What is digital insurance?<\/h2>\n
Digital insurance refers to a digital-first approach to running an insurance business, where technology becomes a core element of operations and customer service.<\/p>\n
You might wonder: since most insurance businesses use some technology, doesn\u2019t that make them digital insurance providers? Not exactly. Being a digital insurer involves more than just using software; it requires transforming the entire insurance experience for both the company and its customers.<\/p>\n
A key aspect of digital insurance is the digitalization of the entire value chain, from customer acquisition and underwriting to policy management and claims processing. Traditional insurance providers may use software for specific functions, such as managing customer records or processing claims, but they often still rely on manual processes.<\/p>\n
Another significant difference is in customer interaction. Digital insurers emphasize online channels like websites, mobile apps, and chatbots. In contrast, traditional insurers often rely on in-person meetings and phone calls, offering only limited online services and lacking the comprehensive digital integration seen in digital insurance.<\/p>\n
Benefits of digital insurance<\/h2>\n
By positioning technology at the heart of the business rather than viewing it as merely a support tool, the digital insurance approach delivers substantial benefits for both insurers and customers. Let\u2019s explore some of the key advantages.<\/p>\n
It makes insurance convenient and accessible<\/h3>\n
With a digital-first model, customers can purchase, manage, and renew their policies online through web platforms or mobile apps. They can check insurance details, make changes, and file claims anytime, anywhere \u2014 without the need for in-person visits or phone calls. Additionally, customers are not restricted by office hours; they can obtain instant quotes, update policies, and track claims around the clock.<\/p>\n
It reduces costs for insurers<\/h3>\n
The digital insurance model enables insurers to do more with less, making operations leaner and more cost-effective. By automating routine tasks such as data entry, claims processing, and customer service, insurance companies can free up staff for more strategic roles and reduce labor costs.<\/p>\n
Digital automation also accelerates processes, resulting in faster turnaround times and lower overall expenses. Additionally, transitioning to digital reduces the need for physical office space, leading to further cost savings.<\/p>\n
It gives digital insurers a competitive edge<\/h3>\n
Digital insurance providers gain a significant competitive edge by offering flexible and customer-focused products. For example, advanced tools enable digital insurance providers to create policies based on real-time data, such as mileage for auto insurance or health metrics for life insurance. This means customers pay only for what they actually use or need. These personalized and adaptable coverage options distinguish digital insurers from traditional providers, who often offer more static and less dynamic services.<\/p>\n
It prevents fraud<\/h3>\n
Advanced technologies used by digital insurers can analyze large volumes of data to detect patterns that may indicate fraudulent activity. This makes it more challenging for fraud to go undetected and allows for the early identification of suspicious claims and behaviors. Additionally, predictive models that assess risk factors and historical data can identify potential fraud before it occurs, enabling digital insurance providers to take proactive measures to safeguard their businesses and data.<\/p>\n
Digital insurance: Market overview<\/h2>\n
Out of every crisis, the insurance sector has only emerged stronger. The current crisis is no exception. After a slump, global insurance markets are bouncing back. McKinsey<\/a> confirms a gradual rebound in 2021.<\/p>\n Source: McKinsey \u2014 Global Insurance Report 2022<\/a><\/em><\/p>\n As the impact of the health crisis waned, cross-sector recovery and market normalizations (to an extent) have been driving organic growth for insurance players. According to Statista<\/a>, the global insurance market was valued at $6 trillion in 2022 \u2014 the first year after the pandemic \u2014 and is expected to keep growing in the coming years.<\/p>\n However, the pandemic prompted not only the growth of the market but also the digital transformations in the insurance sector<\/a>. Most insurers are now recognizing<\/a> that simply reacting to risks isn’t enough: they need to transform their approach to prevent losses. Along with the growing demand for customer-focused services, it creates a pressing need to adopt new technologies and innovate.<\/p>\n Moreover, the digital insurance market is rapidly expanding, with an estimated value of $132.86 billion in 2024<\/a> and projected to reach $229.07 billion over the next five years. This growth is led by the emergence of new, digital-first players who are raising the industry’s standards and driving further innovation.<\/p>\n So today, insurers are once again back to the drawing board. This time around, many have bigger technology budgets \u2014 but also a larger spectrum of needs to address.<\/p>\n Indeed, technology for insurance is easy to find these days. You have plenty of options pitched by tech vendors, startups, consultancy firms \u2014 practically every thought leader in the space.<\/p>\n But how do you move away from decades of separation of business and technology toward an interconnected digital insurance stack?<\/p>\n We discuss three essential tips in the next section:<\/p>\n Similar to financial services<\/a> at large, the insurance industry is:<\/p>\n Insurers need to do three major tasks in parallel: improve customer offerings and the customer experience, minimize the risk radar, and grow operational effectiveness. Many must do so across service lines designed for different industries \u2014 automotive, healthcare, logistics, construction, etc.<\/p>\n Because there are so many jobs to be done, there\u2019s no shortage of technology for insurance being branded as \u201cpromising,\u201d \u201cinnovative,\u201d or \u201cdisruptive\u201d for one use case or another.<\/p>\n Source: InsurTech Insights \u2013 Insurtech 2022: Hype vs. Impact<\/a><\/em><\/p>\n Artificial intelligence (AI) and machine learning (ML) are promoted as solutions for improving back-office processes: claims management, underwriting, risk analysis, etc. At the same time, they are touted as the tech pillar for innovative insurance products \u2014 context-aware, usage-based, and hyper-personalized.<\/p>\n Likewise, drones in insurance<\/a> can massively increase the speed and quality of inspections while supplying field data during claims investigations.<\/p>\n What is often left unsaid in conversations surrounding new insurance technology are prerequisites for adoption.<\/em><\/p>\n Can most insurers benefit from AI? In the long-term perspective, sure. Will every insurer get immediate ROI from AI? Not without mature digital infrastructure in place.<\/p>\n Much-hyped emerging technologies for insurance require an existing technical foothold \u2014 cloud connectivity, APIs, robust and secure data governance frameworks, and a high degree of business process automation.<\/p>\n When an insurance business is mostly backed by a paper trail rather than connectivity, no novel technology can fix that. You need to put down your digital roots first.<\/p>\n And we propose a bottom-up approach for that:<\/p>\n Branches, brokers, paper-based back-office \u2014 the triumvirate worked well, with small improvements being enough to spur growth.<\/p>\n But year after year, the baggage of legacy insurance systems has gotten heavier. Though some players have managed to successfully digitize some processes and update the system\u2019s legacy rules, productivity improvements have often proved marginal.<\/p>\n McKinsey<\/a> found that among global P&C carriers, expense ratios reduced only by 45% between 2014 and 2019. IT and operations accounted for 50% of a typical insurer\u2019s cost base in the same period.<\/p>\n Source: McKinsey \u2014 Successfully reducing insurance operating costs<\/a><\/em><\/p>\n For most insurers, the idea of modernizing legacy core systems<\/a> sounds almost heretical. Why flip on its head what is fully functional? you might be wondering.<\/p>\n And you\u2019re right. Legacy insurance systems don\u2019t have to be ripped apart or fully replaced with new custom solutions. In most cases, you\u2019ll end up with another obsolete system in several years\u2019 time.<\/p>\n But you can\u2019t keep the status quo either. Inaction can lead to loss of market share and revenue to faster-moving digital insurance players that offer a better customer experience (CX), release innovative products faster, and operate at lower costs.<\/p>\n What\u2019s the fix, then? Progressively adding new blocks atop your core systems and digitizing back-office and front-office processes.<\/p>\n To achieve extra operational resilience and contain costs, insurers must map:<\/p>\n Learn more about achieving resilience in insurance operations<\/p>\n Let\u2019s take claims management as an example. Six in ten insurers<\/a> admit that emerging technologies have made a significant impact on their claims processes. Why? Because most of the steps have been manual and\/or dependent on human labor.<\/p>\n Steps from paper-based claims submission to subsequent data entry, verification, and claims settlement are done semi-automatically (using rules) with few integrations available for faster data reconciliation.<\/p>\n When essential steps like intake information collection, data dissemination, and reconciliation are automated with RPA, astounding results follow. A multilinear insurer<\/a> automated their disability claims management process (one of many) and saw a 25% increase in staff productivity, a 40% reduction in handoffs, and an estimated $37.4 million project cost reduction over four years. They didn\u2019t even have to retire any legacy software, by the way.<\/p>\n Action steps:<\/b><\/p>\n You\u2019ve done the groundwork. Your back-office runs like clockwork \u2014 business systems are better integrated, third-party data comes via integrations, and standard workflows are automated. Agents are happier and more productive, plus expense ratios are down.<\/p>\n It\u2019s time to push the envelope further and face the customers.<\/p>\n The new generation of connected consumers don\u2019t want to visit the branch or talk to an experienced agent<\/em> on the phone.<\/p>\n Insurance customers<\/a> are more thrilled by the prospects of<\/p>\n All the above are pillars of a stellar customer experience (CX) in insurance \u2014 but providers don\u2019t hold up to their end of the bargain. Most overestimate their CX compared to the competition:<\/p>\n Source: IBM \u2014 Elevating the insurance customer experience<\/a><\/em><\/p>\n The majority of insurers also harbor outdated beliefs about customers. In 2020, only 5% of insurers actively used websites for engaging with prospects, whereas 49% of consumers<\/a> marked this channel as \u201cimportant.\u201d<\/p>\n It appears that cost containment and operational effectiveness improvements pushed customer-focused initiatives to the backburner over the past two years. If that describes you, it\u2019s time to get back on the customer track. ,<\/p>\n Where traditional insurance companies have stalled, InsurTech players have rapidly moved in. Around 40% of digital insurance companies<\/a> have cut into profits at the marketing and distribution segments of the insurance value chain.<\/p>\n Similar to digital banks, InsurTech providers have won over customers with convenience and fast access to competitively priced products. Using a combination of intelligent process automation<\/a> and big data analytics<\/a>, they can issue flexible policies in minutes. A seamless digital account opening experience and fast onboarding have helped them rapidly grow their user bases.<\/p>\n The Global Insurtech Market was estimated at $16.6 billion in 2023 and is projected to increase to $36.5 billion by 2032.<\/span><\/span><\/p>\n <\/div> \n <\/div>\n As it\u2019s easy to guess, a lot of these funds will go into further CX improvements and diversifying digital insurance service portfolios.<\/p>\n Traditional players must move fast too and transition to omnichannel sales, plus deploy more tailored customer products.<\/p>\n Place customer pain points at the center of your insurance product development<\/a>. Then ask how good your company is at recognizing these issues during the sales process. What steps are you taking to increase the speed, accuracy, and fairness of claims resolution?<\/p>\n When mulling these questions, many insurers realize they lack sufficient data. In particular, many lack intelligence across two axes \u2014 customer knowledge and field data.<\/p>\n![\"What](\"https:\/\/d17ocfn2f5o4rl.cloudfront.net\/wp-content\/uploads\/2022\/07\/digital-insurance_body-image1.jpg\")
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\nIf I were to drop by your board meetings today, I\u2019d probably hear things like:<\/p>\n\n
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Digital insurance: Why not all technologies were born equal<\/h2>\n
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<\/p>\nBaseline: Digitize standard business processes<\/h3>\n
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Mid-term: Leverage digital insurance technologies for added value<\/h3>\n
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