Chris Maiato, EY
Digital innovation has become the norm in many industries around the world, but the COVID-19 pandemic has expedited the urgency to move to digital and, out of necessity, has pushed many companies into it much faster than expected, says Chris Maiato of EY.
Insurance providers, particularly in commercial, have been slow to shift to digital. If easy-to-use mobile apps, auto-filled e-forms, instant data validation, automated workflow, electronic payments and real-time status updates are available when ordering pizza, why can’t those technologies be implemented for commercial insurance?
Digital transformation can help insurance companies meet new customer expectations, while enhancing work structures and improving processes and profitability in the new world of social distancing.
The demand for digital is growing
The insurance industry has been experiencing a shift in customer preferences and expectations. Just as in other businesses where there has been a rise in on-demand services and products, factors like accessibility, product diversity and ease of use are driving consumers’ decision-making in insurance.
The end user expects interactions with service providers to be fast, efficient and as simple as possible. But the insurance industry has lagged behind other industries in giving consumers what they want—a seamless, fast and easy digital experience.
“Leveraging technology in optimising process efficiency and operational agility should be at the centre of insurers’ business models.”
For younger generations of consumers, digital interaction with financial service providers was already well entrenched. COVID-19 and the resulting social restrictions have forced many other consumers to adopt digital out of necessity and it is doubtful they will revert back to old habits.
Consumer expectations and demands are setting the pace of progress in consumer and commercial insurance. Digital innovation has become vital for acquiring new customers in expanded markets, retaining existing clients and launching new products or services, all at a lower cost per customer.
These factors accelerate the demand for digital offerings and force companies to act immediately. Direct insurers have many solutions that can be tailored to their customers’ needs to improve their overall experience. These range from basic user interface redesign to advanced technologies, including the internet of things, augmented reality and virtual reality. Many insurers are also opting to take this opportunity to redesign their business processes and product offerings to better meet these new consumer expectations and demands.
In commercial insurance, customers and employees are asking: why are processes so manual and time-consuming when digital technology is seemingly ubiquitous in all other aspects of our personal life?
Digital will define the future
The revolution in customer expectations is triggering an evolution across businesses, small and large. Nearly every insurance company, regardless of size or structure, must consider when and how to transform to a digital company. The industry’s sluggish adoption of digital leaves incumbents vulnerable to new entrants catering to digital customers. The good news is that companies who’ve introduced digital capabilities have already started seeing the benefits.
“The market is presenting insurance companies with a combination of threats and opportunities and how the carriers respond to these is going to define their future,” says David Connolly, EY Global Insurance Technology Leader.
Better customer experience and business value
Most insurance companies struggle with complexity around legacy products, processes, organisation, talent and technology. Insurance claim submissions rely on personal communication between customer and claim processor, supplemented by vast amounts of documentation that is exchanged and processed manually. Most off-the-shelf digital solutions are inadequate for dealing with these complex legacy processes and tailored solutions can be costly if not well managed.
Beyond customer experience, digital technology can also improve operations, revenue, compliance, claims and underwriting efficiency, sales productivity and speed to market.
Existing digital solutions can help by providing:
- Improved claims documentation that minimises the “back and forth”, saving employees time and improving customer satisfaction.
- Mobile tools that allow real-time photo submission for property and casualty claims; input controls within claim apps can drive completeness of submissions on the first contact.
- Biometrics such as well-implemented voice analytics can improve security for customer ease and operating efficiencies.
- Marketing tools with built-in data analytics that provide insight on customer inputs and can identify customer needs and opportunities for launching new products.
- Monitoring can range from telematics to smart devices and provides important decision-making data. Examples include real-time driver behaviour data for auto insurance and smart appliance data (eg, security alarms, smoke monitoring) for homeowners’ insurance.
- Process streamlining and automation of manual processes is a key priority for cost management and profitable growth.
Based on EY’s “NextWave Insurance: Personal Lines And Small Commercial” report, tomorrow’s winners will drive their transformation through:
- Ubiquitous use of digitisation, automation and AI that delivers vastly improved expense ratios;
- Customer experiences as good as or better than those offered by digital leaders in other industries;
- A data and analytics environment that provides continuous and actionable insight with a clear focus on target outcomes; and
- A commitment to designing, launching and servicing innovative new products and experiences more quickly and at a fraction of today’s costs.
Agility and growth in commercial
EY’s “NextWave Insurance: Large Commercial and Reinsurance” study found that by 2030, the industry could experience $600 billion in revenue growth and 25 to 35 percent improvements in combined operating ratios.
To realise these gains, the industry must be agile to meet evolving trends. Innovation and technology will be the key but must be accompanied by behaviour changes, including:
- Marketing and business development fuelled by data and actionable insights at product and industry level;
- Customer- and industry-focused teams collaborating to design bespoke solutions and differentiating propositions;
- Incubators and lab environment fostering product innovation; and
- Strategic partnerships creating tailored offerings and unique go-to-market programmes.
Leveraging technology in optimising process efficiency and operational agility should be at the centre of insurers’ business models. While assessing and pricing risk continues to be data-driven, being more data-driven in sales and operations will drive competition for market leadership.
This can mean different things for different sub-sectors of the insurance industry:
- Specialty insurers and global reinsurers must continue to prioritise new product and service opportunities and capital risk management. Expanding partnerships with alternative capital, exploring product innovation, increasing use of big data and augmenting analytical capabilities are keys to growth.
- Self-insurers have effectively become competition to traditional insurers with the rise of “super-sized captives”. To maintain and increase their position, captives will need to consider product innovation to map coverage to client needs.
- Innovation using blockchain and smart-contract technology offers significant benefits and can lead to new business models and product offerings such as peer-to-peer insurance. An example is the captive to/from parent data exchange. Information transparency and accuracy, improved access and reduction in repetitive data exchange are key benefits—and blockchains can be tailored to an organisation’s special needs.
The digital transformation journey
Embracing digital technology can help with short and long-term goals, but not all organisations know what the transformation should include or where to start. Consider these components first:
- Define goals and overall strategy;
- Structure a roadmap; and
- Select appropriate and experienced third-party vendors.
Insurance companies that take the opportunity to use digital transformation will not only meet the needs of customers for a great digital experience, but will also optimise costs, revenue and operations while improving processes and profitability.
The views expressed by the author are not necessarily those of the members firms of the global EY organisation.
Chris Maiato is principal and regional consulting leader, EY Region of the Bahamas, Bermuda, British Virgin Islands and Cayman Islands. He can be contacted at: firstname.lastname@example.org
Chris Maiato, EY, Digitisation