The Future of Insurance: 8 Fact-Based Takeaways (Part 1)
Data, algorithms, and artificial intelligence are changing insurance faster than almost any other industry. Based on our latest, in-depth research, here’s what insurers need to know before preparing a favorable response.
Insurance today is at a crossroads and faces perhaps its most significant strategic decision in decades. Thanks to rapid reliance on big data, algorithms, and artificial intelligence to analyze, process, underwrite, and pay claims, insurance will look very different in just 5–10 years than it does now.
Of course, the stakes are high. Insurers that fail to embrace a digital mindset risk missing out on the $1.6 trillion of value that next-generation insurance is set to create in the next three years. To better understand this expected realty, Cognizant recently conducted a thorough review of the latest trends, competitive threats, promising opportunities, and best ways for insurance executives to prepare a favorable response.
In this part one of a special three-part series, we’ll identify and demystify the eight key challenges facing insurers today. Let’s get down to business.
Insurers must “be” not just “do” digital.
Until now, most insurers’ approaches to going digital have amounted to a digital veneer (or mobile apps) placed on top of legacy systems, processes, and products. The growing impact of the Internet of Things (IoT), big data insights, and the advancement of machine learning and automation, however, requires fundamental change in how insurers apply digital technology. After all, 61% of insurers felt that digitally-driven transformation is the key to their organization’s commercial future, according to a recent Cognizant survey. Hence, insurers must evolve their products and risk processes to meet these new demands.
Insurers must provide intel to remain relevant.
As digital opens new doors for retail and commercial consumers to access services, insurers are struggling to keep pace with heightened expectations. For personal lines, new entrants are focusing on new insurance models and addressing specific failings in the current insurance customer experience. Life insurers, meanwhile, are struggling to attract new business, according to several studies. All the while, commercial customers are striving for deeper insights from big data. Thus, finding value through insightful data will be key to insurers’ growth and differentiation in all lines of business.
Insurers must move from reactive to preventative models.
We already know that big data advances can unlock new revenue streams for insurers. To attract new opportunities with added value, however, insurers must shift from the traditional reactive insurance model to a new IoT-driven preventative model. For instance, commercial property insurers can use data captured by connected buildings to help reduce the risk of fire or water damage and add further value by generating insights about building-use patterns and worker behaviour.
Predicting behavior will reveal new revenue.
As big data gets bigger and more widely available, insurers can become more than indemnifiers of risk. By understanding how to drive positive behaviours, they can coach businesses and individuals with informed insights. To do this, however, insurers will need significantly more human behavior expertise before supplying new advisory services.
New models free up money.
If insurers successfully shift their models from reactive to preventative, it will disrupt the economics of their businesses. As a result, customers will make fewer claims and premiums will fall. Insurers must, therefore, educate the value of and convince customers to pay for empowering insights. By going a step beyond the preventative risk model, however, insurers can unlock more capital efficient revenue streams and free-up capital previously tied up for liquidity compliance — opening up huge opportunities.
New models lead to more facetime.
While insurers’ traditional business models involve limited customer interaction, new models will require multiple client interactions and proactive engagement. This presents a potential threat if not done well, but for those that can adapt, there is a clear opportunity to increase interactions with customers. By automating processes and implementing intelligent digital technologies, insurers can become hyper-efficient in areas such as claims handling and underwriting and devote greater resource to more meaningful, higher-value interactions with customers.
Deciding the right strategy for your organization.
As the insurance industry is disrupted, insurers must assess their strengths and identify the model that they can best compete with in future. That might be as a master of omnichannel delivery to own the customer relationship, the orchestrator of an ecosystem of partners, or a super-efficient, data-savvy supplier that offers its services through third-party providers. Regardless, the key to future success is charting the right course for you, sharing a clear vision across the organization, and empowering the workforce to get behind and carry out that change.
Insurers must learn to run.
While insurers’ existing business models hold significant value—in their vast experience and knowledge as well as their strong capital base—the industry is not known for its quick feet. The next step forward is to assess where value can be generated a decade from now and to embrace strategies that will accelerate the path to get there — whether it’s collaborating with industry disruptors or establishing new ventures. Whichever route they choose, insurers must move fast to make the most of their heritage advantages and ensure that they are a beneficiary of industry change, rather than victim.
In part two of this three part series, we’ll outline the ways insurers can respond strategically to the above. In the concluding part three, we’ll make executive recommendations to help make those strategies a successful reality.