Is Core Innovation in Insurance Only About Digitalisation

Sibylle Fischer August 6, 2024 Innovation, Digitalisation

Though digitalisation is central to innovation within the insurance industry, other transformations are also underway.

Let's talk about digitalisation

Digitalisation in the insurance industry generally refers to the process of applying digital technologies to improve products, processes, infrastructure and services. In general, digitalization practices have helped modernize the industry - lowering costs, making it run more efficiently and improving customer experiences.

Digitalisation has already transformed the industry in meaningful ways: real-time data sets have enhanced fraud detection and overhauled the way we assess risk, the Internet of Things (IoT) brought us a new universe of personalized products, services and revenue streams, and the rise of Insurtech companies disrupted old business models and forced the issue of digital adoption for many incumbents.

What's next in digitalisation for insurance?

Although progress from digitalisation has been significant, the industry still has loads of untapped potential when it comes to applying technology across its core business processes.

• AI
  As AI-powered technology advances, carriers are likely to begin updating many of their legacy processes around AI-enabled predictive analytics, with big changes coming in underwriting, claims, distribution and customer service. In addition, insurers will be looking at how AI can help them leverage their massive trove of data assets, with potential transformation of everything from back office processes, to customer experience, to the creation of novel products and services based on data and analytics.
• Cloud Computing
  Digitally transforming the industry's legacy IT architecture is still necessary for many incumbents. Moving away from on-premise to cloud-based technology will help increase productivity, upgrade processing and storage capabilities, and create enhanced customer service experiences. Cloud will also be essential in providing the computational power necessary to enable advanced data analytics.
• IoT
  As the precision and quantity of data gathered from the use of networked IoT devices continue to accelerate, innovations in connectivity will bring huge changes to the auto insurance industry, among others. Many insurers are already leveraging the power of telematics in advancing their core auto product offerings, with similarly transformative outcomes expected for products across the life, health, property and commercial lines of the insurance business. In addition, innovations in IoT devices with regard to sensors will help insurers make better, faster risk calculations, and help create superior experiences for customers.

And that's not all. Other important technological advancements that are expected to significantly impact the industry, include: process automation (robotics and 3D and 4D printing), distributed ledger systems (blockchain), virtual reality and online sales tech.

What else is set to impact core innovation in insurance?

It's clear digital technology is at the helm when it comes to the future of insurance innovation, however, a few other variables are also likely to influence transformation efforts.

• Managing General Agents (MGAs)
  Over the last several years, MGAs have proven themselves to be hotbeds of innovation and experimentation within the insurance value chain - and they are continuing to pick up steam as an alternative distribution model for insurers. With specialised expertise in emerging and non-standard lines of business and risk-classes, MGAs can access niche customer segments, use their nuanced understanding of these markets to provide more qualified risk assessments, and act faster than conventional insurers.
• Sustainability and Environmental, Social, Governance (ESG)
  ESG and sustainability insurance trends are also driving innovation in the face of never before seen environmental catastrophes and a new climate reality. These challenges are influencing the creation of novel coverage and risk management solutions and more sustainable business practices that can shift legacy approaches and core processes to address these issues more effectively.
• Compliance and Regulatory
  The changing rules and standards of the regulatory landscape is another strong influencer of insurance innovation, as regulators adopt new methods and introduce updated guidelines in order to protect and serve consumers and oversee appropriate market conduct. In turn, insurers and carriers will need to invest in infrastructure, process and policy changes to achieve compliance.

Innovation to core processes is ushering in a new reality for insurers. Adoption of novel digital technology will remain at the forefront of these changes, with other factors influencing how the industry ultimately evolves and responds to its rapidly transforming landscape.