Contrary to their reputation for old-school thinking, insurers are highly aware of the need to rethink their processes, technology foundations and business models to succeed in the digital future. Over $1.6 trillion of new value is set to be created through the application of digital technologies and approaches in the next three years alone, according to our research.
In a world of abundant data, in which wearable devices can generate individual health profiles and customized premium quotes, and auto policies can be based on actual driving performance, historical norms increasingly seem exactly that: remnants of a bygone era. Indeed, the industry itself will be nearly unrecognizable in the next decade due to digital change.
To understand this “digital-first” environment and the changing nature of work in the insurance industry, Cognizant’s Center for the Future of Work surveyed 2,000 senior-level executives around the world, including 168 insurance respondents.
Our top findings can be categorized in the following seven themes:
The impact of digitization will be profound.
Two-thirds of insurers (61%) believe that digitally-driven transformation is the key to their organization’s commercial future. And nearly all (97%) agreed that required skills will change significantly in the next three years, particularly as work becomes more strategic, specialized, automated, augmented and technical.
This may come in several forms. Some insurers may begin targeting a micro-vertical niche — say, bio-chemical research intellectual property protection — rather than continuing to pursue large, undifferentiated marketplaces. Others may reduce costs in back-office business processes through the deployment of robotic process automation (RPA).
Data and AI will play a key role.
Respondents agree that big data analytics is the number one force shaping business models and commercial opportunities. More surprising is the second-rated key trend: AI. Between now and 2020, a new generation of leaders will separate from the pack by injecting AI and its sub-components (e.g., machine learning, neural networks) into the algorithms that produce actuarial models and premium quotes.
As personalized risk management gains traction over the new few years, large insurance providers will begin to understand their end customers in more detail through natural language processing and analysis of relevant data. They will also use machines to help humans make more rational recommendations or decisions in ways heretofore impossible.
The economic benefits of digitization will be extremely positive.
Executives believe the overall effect of digitization will be hugely positive. 85% of respondents say digital channels represent less than 20% of revenues today — but will generate between 20% and 30% of all sales by 2020, according to 72% of those surveyed. This is an unprecedented shift by any measure, making it clear that industry disruption is a very real issue for all.
With new entrants flooding the market with lower-than-incumbent pricing, it’s clear digitization could pose a threat to growth. We believe winning insurers will move beyond a focus on claims submissions and begin offering more targeted, often higher margin insurance products and new, related risk management products and services that focus on better outcomes (such as better health, better protected homes, safer cars).
Your job will change significantly by 2018.
Working with AI and automation-based technology will change what humans do in the insurance workforce. One of the major challenges is empowering employees to analyze new types of data and make new types of decisions rather than simply carrying out rote work. This is a significant trend that will shape the types of roles that people play in an era when machine intelligence will require people to contribute higher levels of “value add.”
The skills needed to succeed will change materially as well.
What got you “here” won’t get you “there.” For instance, 68% of respondents said that analytical skills were the most important in 2016. By 2020, this figure rises to 88%. The implication is that analytical skills — already regarded as the most important overall skill by a majority of respondents — will only grow in importance as even more people see the power of data and data-based insights.
The ability to think strategically becomes more important as lower level tasks become more automated, as does ease with working in a global environment as business becomes ever more multi-national.
At the heart of all this change will be a new generation of technologies that you and your company need to master.
Cybersecurity and big data rank as the first and second most important technologies in 2016 and will continue to jockey for the top slot between now and 2018; big data will win out in 2020. The “public cloud” will be the third most important technology by 2020.
Insurers clearly see that the blockchain and digital currency dynamic is likely to be very significant in the foreseeable future; these were the number one and two “movers” in the rankings between 2016 and 2025. The insurance executives in our survey have clearly “got the blockchain memo” and are motivated to further explore its potential and infuse it into their organizations — where appropriate — over the next few years.
Obstacles to digital transformation exist, but they are surmountable.
Given the strong positive sentiment toward digital transformation, it’s a wonder that insurance companies haven’t made more material progress toward achieving large-scale change. The main issues, respondents said, include “lack of budget,” data security concerns, unpredictable market conditions, return on investment, and attracting the right skills and talent.
We believe all these challenges can, and will, be overcome — simply because the alternatives are unthinkable. In not harnessing the power of new “systems of intelligence” (i.e., AI and algorithmic-infused software) and monetizing data, a company is condemning itself to, if not death, then at a minimum a slow and steady retirement.
Insurance executives cannot afford an ounce of complacency. Over the next three to five years, we expect to see many if not all of these hurdles overcome and the transition to a “software-mediated” insurance industry in full swing.