Industry Stories

Insurers Need to Reinvent Themselves to Become Future-Ready

It is ironic to see the insurance companies grappling with massive disruption, given that the primary focus of the industry is to help customers manage risks. However, several factors have necessitated the industry to shift from being a slow-paced and highly regulated one, to one where a massive transformation has become an imperative for survival. With the rise of disruptive insurtech start-ups and emerging technologies like artificial intelligence, blockchain and drones entering the insurance mix, the industry is now compelled to rethink its business model.

Acknowledging the urgency to adapt to the new environment and reinvent themselves to become future-ready, companies need to prepare themselves, focussing on what we call the ‘Trends and Trinity’ optimization; ‘Trends’ in terms of technology, regulations and business models, and ‘Trinity’ or the three dimensions of speed, efficiency and risk.

It is important to note that Trends and Trinity are two sides of the same coin, where every company is trying to optimize speed, efficiency and risk, while keeping Trends in mind. On the other hand, Trends are being driven by how the industry optimizes the three elements of the Trinity.

Insurance companies that fail to adapt to the dual play of Trends and Trinity will fail to compete with those who choose to take cognizance of these in their business operations to improve customer experience, reduce costs and derive better ROIs.

Trends impacting Insurance - Technology, regulations and business models

While the insurance industry is getting disrupted by new and emerging technologies such as AI, machine learning, cloud and predictive analytics, it also stands to gain the most from the same technologies with the right approach and adoption.

Since most insurers run on legacy technologies that are not designed to support the slew of new-age services, this is the first place to look into. Digital technology is helping industries find new and better ways of functioning that not only leverage the existing legacy infrastructure but also bring new capabilities.

Digital technologies have enabled insurers to improve operational efficiency, from underwriting and pricing to personalized product bundles and regulatory compliance. Robotic process automation (RPA) and AI-infused processes are increasing the speed and accuracy of operations and their widest adoption is seen in the area of fraud detection and prevention. Lastly, advanced analytics is being deployed to dynamically segment users and their needs, model behaviors, identify exceptions, adjust policy prices, optimize business strategies, and identify new growth opportunities.

It is clear that executives also see technology transforming the front-end of their businesses, enhancing customer relationships and boosting growth.

Adoption of new technology bring in the need for new regulations and compliance practices. Even regulators are adopting technology to get a better view of the industry with real time monitoring.

Global enactment of cyber security and data privacy regulations

The EU GDPR took effect in May 2018, following a two-year post-adoption grace period. State of California enacted the California Consumer Privacy Act of 2018 (CCPA), that greatly expands data subject rights and introduces provisions for civil class action lawsuits based on statutory or actual damages. The law takes effect in July 2020. The US privacy law landscape is shifting and evolving as state and federal privacy legislative proposals continue to be debated. While CCPA-like bills failed to pass in Washington and Texas, Nevada passed its online privacy amendment and proposals in New York and Washington, DC.

In addition, the insurance players are changing the game with new business models and personalised products. The digital economy is making usage-based, on-demand and 'all-in-one' insurance lifestyle products more relevant. Customers prefer personalized insurance covers instead of the one-size-fits-all products currently available.

Non-traditional players are entering the insurance market. For example, many OEMs have launched their own insurance products. Ford and GM are offering insurance for their driverless cars. Tesla’s “InsureMyTesla” program acts as an agency helping to procure discounted rates for customers on policies underwritten by insurance partners including Liberty Mutual, AXA XL and QBE. Amazon is reportedly preparing to enter the Indian market as a corporate agent for health, life and general insurance products this year.

Lastly, technology has driven the rise of insurtechs, which are turning insurance on its head; creating new ways of pricing, producing, distributing and servicing insurance policies. As per a publication by DLA Piper, a global law firm, the proportion of organizations with a high level of engagement with fintechs and insurtechs is set to almost double (from 30% to 55% of FS organizations) over the next two years.1

The trinity drivers of speed, efficiency and risk

The trinity drivers of speed, efficiency and risk

As customers become more demanding than ever, every CXO wants faster time to market (speed) and better efficiency with minimum risks. But, improving one worsens the other two and hence, teams have to find the right acceptable balance among the three parameters.

The insurance industry is working towards improving each of these parameters independently as well as in an inter-dependent manner. Adoption of new and emerging technologies such as cloud, agile infrastructure, and automation is key to help insurers improve efficiency, reduce cost, and mitigate risks. Automation plays an especially important role in eliminating human errors in repetitive processes. RPA helps streamline backend processes such as claims processing, billing reconciliation and subrogation. Machine learning can transform customer engagement.

With technology empowering insurers to bring unprecedented speed, efficiency and superior customer experiences, it is also important to re-look at existing business models and tailor them to match the new realities in terms of risk, regulation and customer expectations.

1Technology and disruption in the insurance sector: 2019 and beyond