When the pandemic hit, the insurance industry joined enterprises around the globe in working remotely, seemingly overnight. Now, as economies begin to cautiously emerge from COVID-induced restrictions, insurers want to accelerate their digital transformation significantly to focus squarely on the customer, boost operating profit and get ready for what the future holds.
Let’s face it, who looks forward to buying insurance or filing a claim? Insurance companies can use digital platforms and algorithms to make the process faster and much less tedious. Lemonade, a born-digital insurer that specializes in renters’, homeowners’, pet and term life insurance, advertises that it can pay a digital claim in three seconds using such technologies.
Trends in the Insurance Market
Most insurers are bound by complex legacy environments and struggle to follow Lemonade’s lead, both in terms of simplifying the whole insurance experience for customers and using technology to attain greater cost efficiency.
Standardizing products and services is another avenue to simplification. Rather than covering one type of fire in Belgium and another kind in the U.K., for example, insurers could have a standard tariff that covers fires as a general category. That may sound simple, but implementing the change involves incorporating new functionalities, hard-to-design applications, process efficiency, APIs and more.
We’re seeing more consolidation in the insurance industry through M&A activities. Especially in the U.S., private equity investors are snapping up insurance companies to leverage insurance pools, consumer premiums and other fees as a steady stream of reliable assets. Having that permanent capital at their disposal reduces the pressure on private equity owners to raise money in the market.
But this increases the cost pressure on service providers. Private equity investors want to see a fairly quick return on their investment. And while that creates a different and more challenging playing field for providers, it also opens up new opportunities for longer-term relationships, as investors usually need operations support.
Cybersecurity Risks in the Insurance Industry
Cybersecurity is another key issue for the insurance industry. The unrelenting spate of cyberattacks has captured the attention of insurance executives, making cybersecurity a top priority. More risk has been introduced with the increasing use of new technologies, self-learning machines, cloud computing, digital ecosystems, 5G and a growing reliance on intelligent devices. In 2017, 27 billion devices around the world were online; that number is set to increase five-fold to 125 billion in the coming decade.
Insurers, by nature, are risk averse, and they want to manage risk while still protecting their customers. Frequently now, insurers are requiring cybersecurity attestations from their corporate customers. We expect demand for security assessment work to grow. As demand for cyber insurance rises, so has the cost.
The tightening regulatory environment has fostered a greater need for commercial liability insurance. Society, in general, is becoming more and more litigious. Class-action lawsuits are easier than ever to file in the U.S. And the General Data Protection Regulation (GDPR) has resulted in greater exposure to companies in the E.U.
Long-term Cloud Strategy a Must for Insurers
With all this going on, technology is making a real difference. Cloud transformation is well underway at many insurance companies, often via a hyperscale strategy. But not every company can manage a hyperscaler on their own and will need a service-integration layer. That’s a key tech trend coming up. We expect insurers to make bold public cloud and SaaS moves in the next few years.
The sense of urgency to develop a comprehensive, long-term cloud strategy is huge in the insurance industry. COVID showed us that. Transformation won’t happen overnight, but insurers have to be flexible and ready to respond to volatile markets. A comprehensive, long-term cloud strategy is a must to reach the next level of maturity.
Providers Build Insurance-specific Digital Platforms
Insurers are also seeking new channels to better serve customers, and, of course, those will have to be built on digital platforms. A new business model is evolving in which a provider builds a platform for one type of insurance product, then takes it to other providers. Microsoft’s relationship with French insurer AXA and German financial services firm Allianz is a good example. AXA partnered with Microsoft to launch a digital health-care platform. Then Allianz and Microsoft teamed up to customize a platform across a variety of insurance specialties in a plug-and-play implementation.
Opportunities abound when it comes to big data and AI strategies. No insurer seems to have a clear idea of how to use its goldmine of big data. Today they are mostly optimizing what they already have while other industries, such as automotive, are outpacing insurers.
In the end, insurers face increasing pressure to transform their business from a focus on products to a focus on services while personalizing the customer experience. Technology has matured tremendously to move this goal forward. Learning what customers are doing, what they want to do, and where they see their risks can all be brought together with technology.
The Global ISG Index™ call for the second quarter 2021 included a special focus on the Insurance industry. Contact us to find out more about how we help insurance companies navigate the rapidly changing market.