Insurtech – Digitalization in Insurance Industry to Lift Earnings and Reduce Costs
When you think about insurance, “paperless” may not be the first thing that comes to mind. Insurance tends to bring to mind images of tedious paperwork, forms, and manual processes. And while it is true that insurance, like so many industries, has historically been heavily paper-based with a lot of manual intervention required, the truth is that – again, like so many industries – insurance is becoming a highly digitalized and dynamic industry.
Insurtech (which, just as it sounds, combines “insurance” and “technology”) is paving the way for a more technologically advanced future – the insurance company of the future if you will. And it’s important to recognize that while the customer-facing side of insurance has not necessarily been cutting-edge, on the organizational side insurers were some of the first adopters of mainframe computers, which were required to process the enormous amounts of data that go with the territory.
But now, advanced technology is finding its way into all aspects of insurance as digitalization, artificial intelligence (AI), blockchain, and cloud technology become mainstream. All of these technologies are playing roles in guiding the future of insurance, making it more customer-friendly, cost-effective, and yes, profitable.
Digitalization, which is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities” (Gartner), should not be confused with digitization, which is simply transforming papers and documents from analog to digital. Although digitization is an important part of digitalization — making those paper forms digital is key — it is simply one part of a larger process. Property and casualty (P&C) insurers are investing heavily in digital transformation strategies that go far beyond digitizing paperwork. Insurtech can help transform a traditional insurer to a digital insurer by using any number of technologies to streamline processes, optimize workflows, and handle mountains of data.
A 2019 survey by Accenture asked insurance company executives which technologies they expected to have the biggest impact on insurance, both at the time of the survey and in three years. The biggest driver at the time of the survey was the cloud – specifically cloud-based technologies to improve operational technology — with data analytics coming in second. These are the most basic drivers of digitalization – using cloud technologies, insurance companies can take advantage of both cloud-based servers and hybrid cloud models to process data more cheaply and efficiently. Cloud technology also allows for better collaboration between workers in every aspect of insurance through the use of cloud technologies for storage and document management.
The increased speed and robust data processing enabled by cloud technology also aids in improved data analytics. Insurance companies can take advantage of cloud processing to manage the data that can be overwhelming to office staff and difficult to process when it is stored in siloed locations. By moving all customer and claim data to a centralized cloud location, there is no longer a risk of not having a complete picture when running data visualizations to identify trends.
Notable in the Accenture survey was the expectations for technology’s continued impact. Most of the technologies – like cloud – that ranked high at the time of the survey were expected to diminish in importance over the next three years, while the ones that held less importance currently were expected to increase. The one exception? “AI-based technologies to improve operational processes” stayed nearly the same in importance, and with good reason. The insurtech industry is just getting started with the many uses for AI and machine learning. Able to do things like manage claims, set pricing and perform basic underwriting, AI will not replace human jobs, but it is capable of taking on some of the more mundane duties, freeing human staff up for higher-level tasks.
There is plenty of room for growth for AI in the customer-facing realm as well. AI can currently perform tasks like recognizing and responding to simple queries, and even some that are more complex. As machine learning improves from a technology standpoint, not only will its ability to respond improve, but it will “learn” from difference scenarios, be better able to process data, and even respond to customer calls on-site at accidents.
Blockchain is another area expected to aid in digitalization in insurance. Blockchain is capable of removing many manual, paper-based processes from the equation, speeding up claims processing, making payment processing more efficient, and limiting the potential for human error in manual data entry.
Digitalization in the insurance industry offers many benefits to agents, clients, adjusters – really everyone involved in the property and casualty insurance industry can benefit from digitalization. For that reason, P&C insurers are investing heavily in it now and into the future. As the world we live in becomes more reliant on technology, the quantity of data organizations deal with grows exponentially, and customers expect faster, more efficient service, digital transformation will become essential for insurance companies that want to remain competitive, relevant and profitable.