The insurance sector was a late bloomer when it came to the adoption of cutting-edge technologies. Until the digital revolution accelerated, the insurance sector was content with its legacy models. Times have changed and with the rapid proliferation of the new-age technologies, the insurance sector is becoming more technologically advanced by the day. However, digital technology is evolving from an advantage to a basic expectation, and yesterday’s best practices are turning into today’s shortcomings. Further, the COVID-19 pandemic has made its impact felt on insurers’ revenues as well as on the behavior of their customers. Thus, insurers can’t make the same error if they are to thrive in the next wave of digital change.
Emerging tech drives new business models
Dramatic changes are reshaping the insurance industry, and forward-looking insurers aren’t just watching it happen. Emerging technology trends can reduce operational costs by preventing fraud and automating services, thereby freeing up insurance companies to not only acquire new business but also maintain the existing one. It enables them to not only drive competitive advantage but also deliver amazing digital customer experiences. In light of this, we have covered key technology trends in the insurance industry to watch out for in 2021.
8 Technology Trends That Will Drive Growth in the Insurance Industry
- Artificial Intelligence (AI)– Over the last couple of years, we have seen widespread adoption of AI across multiple industries. According to McKinsey, the insurance industry can tap a potential annual value of up to $1.1 trillion by successfully implementing AI. Until recent times, the insurance industry has only used AI in minimal ways. But there are several processes that could be improved drastically using AI. e.g. The insurance industry incurs over $40 billion per year as the total cost of insurance fraud. The insurance companies can analyze historical data with the help of AI and identify a set of patterns, which can be used to detect frauds at an early stage and prevent them from happening. Further, the AI can also come handy to deep dive into a sea of data and unlock hidden insights.
- Machine Learning (ML)– As customers become increasingly selective about customizing their insurance purchases to their requirements, insurance companies have started leveraging machine learning (ML) to improve operational efficiencies and enhance customer experience. Some of the use cases of ML in insurance industry are- claims processing and underwriting, fraud detection, risk assessment, personalized marketing, price optimization etc. The insurance industry landscape will continue to evolve as the innovations of machine learning get better and create more solutions in order to streamline operations, which, in turn, will help the companies to provide better customer experience.
- Blockchain– Blockchain technology will bring about significant efficiency gains, cost savings, transparency, faster payouts, and fraud mitigation while allowing for data to be shared in real-time between various parties in a trusted and traceable manner. It can also enable new insurance practices to build better products and markets. While blockchain is a hopeful solution, it won’t come without its obstacles. The insurance industry is typically slow to embrace new, more efficient processes. Also, they must overcome regulatory and legal hurdles before fully embracing blockchain technology. Further, the emerging blockchain ecosystem will itself require insurance due to the uncertainty revolving around the same.
- Data Analytics– In recent years, as insurers have sought to become more relevant and efficient, they have realised the strategic importance of their data investments. They want to figure out which line of business fare better than others and the measures that can be taken to improve it. This is exactly what they can do with data analytics. Leveraging advanced analytics, and then integrating those results into their business processes need to be an integral part of every insurer’s strategy. Insurers are also turning to external data sources and adding more information about a claimant or injured party, such as identity verification or social media data. There are some great examples of how insurers are using smarter predictive analytics to fast-track claims and process them with little to no human intervention. Further, to be more competitive, insurance companies have come up with an interesting way to extract actionable insights with the help of data analytics to track individual policyholder behavior and price policies accordingly. e.g. an insurance company might use predictive modelling to predict the probability of a policyholder being involved in an accident or having their car stolen and then arrive at a pricing based on the analysis.
- Telematics– As car insurance premiums are expected to rise over the next few years, insurance players are increasingly looking at technology to reduce the cost of their insurance. One technology that’s leading the way in lowering premiums is telematics. In car insurance, telematics data is gathered through a black box that’s installed inside cars. It records a driver’s behavior (like how much you accelerate, how often you brake etc.) in exchange for a customised premium. A GPS system coupled with on-board diagnostics enables insurance companies to record the car’s exact location, at what speed it’s traveling, and what’s going on internally in terms of the driver’s actions. The insurance premium is then calculated based on this data. This is also called as usage-based insurance (UBI), or pay-as-you-drive insurance. The crux of the matter is “reward the safe drivers”.
- Social Media Analytics- Considering this world-wide acceptance of social media, even the traditional sectors such as insurance have started to explore the possibility of using social media analytics. For example: An American gaming & media streaming website is using the social media data of users to define the segments of its audience, which is helping them to plan strategic ad campaigns based on the audiences’ video game preference. However, social media data is little complicated unlike the other available data due to the involvement of various elements at play such as jargon, links, comments, hashtags, slangs, images etc. All of these make the data look cluttered as well as unstructured. However, the best analytics tools bring these challenging bits together and provide users with insights that can help them to make smarter decisions.
- Chatbot– Chatbots are much-discussed in many industries right now. A chatbot is basically a virtual assistant with the ability to help users to make transactions. In today’s world of digital disruption, every consumer wants his insurance company to respond instantly and expects much lesser time to file a claim or satisfy his demand for knowing the processing time. No one can control when something happens that will require an insurance claim. Car accidents as well as other life-threatening events can occur at any hour of the day and customers often find themselves constrained to calling within business hours if they need assistance to file a claim. This is where chatbot can be handy as it can be available at any time. Further, it remains unaffected by high call volume, so customers don’t have to wait on hold for long in the time of distress.
- Internet of Things (IoT)- IoT stands for a growing body of products that are connected to the internet. McKinsey predicts that by 2025, people will own over 50 billion IoT devices. Profitability in the insurance industry is directly related to the ability of companies to predict risk. IoT devices can help in risk prediction as they collect data which can be used by insurance companies to better understand which types of actions lead to heightened risk. The same data can help in investigating what happened and enable the companies to underwrite and process claims accordingly. Insurance companies can also use IoT devices as a way to incentivize customers toward behaviors that reduce risk. e.g. A customer can choose to opt-in to an IoT tracking program that gives them the chance to prove risk-reducing behaviors in exchange for discounts or rewards.
Today’s customers are value-seeking. Insurance companies need to take steps to introduce value innovation and to stand out, otherwise the customers will see them as commodity providers with price being the only differentiating factor from competitors. Hence, the insurance Industry, although believed to be a latent adaptor of technology, is now pacing in the lane of technology modernization.
With all the innovations going to market in recent times, from artificial intelligence to telematics to blockchain, 2021 will be quite an interesting year to watch for developments in insurance technology. We believe that the above-mentioned trends will be the positive force helping insurance companies to drive cultural change and unlock growth.