Once known for its reluctance to change, the insurance sector is now quickly becoming a hotbed of digital innovation. The ever increasing smartphone penetration rate, ubiquitous connectivity, and the explosion of IoT devices are among the main enablers behind the digital transformation in insurance.
With the added social and economic pressure of 2020, the need for more effective operating models and powerful insurtech solutions comes to the front burner. Now, let’s see what other trends will be shaping the insurance landscape in the year to come.
Big data analytics
In the insurance sector, big data is the name of the game. From transactions and log data to accidents statistics and policyholders’ personal information, insurers are awash in internal data. Add to this new sources like telematics, social media, apps and wearables data, and the amount of available data is nothing short of astonishing.
Advanced data analytics helps insurance companies sift through structured and unstructured data to uncover actionable insights into their business processes and operations. Combined with machine learning, these big data tools become even smarter and add predictive capabilities to the analytics stack.
Predictive analytics is indeed gaining traction in insurance as it offers competitive advantages in today’s fast-paced market. Insurers leverage ML-driven predictive analytics models to accurately assess the risk of default, provide better pricing options, and identify insurance claim fraud.
As insurance companies continue to embrace the power of big data to transform their operations, the insurance analytics market is projected to grow at a CAGR of 11.8% and reach US$15.9 bn by 2027.
Increased focus on personalization
Personalized insurance will be one of the key topics in the year to come. Used to the hyper-personalized experiences of Netflix and Amazon, users are now expecting the same level of service from other industries as well. In fact, Accenture reports that as much as 80% of customers are craving personalized offers and pricing from their auto, home, or life insurance providers.
To better serve their customers, insurers segment their target audience by a range of characteristics and then try to predict what products or services may appeal to them. But however sophisticated, segmentation does not enable individual-level targeting, but data-driven analytics does.
According to the same study by Accenture, 77% of customers would be willing to trade their behavioral data in exchange for lower premiums, quicker claims settlements, and better coverage recommendations. By tapping into the goldmine of data generated by connected devices, wearables, and IoT sensors, insurance companies will be able to create more personalized offerings, boost customer engagement, and increase revenues.
Intelligent process automation
Another key technology trend for the year to come is AI-powered automation. With the ability to analyze insurance documents and complex business contracts in just a fraction of time, AI can automate rules-based processes and improve operational efficiencies.
Claims processing is one of the areas where intelligent automation is really changing the game, dramatically cutting down the processing time. Instead of relying on manual work, an AI-powered chatbot can automatically process the First Notice of Loss (FNOL), extract the relevant information, and submit it into the system. Pre-trained AI-based algorithms can further help with claim assessment and automated damage evaluation, accelerating the workflows and reducing the costs.
Coupled with natural language processing (NLP), AI can be used to automate regulatory compliance efforts. By going through the growing volume of regulatory text, an AI-based insurance solution can automatically monitor and report any regulatory changes, helping insurers conform to new regulations.
Cybersecurity and blockchain
According to some estimates, the average cost of cybercrime has grown by 72% in the last five years. And now that the workforce is increasingly switching to working from home, cybercrime and ransomware attacks are expected to grow at an alarming rate, pushing cybersecurity to the top of insurers’ minds.
To protect sensitive personal information about policyholders and prevent data breaches, insurance companies need to have appropriate technical safeguards in places like end-to-end data encryption, biometrics-based authentication, and role-based access control. Expert penetration testing and vulnerability assessment can also help improve security standing.
Another innovative tech that helps forward-thinking insurers bolster security is blockchain. Blockchain leverages distributed ledger technology and fortified cybersecurity protocols to bring much-needed transparency into insurance operations. Blockchain-based smart contracts are also gaining traction as they help insurers reduce fraud through transparency and eliminate any third-party intervention.
New distribution models
In addition to the rapidly rising customer expectations, insurance incumbents are now facing tough competition from insurtech startups and new digital entrants. To survive in this highly competitive environment, insurance companies need to revamp their traditional distribution channels.
The next decade will see the rise of new, digitized models that would help insurers get ahead of the curve and drive sustainable growth. One such model is insurance at the point of sale. By partnering with digital vendors and incorporating POS insurance into other shopping experiences, insurers can reach a wider audience much faster and cost-effectively.
Another way for insurance companies to survive the digital transformation is to become ecosystem orchestrators. In this model, insurers can partner with banks, retirement homes, and wellness providers to aggregate and offer a range of products and services that address customers’ financial and lifestyle needs. For example, as much as 76% of customers say they would like insurers to help them and their aging relatives live safely for longer in their own homes.
The bottom line
Tomorrow’s success requires today’s preparation. As the emerging insurance trends highlight the need for personalized products and better cybersecurity, insurance leaders must prepare for the adoption of big data analytics, intelligent process automation, blockchain, as well as new distribution models to thrive in 2021 and beyond.