What are the key issues facing the Insurance industry, and can digital transformation offer a solution?

Emerging competition

One of the biggest issues traditional insurers face is the evolution of new tech savvy start-ups.

The Insurance sector is often referred to as a ‘tech laggard’, meaning it is slow to adopt digital transformation and when it does, it is to solve isolated problems. Many traditional (or long-established) Insurance firms find themselves bogged down with siloed, legacy systems that stunt their ability to adapt and react to digital evolvement.

Insurance provider start-ups, that are using Insurtech from the get-go, are disrupting the industry through technical innovation and modelling risk in new ways.

To remain competitive, insurance firms should embrace digital transformation as part of their overall strategy. Data, automation and AI can streamline processes to simplify broker management, quicken the claims process and enable insight-led engagement.

This improves the customer experience (74% of consumers are open to receiving AI-based computer-generated Insurance advice) and empowers employees to use insurtech to drive business change.

Legacy systems

Legacy systems are at the core of insurance firms falling behind the competition.

Insurance technology spend is projected to grow by 25% or more in the lead-up to 2026. To move with the times and embrace better customer-centricity, firms must invest in innovative strategies regarding their core insurance systems.

Cloud migration should be leveraged by insurers to use real-time data to create usage and behaviour-based offerings to strengthen their position in the market.

Although the main reason for slow migration to the cloud in insurance is security and regulatory concerns, modern cloud computing is more secure, cost-effective and market-responsive than on-premises servers.

According to McKinsey, there is a 23% annual growth in cloud services projected by 2025. It was also reported that the cloud run-rate EBITDA impact (as a percentage of 2030 EBITDA in the Insurance industry) is the top-ranked, at 43-70%.

The argument to migrate is clear.

Technical debt

Another key issue facing insurers is technical debt – in other words, technical shortcuts that were chosen in the past (often to meet tight deadlines) rather than using best practices to produce higher-quality work, creating issues in the long term. For example, when developers create code quickly to meet deadlines, they may copy existing code rather than refactor a method to include the new functionality.

This shortcut means that there is inadequate testing carried out, and now two sets of code exist. In the future, this creates more code to modify. Customisations with subpar coding mean that the future cost of maintaining, fixing and upgrading these systems builds up.

Technical debt can, therefore, emerge through quick-fix, siloed technologies that cannot be easily integrated or upgraded. Instead of spending capital on maintaining inefficient machines, with inefficient code, Insurers should invest in innovation – in 2022, the UK was listed as one of the top countries for receiving Insurtech investment.

How can this be done?

According to Gartner, 70% of enterprise applications will be low-code/no-code by 2025. By upgrading to a low-code/no-code development platform now, Insurance organisations can extend or customise apps that they already use, and systems are futureproofed to support ongoing development, preventing further technical debt and lag from legacy systems.

Shifting customer expectations

In a digital, ‘always on’ world, it is vital that Insurers can meet their customers’ expectations. McKinsey found that over 40% of Insurtechs are focused on the marketing and distribution segment of the insurance value chain, allowing them to use data and AI to provide digitally enhanced client experiences.

Recommended

• What’s the Latest Data on the Scottish Tech Labour Market?
• Scotland’s First SME-Focused Bank
• Brightsolid Bolsters Tech Team With Two Key Appointments

Similarly, almost three-quarters of 14,000 Insurance consumers interviewed by Capco said they would share personal data to receive cheaper Insurance premiums. It is therefore crucial that Insurance organisations have the technology in place to enable this.

The next generation of Insurance customers are digital natives and expect quick, zero-hassle online and in-person experiences. This means that a digital-first approach must become second nature to Insurance firms – whether this is partnering with Insurtechs or third-party technology organisations.

So, how can Insurance organisations keep up with growing customer expectations? Incremental Group and Microsoft are running a free online webinar on the 22^nd March, Insurance relationship enablement in a digital-first world, which explores creating exceptional Insurance customer experiences by embracing cutting-edge customer service technology. Register for free today.