KEY TAKEAWAYS:
--Today, resources are misallocated -- 90% of innovation money goes toward maintaining existing systems, thus only 10% goes toward innovation.
--Insurers need to start piloting an innovation-forward industry, using tools such as modular systems, automated underwriting, advanced analytics and API integration with third-party systems.
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For every innovation, product release or software update, consumers and businesses become that much more digitally enabled… and digitally demanding. It’s a trend that may cause client expectations to eventually outpace the range of products and services offered by insurance providers – that is, if they don’t do anything to accommodate.
Although some insurers may be hesitant to throw all their chips in with digital strategies, leveraging technological innovations can indeed modernize the insurance industry. Nuanced digital tools have already begun filling the gaps created by skills shortages and are gradually becoming more mainstream. Yet many insurers still prefer to maintain their legacy systems.
Now is the time for traditional insurers to overcome their risk-averse legacy practices and scale up the industry’s gallery of startup solutions. Those that wish to retain their clientele within the rapidly changing market would do well to explore the options.
Reluctance to Innovate
Although some insurers have adopted open digital insurance practices, such as many of those operating in Nordic countries, many others in the U.S., for example, are unsure which tech-based solutions to invest in – the array of choices is vast: centralized management systems, sales automation tools, self-service portals and mobile apps, among others. Even though the desire to change may be there, the rate of digital technology adoption among independent insurance agencies (44%) is still not where it might be.
Part of the problem is a misallocation of resources. According to Deloitte, insurers direct 90% of innovation resources toward updating legacy systems – only 10% are allocated toward more transformative projects like product development or novel business models.
Insurers are wary of the risks of innovation rather than eagerly anticipating the pain points that could be alleviated. But considering that market disruption is already on the horizon – not to mention the growing customer expectations for more cloud-native products and digitized services – this resistance may be incredibly counterproductive.
The second part of the problem can be traced to insurers’ uncertainty around the compatibility of transformative new-age tech with their existing insurance structures. Many innovative ventures have failed due to the siloed nature in which they released their solutions, which were dislocated from other teams and systems that, in reality, they should have been integrated with.
See also: Insurance 2030: Implications for Today
Tech Upgrades
What’s the answer? Insurers need to start piloting an innovation-forward industry – one that clearly demonstrates the high levels of usability and connectivity already available across other modern industries. Innovative methods and tools like modular systems, automated underwriting, advanced analytics and application programming interface (API) integration with third-party systems will propel insurers forward and sharpen their competitive edge to thrive in this rapidly evolving digital economy.
Insurers should consider adopting the following measures so that they may future-proof themselves from getting squeezed out of the market:
- Take on a modular system encompassing role-based front ends and workflow, with near-real-time connections to data from clients and products.
- Automate rules-based underwriting and risk triage.
- Upgrade analytics processes to link claims, policies and risk engineering.
- Administer cost-effective approaches when building digital products while remaining agile vis-a-vis connectivity with existing insurance structures.
- Leverage plug-and-play APIs and integrations with third-party systems.
- Differentiate software between back-end and front-end systems – the former should be robust, static and scalable with no room for compromises, and the latter should be customer-centric, omnichannel and data- and AI-driven.
- Align capabilities with respect to attracting, acquiring, retaining and rewarding customers across B2C and B2B sectors, while providing real-time data for insurance portfolios and the various types of insurance providers.
- Develop channels to interact with clients (e.g., receiving product feedback).
Risk It for the Biscuit
The longer insurers wait to digitize their systems, the more they will frustrate customers, and the more they will hurt their bottom lines.
The insurance industry can address many of its challenges by encouraging insurers to accept greater risk in adopting innovative technologies and properly integrating them into active systems. After all, risks can be mitigated by assigning each new onboarded solution with a specific goal or deliverable outcome that addresses insurers’ critical needs, aspirations or pain points.
As digitization expands into the next decade, technology will serve as the industry’s best insurance policy.
