Technology transformation in insurance: Getting future ready

A new urgency for change is visible in the insurance actuarial services, which is accepting the fact that technology could become the crucial differentiator between success and failure. Companies with a comparative IT advantage are agile, have grown faster and with better cost ratios, besides being future ready in terms of launching new digital offerings. The few that boast of analytical expertise are reporting revenues that are substantially higher than competing brands. 

Some might argue that the AI insurance industry was slow to respond to change. Pure Play digital brands have transformed banking and financial services, telecom, entertainment and mobility. Customer choices in all these verticals are decided by elements beyond the obvious. Amidst all of these digital transformations, insurance carried a history of incremental change, which probably explains this urgency for change. However, for insurance companies of the future, success may not just be defined by technology innovations, but their ability to define individual areas of excellence while leaving the rest to others. The one-size-fits-all approach would require a serious rethink as both customer demands and technology availability collaborate to create specialized solutions and brands having expertise in them. 

Before delving into the technology trends, let's quickly assess the customer behavior changes. For starters, there's a distinct push towards an integrated customer experience where insurance is often bought as an add-on to other services and goods. This highlights the value of insurance companies engaging in digital ecosystems that are often owned by other verticals, viz., media, technology, telecom, real estate, automobiles and banking. In addition, digital natives are causing customer expectations to rise significantly in terms of quality of service and agility of bespoke offerings. All of this results in added pressure on cost ratios. A recent McKinsey study found that cost ratios for the bottom quartile was 200% higher in life and 45% hiker in property and casualty insurance compared with the top quartile of brands. 

That insurance technology is making waves becomes even more clear when we take a moment to study these three news articles that hit the headlines during the April-June quarter of 2022: 

● In April, we saw Reinsurer Swiss Re close a unique stop-loss transaction that combined bank financing (from JP Morgan) with insurance linked securities, an easy protection from severe underwriting losses over the next five years. 

● In May, Mercedes Benz provided telematics insurance to its customers via Swiss Re's Movingdots, suggesting that auto OEMs could soon offer embedded car insurance via their apps. 

● In June, Ally Bank launched an insurance marketplace that allowed customers to compare and shop for policies - an innovation that exists in several geographies and has now put the United States on par with them. 

To assume that technology would be a magic wand that fixes everything would be a mistake as we are talking about only a handful of accelerated tech trends that could transform insurance. For example, we may see auto insurance risk shifting from the driver to artificial intelligence (AI) while satellite imagery could provide insurers with visibility of risks around houses and factories. Similarly, claim processing could be speeded up for natural calamities and life insurance could see products that adjust coverage based on a customer's evolving needs. The requisite technology is already available though applied AI, distributed infrastructure, trust architecture and next-levels of automation based on better connectivity could prove to be the differentiator over the next decade. 

The three instances shared above indicate that insurers need to adapt their operating models, products and core processes in the new world. Before defining the future path, executives need to get clarity on how these technologies could impact the future and whether it is actually the future that they see themselves in. Here is how some of the technologies will impact the future: 

● Applied AI has become a favorite for insurers though only a few have scaled up to optimize its use. With algorithms getting commoditized, carriers can re-engineer their core processes to build in predictability to disrupt distribution, underwriting, claims and service in a way that human intervention would limit to customer touch points. 

● Distributed infrastructure would see insurers make a rapid shift to cloud for core systems, spiking their agility in launching new products and improving customer service. It will also bolster computing power, enabling better utilization of large data sets, turning insurers in this system into orchestrators of innovation. 

● The Mercedes Benz example indicates a broader play for telematics, made possible by a wider adoption of high speed connectivity. This could also pave the way for IoT that could potentially reshape products in life, health and property insurance as devices begin to continuously share data. 

● Though robotic process automation isn't new, emerging technologies would enable carriers to rethink product and service on the fly. Industrial IoT could enable real-time monitoring of equipment while 3D printing could transform the claims experience for physical damages. 

● And last but not the least, technology would be required to build trust between insurers and their customers while sharing sensitive data. Blockchain technology could play an effective role in managing customer data in a safe and consistent manner while solving current challenges such as identity management and verification. 

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These technology trends can materially impact the underlying inputs of insurance products and core functions. However, their broader impact will be visible when technology interacts and builds upon one another, such as distributed instructure and trust architecture. Till such time, we can only be aware of Amara's Law which states that we overestimate short-term impact of new technology and underestimate the long-term impact.