The insurance industry stands at a crossroads.
The digital revolution has delivered technologies that can produce dramatic business improvements for insurance companies – if they’re bold enough to take advantage of them.
Here are a few ways that some of the most innovative enterprises and agile startups in the industry are transforming the way they operate.
6 technology opportunities for insurance companies
1. Big Data Analytics.
By collecting data from their users, forward-thinking insurance companies have been able to tailor their services to each customer. In recent years, “Executives at large and small carriers alike have been building centers of excellence (COEs), with dedicated staff focused on advanced analytics,” according to a 2016 article from McKinsey: Transforming into an analytics-driven insurance carrier.
2. Internet of Things
The IoT pulls data from the physical world via sensors. What kind of IoT data is relevant to insurers? In the car insurance sector, a rising category called closed box insurance (aka telematics insurance) allows customers to install a device in their vehicle that measures the safety of their driving habits and calibrates their quote accordingly.
Similarly, in the health and life segment, new apps enable insurers to personalize their offers to individuals based on the readings from their fitness trackers.
3. The Cloud
“The cloud” is a catch-all term for a huge variety of business services. By moving their IT infrastructure, to third-party providers, insurance companies can update and streamline their processes, improving the efficiency of their workforce and reducing costs.
4. Machine Learning
As these artificial intelligence systems have improved, they’ve become more applicable to the insurance industry. ML tools tap into big data pools and help make data analytics more effective. They can provide huge benefits to insurance firms by helping them meet compliance needs, control costs and stay competitive.
5. Marketing Automation
The rise of inexpensive marketing technologies and social media have made it easier for small and midsize insurance firms to promote themselves and compete with the market leaders. Sixty-five percent of traditional insurers in Europe plan to professionalize their online marketing (e.g. by purchase of keywords), and 45 percent aim to improve their social media presence, according to a 2016 McKinsey research report Harnessing the power of digital in life insurance.
6. Blockchain
Distributed digital ledgers are far more than just a Bitcoin technology; they will result in far-reaching changes to the industry over the next decade. For example, “blockchain technologies can help the wholesale insurance sector fulfil its role in underpinning the global economy more effectively,” according to a recent PwC report Chain Reaction: how Blockchain Technology Might Transform Wholesale Insurance.
Behind the wave?
How quickly are insurance businesses adopting these technologies?
“Compared to sectors like retail, the insurance industry is still early in its digital transformation,” says a 2017 McKinsey article The hallmarks of digital leadership in P&C insurance. However, “within the insurance sector, top-quartile DQ [digital quotient] performers are generating a CAGR [compound annual growth rate] of 6 percent compared to 3.9 percent for the average player and substantially higher profitability.”
The digital leaders of the insurance world are making progress, but much of the industry has yet to catch up.
Why insurance companies need to act fast
Many established insurance firms don’t see any reason to overhaul the technology they’re using.
But the insurance landscape is in a period of dramatic change. Standing still means falling behind.
Price comparison sites have boomed over the last decade, opening up the insurance world for the consumer. Customers are no longer loyal to particular providers. They visit price comparison sites and choose the provider with the lowest price and the best online reviews.
Many insurance businesses are already facing challenges keeping up with changes in customer behavior. For instance, in the life insurance industry, “real growth between 2005 and 2015 has been negative. Sales of new policies have fallen from 17 million per year in the 1980s to around 10 million today,” according to the 2016 McKinsey article I mentioned earlier.
And those challenges are only set to get worse as new entrants gobble up market share. Across the whole financial services industry, a wave of hungry tech start-ups is threatening to eat the incumbents’ lunches. The insurance sector is no different. Your insurance firm could come under threat from:
- Disruptive competition. Some InsurTech players seek to directly challenge incumbent insurance firms by offering radical new solutions to customers. Peer-to-peer start-ups, for example, enable individuals to directly pool their premiums to cover risks.
- Fragmentation. Most InsurTech start-ups won’t threaten established insurance firms as a whole, but they do threaten sectors of their business.
Survival of the most customer-centric
The future of your firm depends on how you improve the customer experience and weather competitive storms. As another McKinsey piece points out, “companies that offer best-in-class customer experiences grow faster and more profitably. To reach this level, insurers must relentlessly improve customer journeys across channels and business functions.” (The growth engine: Superior customer experience in insurance.)
HPE Pointnext can help your insurance business delight customers with services that exploit the full range of digital transformation technologies. To learn more, check out this IDC report: Digital Transformation Trends in IT Services.
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MitchellFeldman
Marketing Manager, Cloud Advisory, HPE Pointnext Services
