Digital Transformation in Insurance (Challenges, Examples)
- Published:
- Updated: August 7, 2024
As one of the most digitally mature sectors, insurance companies invest strongly in digital transformation, particularly artificial intelligence (AI). According to Zipdo, 67% of insurance executives believe AI will significantly impact the industry in the next three years, and over 80% of insurance companies are already planning to increase their investments in AI technology.
The modern insurance policyholder wants a hassle-free, self-service experience, is mobile-savvy, and is happy to buy policies from new players in the insurance industry – also known as InsurTech companies – if they can provide these experiences. In other words, consumers prefer insurance companies that have already made their digital transformation.
If your insurance business hasn’t already, it needs to begin digital transformation. In this guide, we’ll cover everything there is to know about digital transformation in the insurance industry.
What Is Digital Transformation in Insurance?
Digital transformation in insurance refers to the process of implementing cutting-edge technologies to improve every aspect of insurance companies. Examples include using online claims portals, automated fraud detection, claims management software, and more.
6 Examples of Digital Transformation in Insurance
Emerging technology and cloud software have disrupted the insurance sector, transforming internal operations, employee experience, policyholder experience, and core insurance workflows.
Here are six examples of digital transformation in the insurance sector:
- Automated underwriting using algorithms to generate contextual policyholder quotes
- AI & automation reducing claims processing time & cost
- Omnichannel customer experience tools improving policyholder communication
- Telematics technology enables personalization at scale
- Blockchain and smart contracts add transparency to P&C insurance industry
- Digital adoption platforms improving agent productivity & performance
1. Automated underwriting using algorithms to generate contextual policyholder quotes
Automated underwriting is a computerized process where robotic process automation (RPA) software and artificial intelligence uses algorithms to generate insurance quotes and underwrites the potential risk of clients, taking out the need for real people. This helps insurers with a more streamlined, less biased, and overall better underwriting process to assess, estimate, and price risk using aggregate or personalized data.
Once an algorithm completes its calculation, an industry professional reviews the quote or decision, investigates the logic behind why the automated underwriting system recommended the result it did, and adjusts if necessary.
Take Fannie Mae, for example: their Desktop Underwriter system recommends decisions for mortgage lenders like “refer,” “refer with caution,” or “approve.” Mortgage lenders want to issue more loans, but they must do so cautiously to minimize financial risk. When a lender gets a “refer” or “refer with caution” recommendation from the automated system, they’ll either underwrite the loan manually or reject the application depending on specific risks identified by the algorithm.
P&C insurers use a similar process to assess risk and price policies, such as homeowners’, car’s, and renter’s insurance. Approved customers can digitally sign up for a policy without speaking to a human underwriter through self-service experiences. If appropriate, a P&C professional can manually amend a policy once the customer is insured.
With automated underwriting systems or loan software, those applying for insurance can complete the process without speaking to a real insurance agent. The number of consumers willing to do that has grown rapidly over the past few years – from 17% in 2016 to 36% in 2020, an increase of over 110%.
2. AI & automation reducing claims processing time & cost
Manual claims processing typically takes around 30 days or more. And because there are many people involved in the process, it’s susceptible to human error. Artificial intelligence (AI) and machine learning tools, on the other hand, reduce claims processing error rates to 0% and speed up the process by one to 15 days. AI has also decreased processing costs by 30%.
AI and machine learning tools continue to get more effective at identifying potentially fraudulent claims and estimating damages and losses because they continually analyze relevant data. These tools can also be programmed to handle repetitive tasks, like filing the first notice of loss (FNOL), freeing up time for your agents to do more thought-intensive activities.
One AI and machine learning tool that’s been changing the insurance landscape is Lemonade, an InsurTech startup with an automated chatbot that has achieved the unimaginable: it processed a digital insurance claim in three seconds, from filing to payout. It has also identified a large number of insurance fraud attempts, saving insurance providers millions.
3. Omnichannel customer experience tools improving policyholder communication
Providing an omnichannel customer experience (CX) means meeting your customers where they are and communicating relevant information to them regularly. Your customers need to be able to buy policies, process claims, and more on both web and mobile devices. Insurance providers that meet those demands will find that their customers are more loyal and less likely to churn.
Omnichannel CX also means providing customers with easy access to information, accurate and predictive customer service, and fast processing times across all platforms. According to Salesforce, 58% of customers say that their expectations have changed because of existing technological advancements, including omnichannel CX tools such as insurance chatbots. They want a more retail-like experience—easy access to your product offerings and quick responses from your customer service team.
Insurance chatbots help your firm educate your customers, collect customer feedback, and run simple processes. Artificial Solutions’ AI-powered chatbot is a great example of a conversational chatbot that communicates with customers using natural language. Customers can ask the bot questions, buy policies, file claims, and more using a faster and more streamlined process. Customers have a great experience, and you save time and money in manpower and support.
4. Telematics technology enables personalization at scale
Telematics technology is data tracking software and hardware (think your cell phone, website cookies, global positioning systems [GPSs], and computers) that track users’ behavior with their consent. Before telematics, there was no way for insurers to track and influence policyholders’ behaviors. Insurers couldn’t assess risk on an individual level at scale, so they had to create policies based on general data instead of personal data.
Auto insurers have already started using telematics tools like GPS trackers and beacons to track data directly from customers’ cars and devices. With that data, insurers can anticipate changes in individual behavior to measure and reduce risks.
Insurers that use telematics and get the consent of their policyholders to track individual data can personalize policies and offer discounts that would not be possible otherwise. For example, instead of basing driving behavior on that of the general population, insurers can track an individual’s average driving speed, most-used route, rate of car usage, and more to give their customers policies that perfectly suit their needs.
Apart from tracking behavior, telematics has also enabled providers to influence behavior to reduce accidents. Fewer accidents mean fewer payouts. Insights from telematics help insurers make better decisions around underwriting and claims, in addition to personalized policies.
Insurers have also started looking at smart home devices outside of the auto insurance industry to further drive P&C insurance digital transformation. Smart home devices track home data, such as humidity and temperature, that can cause damage to a home over time.
5. Blockchain and smart contracts add transparency to insurance industry
Blockchain is a digital ledger that records data in the form of “blocks” that become a permanent record once they are accepted “on-chain.” Blockchains are easily accessible by permitted parties through blockchain-based platforms. Smart contracts are lines of code stored on the blockchain that automate insurance claims processing to improve user experience and back-end efficiency. The smart contract is ultimately what would approve (or not approve) the conditions of a claim and send it off to be included in a block.
Without blockchain, when a customer decides to purchase a policy, there are four parties involved: the customer, the broker, the insurer, and the bank. But conversations only happen between two parties at a time—for example, the customer only talks to the broker, the broker only talks to the insurer, and so on. Information is passed from one party to another and gets held up or lost during the tedious back-and-forth.
It’s a long, convoluted process that lacks transparency and efficiency and usually provides a poor customer experience. It takes time for information from the bank to get back to the customer because that information has to go through two other parties.
Blockchain solves that problem because it is a decentralized system that removes the middleman and makes information more accessible. When a smart contract is created, it gets added to the blockchain for everyone to see. The blockchain-based smart contract then automates the tracking, management, and cloud storage of policies, records of physical assets, and claims-triggering events to increase back-end efficiency and front-end transparency. Instead of inefficient paperwork and slow communication, blockchain enables all information to be accessed by any party at any given moment.
To illustrate the process, the smart contract auto-initiates claims processing when certain conditions are met (e.g., policy expiration). Each piece of new information that gets executed through a smart contract gets entered into another block on-chain that would be accessible for all relevant parties to access.
6. Digital adoption platforms improving agent productivity & performance
Insurance digital transformation requires an upgraded tech stack and updated processes that theoretically save you time and money. But if your agents don’t know how to use your tech stack or complete your processes, then the time and money you would have saved are wasted.
Unfortunately, you can’t use traditional classroom training methods to train your newly digital workforce because they are outdated, time-consuming, and not collaborative enough for digital learning. You need to digitize and update your agent training methods to increase agent efficiency and reduce redundancy.
A digital adoption platform (DAP) like Whatfix DAP provides an “in-app” training technology that integrates with your applications and walks your customers and employees through important processes and new technologies, as well as provides an easily searchable Self Help content database.
With in-app guidance features like guided Flows, in-app Task Lists, contextual Self Help, guided Tours, Smart Tips, and Pop-Ups, employee and customer end-users are enabled to quickly realize value and adopt new processes. It also supports your employees by providing contextual, automated guidance technology to reduce errors and increase performance. Use all of a DAP’s features to increase agent efficiency and improve the customer experience.
One example of how DAPs can drive efficiencies in the insurance industry is Sentry Insurance, which created end-user training 40% faster with Whatfix. They used Whatfix features to create and deploy training modules across six different applications for over 77,000 people.
Benefits of Digital Transformation in the Insurance Sector
Insurance companies moving toward digital transformation feel positive ripples in their policyholder’s customer experience, their company’s bottom line, and their ability to scale and adapt to new processes.
- Improved customer experience for policyholders
- Reduced costs
- Increased scalability
- Reduced risks & frauds
1. Improved customer experience for policyholders
A digital transformation helps companies streamline the customer journey. Policyholders are able to access all information in one place: quotes for policies, claims prevention messages, first notice of loss, claims management, loss assessment, repair, and settlement. This aligns with customer expectations from insurance companies — timely wellness advice, a wide selection of policies, anxiety-reducing interactions, and quick payouts.
Digitally-savvy insurers can also offer customers:
- Lower premiums: Root Insurance aggregates policyholder data points such as driving habits, credit scores, demographics, and location to offer better deals to good drivers. One study found that about half of customers are happy to share behavioral data in exchange for such benefits.
- Faster claims processing: Insurtech Lemonade’s claims bot assesses and pays out claims in three seconds. It also provides quotes for renters insurance and homeowners insurance in as little as two to three minutes.
- More claims transparency: Standardizing claims calculations with artificial intelligence (AI) allows customers to see a complete breakdown of their claims. This also reduces the chances of litigation for insurers.
This Fortune 500 insurance provider enabled their claims agents with in-app Smart Tips overlaying their Guidewire claims process. This enabled claims agents with state-specific guidelines for rare events such as natural disasters in the flow of work, reducing claims times, enabling claims agents in the moment of need, eliminating data entry errors, and providing faster claims service to policyholders at times of disaster.
2. Reduced costs
Online self-service platforms, cloud storage, and automation improve efficiency and reduce the need for support and sales staff, which in turn reduces insurance companies’ operating costs. This focus on digital-first operations is why up-and-coming insurance tech companies already enjoy lower expense ratios (10-15%) than established insurers (25-35%).
Lower costs mean higher profits. As per one report, Ping An Life Insurance’s P&C unit grew operating profits 70.7% YoY, thanks to its investments in loss assessment and customer profiling technology.
3. Increased scalability
Self-service digital platforms allow companies to serve more customers while reducing pressure on customer support staff.
Case in point: AXA’s broker platform helps 3,000+ brokers see the status of the claims in real-time, identify suppliers, and track the next steps. Prior to using the platform, the company struggled with a never-ending stream of status update calls and low broker retention.
Another example of the benefits of P&C scalability is in catastrophe claims processing. When disasters, providers, and agents need to scramble quickly to provide great customer service and process claims quickly for policyholders that have gone through a traumatic event and make sure they’re comfortable.
4. Reduced risks & frauds
Smart devices in homes, cars, workspaces, wearables and drones help P&C insurance providers monitor policyholder activity and gauge risks. When a claim is filed, they help assess the damage and reduce instances of fraud.
The SmartRide program by Nationwide tracks miles driven, nighttime driving, hard braking, and acceleration to offer appropriate quotes.
Analytics and artificial intelligence platforms help insurers identify false claims. They refine social and publicly available data and apply it to claims decision-making.
Challenges for Insurance Digital Transformation
Seventy-three percent of enterprises failed to derive any benefits for their business from digital transformation. Here are some of the top insurance challenges when it comes to digital transformation:
- Inefficient change management
- Dependence on legacy systems
- Talent shortages and training challenges
- Regulatory compliance
- Claims processing and fraud
- Risk assessment and underwriting challenges
1. Inefficient change management
The digital transformation causes companies to “change the organization, talent model, policies, processes and procedures – basically, the entire service model or business model,” Peter Bendor-Samuel, CEO of Everest Group, notes. Leaders who fail to manage this change will struggle with digital transformation.
It’s no wonder 42% of companies cite change management as an important factor in digital transformation. To reap the benefits of a digital overhaul, leaders must clearly communicate the degree of change and retire old processes. Merely implementing new technology is not enough.
2. Dependence on legacy systems
Like many sectors, the insurance industry has faced challenges adapting and adopting rapid technological advancements. This digital transformation has changed how insurance providers model their businesses, provide services to customers, and operate internally.
While the benefits of new technology and digital advancements present massive opportunities and growth for providers, the legacy application modernization process creates challenges such as guiding policyholders and employees through the transformation, developing new digital business processes and applications, retiring legacy applications, rethinking traditional business models, upskilling and supporting technology end-users, and more.
A few examples of new technology and enterprise software insurance providers must integrate into their infrastructure and workflows include:
- Claims Management Software
- Policyholder Portals
- Life Insurance Policy Administration Systems
- Underwriting Systems
3. Talent shortages and training challenges
The quality of an insurance company’s workforce impacts its capacity to grow, adapt to changing markets, and provide exemplary customer service.
Everest Group found a lack of internal skills and talent to be a major barrier in technology adoption among insurance companies.
There’s also a high skills gap in three major areas driving innovation in insurance: artificial intelligence, cybersecurity, and the internet of things.
Additionally, insurance companies also need to train employees once they switch to new systems. Inadequate training results in low adoption and little value for employees.
One survey found employees considered adequate tools and proper training as important job characteristics. When employers failed to provide adequate training, it made their job difficult and they were more likely to leave.
This is further strained by the fact that 400,000+ insurance employees are expected to retire in the next two years, and that 44% of millennials are not interested in a career in the insurance industry.
4. Regulatory compliance
While undergoing a digital transformation, insurance companies must ensure that innovations comply with relevant regulatory mandates for data governance, security, and customer privacy. This requires a tailored approach, as various factors influence the specific regulations impacting operations.
For instance, integrating AI and machine learning can enhance risk assessment and customer service. However, these technologies must adhere to local data privacy laws. Insurance companies adopting such digital tools should invest in robust cybersecurity measures, employee training and upskilling, and regular third-party risk assessments to ensure compliance and security.
5. Claims processing and fraud
Processing claims and detecting fraud involves complex verification mechanisms that can pose challenges as fraudulent tactics evolve, when technology and resources are inadequate, and when processes aren’t standardized. The capacity to detect and prevent fraud is necessary to maintain the integrity of the company and the insurance industry. This is another area where digital transformation, advanced analytics, and even artificial intelligence are beneficial.
6. Risk assessment and underwriting challenges
Insurance policies and premiums are determined by risk and underwriting. These complex and dynamic factors require careful analysis and innovative solutions when issues arise. From cybersecurity threats, adopting new automated underwriting processes, data quality issues, ever-evolving regulations, and underwriter end-user errors, insurance organizations must remain agile to ensure the accuracy and quality of assessments.
Digital transformation in the insurance sector is challenging, costly, and resource-intensive, with lengthy implementation and migration cycles. Each project is unique, adding complexity.
Accelerate your insurance digital transformation by empowering your technology end-users (internal staff and customers) with contextual in-app guidance and real-time support using Whatfix’s digital adoption platform (DAP).
Whatfix offers a no-code content editor (Whatfix Studio) to create in-app assistance, guiding end-users through complex processes and digital experiences. This enables correct utilization of digital platforms, optimizing user experiences, and driving business outcomes.
Whatfix’s DAP enables insurance companies to achieve digital transformation and streamline the adoption of software and technology by enabling end-users with contextual, guided experiences, including:
- Contextual end-user onboarding experiences with Tours and Task Lists that drive early technology adoption.
- In-app Flows that guide end-users step-by-step throug complex insurance processes, like claims adjustments or process catastrophe claims.
- Real-time end-user support with Self Help that aggreates all SOPs, documentation, support, training, and more into one searchable wiki.
- Smart Tips that provide in-app nudges and additional context.
- Pop-Ups and Beacons that communicate alerts, announcements, and process changes
- Improved your data quality through Field Validation
- User Actions for agent behavior analytics to improve training effectiveness and end-user adoption
- In-app Surveys for collecting customer and employee feedback.
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