It is contradictory to understand that digital technology has made business processes more efficient and companies these days are advised to embrace its benefits. Moreover, digital technology has driven some companies to become clear market winners, but for many companies its impact has exhausted corporate earnings and destroyed the overall value of an industry. So in reality, it’s not the companies but the consumers that are ultimate champions.
Thus, it is likely to be in insurance sector. From many years, the outdated insurance business models proved to be resilient. But now, insurance companies are also feeling the change of digital technology. It is changing the way how products and services were delivered and increasingly it will change the nature of those products and services. So the companies that move decisively are likely to flourish the opportunities and some will find it challenging to generate striking returns.
Common benefits of adapting digital technology for insurance business:
- Lowers costs– The ultimate goal of digital technology is to reduce the costs of insurance companies with efficiency. By digitizing the existing business, carriers can remove significant cost across the value chain.
- Satisfied customers– The aim of insurance companies is to satisfy their customer’s demands. This can be achieved with a digital solution, wherein customers will get 24-hour access and quick delivery, along with clear and relevant information about the products, its features, pricing, and much more.
- Increased growth– Undoubtedly, with higher customer satisfaction, insurance carriers can drive their business to the next level. They can easily focus on their core business operations by digitizing the processes.
It is adequate for the insurance companies. However, like every good side, there’s a bad side too. In the same way, the impact of digital technology can erode the advantages for insurance businesses. When there are low interest rates and tighter regulation constraining the performance of the insurance business, digitization can help to survive in such fierce scenarios. But, while opportunities abound, there is no guarantee that today’s incumbents will be the ones to grab them. Digital technology is eventually opening the doors for new attackers that will erode the benefits.
Attackers at the door:
Complex regulation was, is and remains a constraint to new market entrants. So is the size of incumbent’s strength, which joined the customer’s tendency in P&C and specifically in life insurance. This becomes hard for new entrants to rapidly capture the market share. Furthermore, incumbents have the pro of large capital reserves, as start-ups don’t want to risk their balance sheets.
This resistant explains; why the industry as a whole lags behind many other sectors in its digital development. But the situation is changing now; money invested into the industry suggests that it is no more considered as secure. In 2015, venture capitalists globally invested $2.6 billion in insurtechs, and about $1.7 billion in 2016. However, these new entrants are populating every part of the value chain; their focus is mainly distribution, particularly in P&C insurance.
- Risk prevention– Digital technologies give rise to ever increasing amounts of data and even more insights that might make more accurate pricing of risks, but they also help in mitigating risks, reducing premiums, easy claims processing etc. Let’s take an example of auto insurance, they provide forward collision avoidance, blind-spot assist and adaptive cruise control that are inbuilt in many new cars, which makes the vehicle safer. This is reducing the number of accidents and thus the value of personal auto insurance policies.
- The influence of data analysis– Data and analytics are changing the core of competition. Developed companies’ use both, not only to improve their foremost business operations, but to introduce entirely new business models. Insurers have valuable data history of their clients. In a few years, it is estimated that underwriting will gain value when competing with newcomers. These newcomers have access to more insights, real-time data collected from the Internet of Things (IoT), social media, credit card histories, and other digital records.
- Official investors- Since many years, large institutional investors are investing into insurance- related instruments on the capital markets in search of non-correlated returns and higher yield in a low interest rate environment that disinter mediate reinsurance in the process. Till date, they have focused mainly on reinsuring property risk with a sum of $70 billion in 2015. But, now they have their eye on the primary market.
What it takes to transform the business process quickly and at a scale?
A survey was held by Mckinsey on insurance digital transformation; they interviewed some 30 executives in incumbent and confronted companies to understand their view on how the insurance industry is changing and what the response is. The single message that was continually repeated was the need for incumbent to accelerate their reactions. Most of them were aware that they can’t afford to wait until evolving technologies turn the market upside down and the competitive advantages they enjoy today fade away. If the past tells them anything, it is that they need to get ahead of the curve, and they need to do so at a scale. This is ultimately transforming the entire business.
A road map for the future:
Insurers these days should not underestimate the changes that digital technology will bring to the industry and the challenges that they will face. They should neither overlook the significant short-term profit improvements, which are within their grasp if they digitize their core businesses. Nor should they be afraid of innovation, aiming to be a part of an exciting future that is reshaping the industry. If they act decisively, they will be among its leaders. One of the most convenient options for insurance companies is outsourcing insurance services. In order to streamline insurance back office services process and to save costs; outsourcing has become emerging trend in the insurance sector that offers well infrastructure, a team of experts and access to latest technology. It will also help insurers to focus on core business operations and earn potential revenue for the business.
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