The insurance industry is gradually shifting to a digital model of operation as a new generation of consumers demands an innovative approach. The main problems insurance is facing are demanding customers, tough market conditions, and competitors taking a fresh approach to work.
In this case, insurance companies with history and new players in the market find themselves in the same situation. Either way, the development of a quality digital infrastructure becomes a necessity. However, if every problem is perceived as a challenge, any related company can take one of the leading positions in the market.
How the Insurance Industry Is Changing
The industry is changing dramatically around the world. The demand for the services of insurance companies is steadily growing, which means there is a need to attract more high-potential specialists. Here are the key changes in the insurance industry:
- The active use of digital technology to automate and modernize workflows;
- The active use of digital tools such as the Internet of Things (IoT), elements of machine learning, and advanced analytics to create the most personalized products possible;
- The implementation of InsurTech technologies to simplify business processes, reduce operating costs, and increase profitability.
Quite often, traditional insurance companies successfully partner with InsurTech firms. Such startups provide ready-to-use digital solutions that help transform classic products into digital policies and plans.
There’s also no escaping the active use of digital technology:
- Software to manage large data sets;
- The use of mobile applications;
- The use of blockchain technologies for high-quality data management;
- The use of online platforms for efficient automation of business processes.
The second important component of solving major problems in the insurance industry is human intellectual capital. Without a team of talented employees, it is impossible to effectively apply innovation. It is the number of employees with extensive experience that directly affects the number of regular customers and, therefore, the level of profitability.
3 New Trends in the Insurance Industry
Digital technology is improving the quality of the infrastructure compared to traditional, analog methods of operation. This includes the maximum personalization of products and the creation of all-in-one offers.
Technological trends and the active use of digital infrastructure can fundamentally change the structure of insurance itself. For example, in the automobile industry, AI-based technologies are essential for accurate assessment of this or that situation.
It is software for unmanned cars that makes this possible. With its help, any insurance company will be able to gather the most complete information on the situation around the vehicle prior to an insured event and, consequently, prevent possible risks.
Personalization of Insurance Products
Insurance products become as client-oriented as possible. Instead of creating a line of universal products, innovative companies in the industry are offering their customers personalized “on-demand” offers. Each such product must be as unique as possible, i.e., designed based on an analysis of customer behavior.
The cost of a personalized policy is formed by insurance company employees based on a risk analysis for each client. This is the future of marketing in the insurance industry, which is based on an emphasis on quality service rather than increasing sales.
The main tool here is hyper-personalization. Such an approach provides many benefits, as follows:
- Relevant, timely customer engagement at all stages of the customer lifecycle;
- The ability to create the most accurate product recommendations for each customer;
- Hyper-personalization uses a variety of data collection methods, including telemetry, external data on road conditions, and off-vehicle situations;
- Extremely deep and dynamic understanding of customer needs;
- Creation of communication strategies and products that are fully tailored to individual consumer needs;
- Automated decision-making;
- Reduced time spent on data searching for each insured event.
Digital personalization of insurance products is an opportunity to generate a unique offer as quickly as possible without intermediaries. This includes the use of so-called flexible insurance product options, e.g., microinsurance or peer-to-peer insurance. Also, “wrapped” products, which are able to flexibly adjust to the needs of a particular client, are used to adapt to the specific needs of each customer.
Predictive Analytics
In order to offer your customers products that accurately reflect their demands, you need to analyze the needs of your target audience. Predictive analytics is used for this purpose. Its main task is to analyze possible insurance risks.
Other capabilities of such analytics are:
- Optimization of insurance offers;
- Maximum precision in working with clients;
- High sales effectiveness;
- Higher customer satisfaction;
- Fast processing of customer claims;
- Simple data processing;
- Early detection and anticipation of future trends in the insurance market;
- Risk-based premium generation;
- Accurate detection of fraud risk.
Thus, insurance companies can collect and analyze data on every customer, including information collected using IoT technology. The result is an increase in the level of engagement and, therefore, the profitability of the insurance company.
Automated Processing of Claims
An automated system for processing insurance policy applications is one of the quality service components. Ready-made online platforms and API apps are used for this purpose. Such digital tools can be quickly “embedded” in the IT infrastructure.
To quickly process apps from clients, automated underwriting is effectively used. It involves the comprehensive collection of data from several sources and its further analysis.
This way, the insurance company can accurately determine the level of possible risks before issuing an insurance policy:
- Health risks. If your client has chronic diseases or bad habits, e.g., smoking, the amount of the insurance premium must be increased;
- The number of financial limits. The level of insurance coverage after the applicant’s death is directly related to the amount of capital accumulated during the lifetime of the client;
- The applicant’s credit rating. To assess the level of creditworthiness of your potential client, the insurance company can use information from external sources. For example, this can be ratings of large agencies such as Experian or TransUnion CIBIL Limited;
- User policy. Is the client applying as a customer of the company or already has experience using the company’s products?
Ready-made digital automation solutions contain components such as RPA technology, as well as AI and ML elements. The use of intelligent automation provides excellent results.
Tools for the Insurance Industry
There are many digital tools that can be used in the industry to automate all processes:
- Unstructured data processing. Robotic process automation has been successfully used to simplify office routines, e.g., document processing and policy applications;
- Integration of digital infrastructure with legacy applications. An alternative to costly hardware replacement is the use of RPA bots, which can successfully integrate into existing infrastructure;
- Scalability. Automation of work processes contributes to high productivity indicators such as speed of service delivery, increased performance accuracy, and overall profitability of the business.
All of this is included in the advanced capabilities of data-driven and rule-based automation.
Intellectual Capital
The second important component of the successful work of insurance companies in the new reality is human intellectual capital. That is employees with high potential who are able to successfully bring innovations into the work of an insurance company.
The use of intellectual capital by company employees implies:
- The most effective use of knowledge, experience, and skills of employees;
- Human intellectual capital is the most important intangible asset of the company and one of the indicators of insurance industry efficiency.
There are three basic types of intellectual capital:
- Human capital, i.e., a set of knowledge, skills, and competencies of company employees;
- Relationship capital includes all relations existing not only between the company employees but also with business partners and clients;
- Structural capital includes the mission and values of the company along with its cultural strategy.
For example, if employees of an insurance company have created a digital infrastructure via InsurTech, the experience of using it is intellectual capital.
The list of InsurTech technologies includes various digital technologies that simplify the work of insurance companies. The list of such tools includes machine learning elements and cybersecurity apps.
Digitization of Data
Digital tools are effectively used by insurance companies not only to process big data and analytics but build the architecture of internal organizational processes.
Data digitization functions in the insurance industry are as follows:
- Digital policies. Clients can apply and pay online to download a digital policy without visiting the company’s office;
- Mobile apps. Customers can use a smartphone to buy an insurance policy or extend an existing one, as well as get a quick tip;
- Universal mobile platforms also aim to serve customers in real time. With the help of the company’s website and mobile app, the insurance organization can interact with customers almost instantly and quickly respond to their requests, thereby providing customers with an improved customer experience.
Another important advantage of digitization is quick and easy access to data.
Artificial Intelligence
AI-based technologies are actively used in the insurance industry to create a digital infrastructure. They can be used in all areas of insurance, including:
- Underwriting. This is the process of analyzing the risks that are possible in insurance;
- Precision pricing. The cost of each policy and the amount of each insurance payout is calculated individually based on each client’s potential risks;
- Prevention of fraud and money laundering. In order to prevent such situations, the analysis of possible risks is also used.
Also, software solutions and various apps with built-in ML elements are effectively used for such purposes.
Blockchain
Blockchain technology is actively used to provide the best possible customer service and reliable protection of user and corporate data. In the insurance industry, blockchain performs the following functions:
- Insurance can be provided through decentralized Ethereum applications or other blockchain technologies;
- Creation of an immutable and reliable record of the origin of each product;
- High-quality tracking of insurance products ownerships or claims anywhere, in real time;
- Effective fraud prevention through data protection;
- Creating a repository of customer data that has robust data protection against unauthorized access;
- Risk modeling, compliance testing, and comprehensive audit;
- Creating an industry-wide claims registry that is fully protected from unauthorized external access.
Blockchain can also be effectively applied to process automation. This includes the ability to create and clear all transactions without the manual intervention of employees.
Thus, blockchain-based insurance is an effective methodology for creating new products and offers based on customer trust.
Conclusions
The insurance industry is changing dramatically, primarily due to the development of digital infrastructure. To maintain the trust of existing customers and attract new ones, as an insurance company owner, you must constantly analyze market trends.
A list of major trends in the insurance industry includes the personalization of insurance products, the application of predictive analytics, and the automated processing of large amounts of data.
In addition to the development of digital infrastructure, the use of human intellectual capital is crucial. This is a combination of experience, knowledge, technical skills, and other competencies of employees, which are of great value to the company.
