Insurance industry challenges: solutions to stay relevant
The insurance industry faces some tough challenges ahead owing to a number of externally driven factors. A variety of macro-environmental threats, such as climate change mean insurers are encountering higher risks, as do their policyholders, who expect adequate protection and added value from their insurer.
Additionally, the need to innovate while reducing overheads is more salient than ever before. Customers want convenience and customisation. They want cover they can purchase when they need it, through services they already know and trust. In the meantime competition from digital challengers such as Wakam and Iptiq are impacting profits.
These trends create pressures to maintain competitive market share. To overcome these insurers are employing digital and data-led initiatives. In this article, we will look at what these challenges mean for insurers and how digital transformation can help overcome them.
Since digital transformation can take years, we will look at how insurance as a service can help reduce costs and increase speed to market so insurers can meet an imminent need to remain relevant in a fast-changing landscape.
Challenges faced by insurance companies
Climate change has rewritten flood-zone maps and the seasons for fires and hurricanes. New areas are now subject to flooding as oceans rise, storms are increasing in frequency due to warmer temperatures and fires have become more destructive due to drought.
The damage caused by these events is becoming more severe, exceeding old expectations. This has challenged insurers to gather newer data so they can make decisions faster, as the marketplace requires constant monitoring and adaptation to changing risks.
As technology continues to develop rapidly, insurers are now able to create solutions that digitalise processes and support the creation of products and services that can meet the demands of a changing environment.
The pressure to digitise also stems from consumer expectations for convenient and smart digital solutions that translate into cover that keeps them safe.
Digital transformation in the insurance industry
Digital transformation has been transformative for many industries including insurance. Its benefits range from efficiencies in processing and understanding data to operational advantages and scalability.
In recent research, insurance agents revealed that 90% of their sales efforts were face-to-face before 2020. Then, social distancing became the new normal leading to a greater acceptance of online communication. Today, less than 5% of meetings are now in person and data indicates that more than 85% of the public prefer AI-driven chatbots over chatting with a real person. Furthermore, customers expect customisation, convenience and cover that can meet their needs in the event something goes wrong.
This demand is driving a shift to data-driven digital interfaces that can predict, customise and automate every aspect of insurance delivery. By transforming their digital core insurers can analyse massive amounts of data in real-time.
This data can help them make informed decisions and balance their risk portfolio. Algorithms powered by AI are used for underwriting to provide more adequate premiums by using high-quality data. Predictive modelling in the case of climate change for example also enables insurers to foresee major events and plan for higher volumes of claims responses.
With automation, insurers can process claims faster, and keep customers updated. Additionally, both data and automation can bring agility to product updates and new product development through faster releases, testing, learning and interactive approaches.
Digital and automated processes create value by reducing operating costs, improving margins and often giving insurers a competitive advantage. Digital transformation is an ongoing process however and it can take years. Insurers can speed up capitalising on these advantages with insurance as a service.
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The use of insurance as a service
Everything as a service is a widely used model in business-to-business and consists of platforms and software offerings as online tools. Commonly known as platform as a service (PaaS) and software as a service (SaaS) they deliver efficiencies and do not require on-premise installation or maintenance. This model has extended to insurance as a service, helping insurers cover a broad spectrum of services such as quotes, claims handling and customer support.
Plug and play technology enables integrations across multiple applications and processes enabling an enhanced user experience. Additionally, machine learning and AI through data that is collated and analysed with insurance as a service tools helps optimise the customer journey. The result is a far better customer experience where customers can choose cover that works for their levels of risk rather than settling for one-size-fits-all policies.
Insurance as a service also meets insurers’ needs for agile speed to market capabilities. It allows them to create new products in days as opposed to months or years. They can instantly make those products available online through a self-service platform that uses AI to accurately analyse risks and carry out compliance checks faster.
Finding ways to reduce operating costs
With agility and speed to market comes the ability to reduce operating costs. Companies can strive to cut costs without affecting the quality of service, especially when efforts are geared towards identifying and resolving process failures that impact customer success
Regular collection and analysis of data from purchasing patterns, customer service interactions and risk factors can provide valuable insights. These insights can uncover product issues, understand where to make amends and measure the resulting changes. The learnings can then be used to focus on the areas that yield the best-performing outcomes.
Customers expect services that satisfy their need for consistency and convenience. By integrating insurance services across departments and applications customers can purchase cover or lodge claims easily from their preferred app or online location. Seamless delivery and integration can also speed up the time to market for new products and reduce lower operational costs by reducing pressure on customer support teams.
The need to improve speed to market
When it comes to market share and new product development the ability to be first to market is important. Getting fresh new products to market positions the brand as a market leader and capitalises on market share.
Speed to market can be hard to achieve with a finite budget that imposes limitations on talent, or when dealing with legacy technology, that limits the flow of data and hinders processes.
Insurers need the flexibility to build, distribute and manage products in a nimble way. Luckily with insurance as a service insurers can transform their core systems to develop modular products. This means they can create new products and update existing ones without needing to embed code or create manual workarounds to circumvent limitations imposed by outdated systems.
Modular product architecture means underperforming products can be quickly tweaked and market trends can easily be responded to by easily updating dimensions such as pricing, forms and other rules.
Conclusion
Environmental changes, consumer trends and competition have fast become the reason insurers must undergo huge technological changes and gain agility to maintain their competitive market position. Insurers must embark on years of digital transformation to future-proof their strategy while investing in technology that enables speed, innovation and cost reduction in the shorter term.
Insurance as a service can ease this transition by providing platform and software services that reduce system maintenance and provide modular plug-and-play development of insurance services such as quotes, claims handling and customer support.
Apart from delivering smart services and cover that meets evolving customer needs, insurance as a service can deliver operational efficiencies. This means insurers can become more responsive to market changes and lead with speed to market to remain competitive.