across markets
A digital imperative for insurance
The insurance industry has long been held back by manual processes and restrictive software for submitting, tracking, and paying out claims. Large insurance companies entrenched in legacy technology have historically found it hard to take advantage of advancements in technology without major changes to their business processes and underlying systems. However, in this digital era, customers demand a better experience not only in terms of cost but also in terms of service. Thus, insurance companies either need to find ways to adapt to modern technology or be left behind.
Reaping the rewards of digital transformation
Insurance companies that are able to leverage digital technology to improve their business realize the benefits of digital transformation such as automating manual processes, enhanced insights via data analysis, increased customer retention rates, efficiencies throughout workflows, cost savings, better risk management, and more. Companies must adapt to this new reality and create sustainable business models.
Here are some of the digital transformation use cases in the insurance sector:
- Claims Processing: Claims processing is one of the key operations for insurance companies and it has multiple layers such as review, investigation, adjustment, remittance, or denial. A large volume of documents needs to be processed for each of these layers. This process can be automated to a great extent by document automation tools which can automatically extract data from documents, validate claims, and identify fraudulent claims that are not in line with the terms of the policy.
- Claim Fraud Detection: Fraud is one of the biggest challenges for insurance carriers. This is due to the fact that in most cases the fraud analysis is done after the fraud has taken place as opposed to while fraud is occurring when it is relatively easier to stop or prevent. Several technologies can be leveraged to improve insurance claims fraud detection. Insurers can leverage predictive analytics tools with data captured from the claimant’s story and use text analytics to detect fraudulent claims based on business rules.
- Risk Prediction: Insurance companies can collect data about individuals’ historical health records such as lab testing, biometric data, past claims data, etc. This data can be used for the risk assessment of each individual and the companies can then ask for the insurance premium as per the risk score.
- Self-service Dashboards: We have seen these in grocery stores or restaurants, and now we are finally seeing them in insurance. A self-service portal helps customers to find answers to queries, carry out transactions, submit a claim, raise complaints, check on status, download resources, etc. at the click of a button. This leads to enhanced customer experience, which is critical to combat the threat of competition.
- Smart Contracts: Blockchain-based insurtech companies can create better risk-sharing models while giving people more custom and affordable insurance options. By enabling people to share risk across larger populations, their purpose is to lower insurance costs and replace the need for bigger insurance companies.
As insurance companies face increasing pressure, digital transformation offers great opportunities. It’s no longer a question for insurance companies whether to replace legacy core systems. It’s about how? However, digital transformation is not a silver bullet and it can’t occur in a vacuum. Its success hinges on an insurer’s ability to harness an innovative mindset at every level of the organization. The goal of digital transformation shouldn’t just be to transform the tools and processes. Rather, it should be used to build a foundation for durable success.