The last few years have been chaotic for traditional insurers fighting off the challenges of disruptive technology. Rapidly changing customer demands and the threat of obsolescence are forcing incumbent insurers to adopt digital transformation at a rapid pace. The climb has been challenging, with evolving customer demands, legacy systems, cultural resistance to change and a lack of organizational clarity.
Insurers, hungry to grow fast, have been gearing up to face the challenges and grab the opportunities of the changed customer experience landscape for quite some time now. Though insurers have been grappling with customer experience demands like greater empowerment throughout the purchase process, hyper-personalized solutions to dynamic product usage requirements, seamless claims processing experience, enhanced and instant query resolution, etc, their scale and depth have increased manifold.
Customer expectations are a shape-shifting beast, and though it’s tamed to a certain extent for now, being prepared to grab the next set of opportunities brimming at the horizon will determine the success or failure of incumbent insurers. Migration of the insurance value chain from “detect and repair” to “predict and prevent” is a critical transformative agenda that every insurer is aspiring for.
The Emerging Business Landscape
Cyber Insurance: The Next Big Opportunity
Convenience comes with inherent risk. The interconnectedness of the digital world is an inescapable double-edged sword that organizations can’t simply sidestep. According to IBM and Statista, the global average cost of a data breach in 2023 was an alarming USD 4.45 million, marking a 15% hike over a 3-year period signifying the massive risk organizations shoulder and the opportunity for insurers to tap into this vast potential.
As cyber insurance evolves into a mass-market product, the onus falls squarely on insurers to solve structural lethargy and adopt operational efficiency for faster risk assessment, pricing calibration, and innovative product development.
As a cyber liability insurer, organizations transfer their risk based on the requirement and verification of suitable cybersecurity controls in place. Since proactive-ness in reducing risk works to the insurers advantage, add-on business service opportunities like third-party security assessors or cybersecurity service providers open up a world of new revenue streams.
Green Insurance
Climate change is a clear and present danger and no longer a distant threat—it’s a critical reality reshaping the insurance landscape. While we might be tempted to simplify green insurance as just offering coverage for renewable energy projects or electric vehicles, it’s much more and beyond. Within the green insurance portfolio, an instance of hyper-personalization and active insurance is visible in pay-as-you-drive (PAYD) insurance, wherein insurance rates are personalized and calibrated based on driving habits, incentivizing reduced emissions.
Auto insurance alone isn’t the torch-bearer of the green concept. Incentivizing through premium adjustment for renewable building materials for homes and businesses, and enhanced coverage for green-certified buildings are just the tip of the iceberg that society expects from insurers in line with the ESG goals.
Focusing on green insurance products is more than just a win-win for the policyholders and insurers. Developing an environmentally and sustainability-conscious client pool represents a better risk for insurability, in line with the “predict and prevent” mode of operational efficiency that insurers want to adopt.
Platform Technology
The future of insurance is not fragmented and siloed—it’s seamlessly interconnected. The need to integrate a platform ecosystem is all the more critical now to deliver unparalleled customer experience, meet ever-evolving regulatory guidelines, and enhance process efficiency to meet ambitious growth and revenue targets. Achieving the same isn’t just about merely staying relevant; it’s about thriving in a high-stakes competitive industry where stagnation means getting redundant and warding off merger and acquisition overtures.
While technology enhancement is central to platform architecture, GenAI takes it a notch higher by integrating with cloud infrastructure, APIs, microservices, machine learning algorithms, and digital ecosystems of diverse third-party partner services, offering a frictionless, end-to-end customer experience that transcends beyond traditional insurance boundaries.
The connected ecosystem will enable insurers to take the next leap at product hyper-personalization, slashing the cost of policy issuance and claim processing, risk-optimization and effortless tech upgradation through enhanced data-driven insights and decisions and supercharging process efficiency. In short, it grants agility to respond fast and pivot faster, fending off challenges and grabbing opportunities.
The platform ecosystem can facilitate constant customer engagement throughout the customer journeys and redefine the business model from an outside-in perspective. This shift in focus puts customer experience at the heart of every decision, driving innovation and fostering loyalty in ways previously unthinkable.
Embedded insurance
If, by now, traditional insurers have patted themselves for successfully visualizing the challenges ahead, they are in for a rude shock! What if every non-insurance becomes an insurance provider? Embedded insurance will be a severe disruption for the insurance world without robust strategies to convert these challenges into opportunities for growth.
As the concept scales, non-insurers won’t have it easy trying to master the insurance value chain themselves. Incumbent insurers can leverage their core competencies of experience, large product basket, and pricing advantage in positioning as an insurance-as-a-service player, building on the B4B2C (business for business-to-consumer) enablement strategy.
The newer business ecosystem will demand a paradigm shift in the operational processes of traditional insurers where tech and data integration creates a more granular and specialized insurance value chain. Not only will the demand be for transforming to a digital-first strategy, but higher claim processing and transborder scalability requirements will render the legacy systems unacceptable.
However, the most significant transformation expected from insurers would be the adoption of agility as the norm. Embedded insurance would open up lucrative opportunities to access large customer bases across multiple geographies at highly reduced marketing spend. All that is required are insurers who dare to change.
AI-led Digital Transformation & Adoption Of Emerging Technologies
While the future holds immense possibilities, the emerging trends put the onus on insurers to adopt robust, scalable process automation along with GenAI to transform into nimble, agile entities, grabbing what’s on offer with both hands. Getting there fast is the challenge.
Let’s explore the AI-led transformation processes that’s revolutionizing process efficiency and effectiveness.
- AI-led Data Extraction Automation
From policy application to claims, AI’s multi-modal ability can extract and process text and images from unstructured documents, leading to faster issuance and claim settlement, enhancing customer experience and reducing policy issuance cost.
- Cognitive Computing in Chatbots & Virtual Assistants
Improvement in the cognitive computing abilities of Chatbots and virtual assistants can make the customer service representative position redundant in the future. Gen AI’s ability to parse vast data sets specific to customers can enable these systems to offer evidence-based recommendations.
- IoT For External Data
IoT sensors will play a significant role in data capture and analysis from connected devices, enabling risk prediction and prevention. In fact, they can initiate the FNOL (First Notice of Loss) automatically in auto insurance claims, making claim payout instantaneous.
- Blockchain Technology
Policy docs held via blockchain-enabled intelligent contracts, stored in the cloud, can be accessed as soon as a claim is triggered to validate the finer points and initiate automatic payout—a satisfied customer with zero claim processing cost.
- Mobile apps Enabling Edge computing
Edge computing on insurers’ mobile apps actively engages with clients, capturing data and providing marketing opportunities. GANs, with their deep learning abilities, extrapolate suspicious transaction scenarios for capability enhancement in fraud detection and prevention.
- IPA Intelligent process automation
Integrating AI with robotic process automation will significantly enhance the insurance industry by streamlining processes, improving efficiency, reducing costs, and enhancing customer experiences. IPA can transform traditional insurers into a modern, resilient and flexible business operating model in line with its transformation goals.
Incorporating these processes in the insurer’s workflow means that products and processes will have more data insights from external and internal sources, resulting in insurance solutions that are highly individualized, holistic, need-based, anticipatory, and compliant.
Merging Traditional Insurers’ Core Competency with Insurtech Platforms Agility?
Traditional insurers with their Legacy systems need to be more nimble in product and process innovation to meet the demands of new-age customers. While they are robust in large customer bases, have optimum capital adequacy and goodwill from a loyal customer base and are relatively better at meeting stringent compliance requirements- something that every insuretech would love to have, they are lazy and slow in responding to market dynamics.
Insurers are now looking at options to have the ability and agility of insuretechs in being able to offer innovative products and deliver the same level of customer experience. They are cognizant of the need to build responsive platforms to provide the same, and while digital platforms can greatly alleviate incumbent insurers’ ills, not every insurer can integrate the same.
The next best bet is technology providers who can transform legacy IT systems and processes into agile platforms, working as efficient data hubs through API integration[1]. AI’s cutting-edge ability can be leveraged to extract data and logic from legacy systems while API-enabling them to feed into robust digital platforms, transforming incumbent insurers into modern data-centric and agile organizations of the future.
[1] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2024/the-impact-of-artificial-intelligences-on-insurance-industry.pdf