The insurance industry, seemingly stuck in the era of paper forms and manual processes, is undergoing an inevitable digital transformation. While insurance has lagged behind other industries in adopting new technologies, the tides are shifting quickly. Powerful forces both inside and outside the industry are now driving a massive wave of digitization in insurance.
In this comprehensive guide, we‘ll explore the what, why, and how of digital transformation in insurance:
- What does digital transformation mean for insurers?
- Why is digital transformation urgent and necessary?
- Top digital transformation use cases
- Overcoming key barriers
- Real-world examples and case studies
- Expert advice for insurance leaders
Let‘s dive in.
What Does Digital Transformation Mean for Insurers?
For insurers, digital transformation involves leveraging advanced technologies to make processes more efficient, improve customer experiences, develop new data-driven business models, and keep pace with insurtech disruptors.
Specifically, it means:
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Automating manual workflows: Digitizing and automating claims, underwriting, billing etc. Using RPA, AI, machine learning.
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Improving customer experiences: Omnichannel digital engagement via portals, apps. Leveraging data for personalized pricing.
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Leveraging data analytics: Using AI and big data to better understand risk, detect fraud patterns, gain customer insights.
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Exploring new business models: Usage-based insurance, on-demand insurance, peer-to-peer models.
The scope of digital transformation in insurance is vast, touching nearly all core processes and customer interactions. Executed well, it can reshape insurers‘ operations and value propositions.
Why Digital Transformation is Urgent & Necessary
With insurtech disruptors rising and customer expectations changing rapidly, digital transformation has shifted from a nice-to-have to an urgent must-have for insurance firms.
1. New Competition from Insurtechs
The emerging insurtech sector offers innovative digital insurance models that deliver greater efficiency, convenience and affordability. For example:
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Lemonade provides home and rental insurance via an AI-powered app that completes policy paperwork and pays claims in seconds.
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Slice enables on-demand, pay-per-use insurance for risks like ridesharing, delivered entirely though mobile apps.
To stay in the game, insurers must digitize to match or beat these offerings. The time to act is now.
2. Today‘s Customers Demand Digital Experiences
Today‘s always-connected customers expect seamless digital experiences in every industry – and that includes insurance. legacy insurers with clunky customer experiences will steadily lose ground to disruptive competitors offering slick apps and portals.
Key consumer expectations driving insurance digital transformation include:
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Omnichannel engagement: Meeting customers on the web, phone, apps, messaging etc.
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Intuitive self-service: Handling basic tasks without an agent. Filing claims, checking policies, making payments digitally.
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Personalization: Customized pricing and recommendations based on data and usage patterns.
Fulfilling these demands requires digitizing customer touchpoints and leveraging data – fueling transformation initiatives.
3. Vast Untapped Potential for Efficiency Gains
Many insurance processes remain stubbornly manual, creating major pain points around productivity and decision making. Just a few examples:
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Claims processing averages over 70 days, involving many manual document reviews.
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Underwriters still work with paper documents and spreadsheets.
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Fraud detection is often done through manual auditing.
Automating these key workflows with technologies like RPA, AI, and analytics presents massive opportunities for cost savings, accuracy improvements, and volume handling. The efficiency gains drive investment in digital transformation.
4. Mandate for Innovation From Investors
Insurers have long operated with a protectionist mindset against technology change. But activist shareholders are disrupting the status quo by demanding more tech-driven innovation and higher efficiency:
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In 2021, investor group Inclusive Capital Partners took board seats at insurance giants Chubb and AIG, advocating for modernization.
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Private equity investors are partnering with insurance carriers to fund digital upgrades in exchange for ownership stakes.
Facing rising pressure from investors, carriers are accelerating tech modernization programs to spark growth.
In sum, external disruptors and internal inefficiencies are converging to necessitate broad digital transformation in the insurance sector. Change is here.
Top Digital Transformation Use Cases for Insurers
Now let‘s dive into some of the highest-impact areas for insurance digital transformation and real-world examples:
1. Automation
Applying automation across insurance workflows is arguably the single biggest opportunity to drive efficiency gains from digital transformation.
Manual tasks in claims, underwriting, billing and more can be dramatically accelerated by technologies like RPA software bots, AI, and standardization algorithms. McKinsey estimates 25% of insurance operations will be automated by 2025.
UCaaS provider RingCentral used process mining and RPA to automate over 70% of its historically manual account processing – reducing processing costs by 80% while improving accuracy.
2. Data-Driven Underwriting and Risk Scoring
Leveraging data analytics and AI to modernize underwriting and pricing processes allows insurers to operate with greater precision, efficiency and customization.
Advanced risk scoring algorithms can synthesize thousands of data points to create highly customized policies – while still optimizing profitable portfolio mixes for carriers.
Progressive insurance captures over 50 data dimensions from customers to feed risk models and offer usage-based insurance rates – as much as 30% lower than competitors.
3. Streamlined Claims Processing
Insurers are aggressively digitizing claims handling. Technologies like computer vision, document processing, and analytics accelerate payouts and reduce fraud rates.
Tractable applies AI to auto damage images to instantly estimate repair costs and process claims 10x faster.
4. Omnichannel Customer Engagement
Meeting modern consumers on their preferred platforms requires fully digitizing customer interactions. Chatbots, apps, and online self-service portals give insurers omnichannel capabilities.
John Hancock rolled out an Amazon Alexa skill allowing customers to file life insurance claims verbally – dramatically simplifying the process.
5. Detecting Fraud With Advanced Analytics
Fraud costs the industry over $80 billion annually. AI and data science give insurers new weapons for pinpointing suspicious patterns across millions of claims.
UK insurer Direct Line uses AI modeling to detect organized fraud rings – uncovering collusion that human investigators would likely miss.
6. New Business Models
Perhaps most disruptive, digital transformation allows insurers to test entirely new data-centric and on-demand business models never before possible in insurance‘s analog age.
Metromile offers fully pay-per-mile auto insurance based on actual driving usage measured by in-car devices. Customers pay based on what they use – no approximations.
As these examples demonstrate, advanced digital tools open up endless possibilities for insurers to reduce costs, improve experiences, and reimagine service delivery.
Overcoming Key Barriers to Insurance Digital Transformation
Given the immense potential, why aren‘t all insurance carriers racing ahead with digital initiatives?
In reality, many still face barriers and adoption lags compared to other industries:
1. Legacy Technology Drag
Most large insurers rely on decades-old policy admin systems and data platforms that lack integration and the agility to innovate quickly. Refactoring the tech stack requires patience and vision – tough amid quarterly earnings pressures.
2. Regulatory Restrictions
Regulators impose strict rules around data handling, system modifications, and compliance – slowing tech changes. Partnerships with insurtechs can help navigate the red tape.
3. Risk Aversion Culture
Aversion to risk permeates insurance company DNA. But digital transformation requires a hunger for experimentation, iteration and occasional failure – with patience to see long-term gains. Cultural evolution is critical.
4. Insufficient Data Talent
Insurers face steep competition from Big Tech firms in recruiting science, engineering and analytics talent to drive AI and cloud data platforms. Investing in internal training helps unlock existing talent.
Through executive commitment, structural changes and likely partnering with insurtech firms, insurers can dismantle these barriers over time.
Real-World Insurer Digital Transformation Success Stories
Though early days, vanguard insurance firms are piloting ambitious digital upgrades across operations:
AXA Hong Kong
- Virtualized lifecycle system hosting on AWS cloud
- 70% increase in speed of product rollouts
- AI-based underwriting and fraud detection
Generali Switzerland
- Fully automated underwriting using 1000+ data variables
- Product decisions in seconds instead of days
- 25% cost reduction
Anthem (US health insurer)
- Full cloud data platform
- Applied ML improving fraud detection rates 20-30%
- Rolled out self-service health app to 80% of members
These initiatives exemplify the art of the possible – and represent just a fraction of large insurers now executing digital transformation programs.
Increasingly, digital innovation will separate winners and losers across global insurance markets.
Expert Perspectives on Insurance Digital Transformation
Insurance sector experts universally recognize technology modernization has become an imperative:
"Digital disruption has upended industries from media to retail. Insurance is next. Legacy processes could soon be extinct."
- Allianz CEO Oliver Bäte "COVID pulled the future forward for insurers. Virtual engagement, touchless claims, instant payments - what was possible has changed dramatically thanks to new technologies."
- Dan Reed, Managing Director, Accenture Insurance "Insurers have more data than they realize, but often lack the tools and talent to harness it. Partnerships with insurtechs can unlock major gains."
- Jay Weintraub, CEO, Carrot Health InsurtechConsensus holds that insurers failing to make substantial progress on digital transformation within the next 3-5 years risk fading relevance in a market dominated by firms leveraging automation, analytics and AI.
A Roadmap for Insurance Leaders
Where should insurance executives and boards start on the digital transformation journey?
1. Assess Digital Maturity
Conduct an honest audit identifying processes falling behind consumer expectations and lagging industry benchmarks. Gather data on performance gaps to quantify the need for change.
2. Define Target Outcomes
Articulate a multi-year technology vision focused on tangible goals – cost savings, speed improvements, revenue growth. This grounds initiatives in real business value.
3. Start With High Impact Pilots
Tackle pain points with the biggest potential payoff first. Pick use cases like billing automation or touchless claims that quickly demonstrate digital capabilities.
4. Cultivate Partnerships
Insurtech firms offer cutting-edge solutions and implementation expertise. Strategic partnerships amplify resources for executing digital strategies.
5. Reinforce Cultural Shifts
Communicate urgency for digital adoption at all levels. Strengthen capabilities around managing organizational change to drive technology success.
While each insurer‘s journey will be unique, these steps provide guideposts to kickstart your drive toward digital transformation. The future beckons.
