Customers are unsatisfied with their engagement with insurers. Consumer needs have evolved and require sophisticated solutions and hyper-personalized products and services.
Insurers need help in choosing a strategic path to success. Increasing efficiency while reducing cost is essential as traditional and nontraditional competitors rush to fill the gap and gain market share. The next generation of customer engagement and satisfaction is defined by new technologies such as blockchain, artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT).
Investment in innovation is challenging. New products and services are best created in an agile environment, with advanced technologies and their ecosystem. However, the IT budgets are defined by the company's asset size. More prominent firms have the scale to invest, but smaller firms cannot afford to stay behind.
Insurance is reshaping itself. The current landscape is focused on customer experience and product innovation. Insurance companies need to leverage advanced technology to better understand their customers and anticipate their needs (in many cases before the customer realizes their own needs).
Impact and Result
Technology needs to be the driver in meeting customer expectations. Technology must proactively understand client needs and bring enhancements to business leaders.
Find the right strategy based on requirements. Investment in technology needs to be forward-looking to adapt to market changes and core business needs derived from customer experiences.
The Future of Insurance Research & Tools
1. The Future of Insurance Deck – Unleash the future of insurance by empowering customer satisfaction, leveraging AI, integrating IoT, and implementing blockchain for a revolutionary shift in the industry.
Technological advancements present a bright future for the insurance industry, promising customer satisfaction, reduced costs, and minimized risks for insurers. This slide deck showcases the potential benefits that await the industry, paving the way for a more prosperous future.
In today's insurance industry, the adage "the customer is always right" has never been more true. Customer competition is increasing among incumbents, as is competition from new digital startups and nonfinancial market entrants with deep technology capabilities, extensive data sets, and existing customer relationships. As a result, insurance carriers are increasingly under pressure to improve and simplify customer experiences across all channels, including in-branch, online, mobile, and sales centers. To meet demand, they must do so while also identifying new areas of customer need and developing appealing products and services. As a result, the speed and complexity of insurance and the impact of technology are rapidly increasing.
Info-Tech's approach focuses on an analyst's investigation of strategic foresight. This methodology helps the IT department and the business process what is happening in the organization's external environment in a way that guides ideation and opportunity identification. As a methodology, strategic foresight flows from identifying signals to clustering the signals together to form trends and finally to uncovering what is driving the trends to determine which strategic initiatives are most likely to lead to success on an industry level.
Ahmed Mapara, MBA
Principal Research Director
Info-Tech Research Group
You need to choose a strategic path. Your customers want new products, services, and experiences to meet their evolving needs.
Don’t fall behind with new technology adoption. Next-generation customer service is defined by new technologies such as predictive analysis modeling, artificial intelligence, machine learning (ML), and the Internet of Things (IoT).
Larger firms have the scale to invest in advanced technologies. Asset size drives revenues, which influence IT budgets. IoT is driving competitive growth and you need to keep up.
Select the right path from diverging paths.
IT alignment with business innovation should be a top priority. The business increasingly requires advanced technologies to identify new opportunities.
Business-IT alignment requires more agile techniques. You must become an active partner with the business in understanding client needs, creating innovative products and services to stay competitive, and being ready to take advantage of new opportunities.
New skilled workers are needed to implement new technologies. Data scientists, client/user experience experts, and process designers are some of the new roles required to transform insurance products and services. Talent acquisition, upskilling, cross-training, and retention are essential to succeed.
You must evolve and mature your core IT capabilities to meet the new demands from the business. Put governance in place to ensure that IT understands business priorities. Reconsider your IT operating model to maximize resources.
Adopt agile business alignment approaches that are data centric, improve communication, and enable IT to meet business goals.
Mature your data practices to enable predictive modeling, IoT, AI, ML, and blockchain technologies.
Align to the business needs to solve customer issues. CIOs need to understand the growing needs of the business in this new environment.
Insurance is reshaping itself. The current landscape is focused on customer experience and product innovation. Insurance companies need to leverage advanced technology to better understand their customers and anticipate their needs (in many cases before the customer realizes their own needs). To become trusted partners, insurance carriers will need to launch more sophisticated technologies in areas such as generative AI, Internet of Things (IoT), predictive modeling, machine learning, blockchain, and other areas of artificial intelligence.
Client needs have changed
Clients are demanding more from their Insurance providers
Customer needs are evolving. Customers expect their insurance experiences of buying a policy, submitting claims, and making payments to equal experiences they are having elsewhere. To connect with clients, insurance carriers must create products and services that are tailored to each customer’s personal needs. To become a trusted partner, insurance carriers must also provide guidance and advice so clients can feel confident about their financial decisions.
Insurance sold over traditional methods is now digital. The traditional model of an insurance firm is changing rapidly. Digital once supported the existing model – now digital is all encapsulating.
Consumers are hungry for the new product landscape. New products and services are uniquely meeting customer needs. Products such as pay-as-you-go for auto and travel are gaining traction.
Insurtechs may cut into market share. Limited regulatory oversight, new risk models, new business operating models, and a disruptive mindset provide opportunities for new entrants to challenge traditional financial institutions. These entrants can create a niche with the flexibility to focus on meeting individual client needs. Most insurtechs are currently focused on the insurance provider.
Address Customer advisory needs
Digitize services that make insurance more convenient and user friendly. Launch advisory services for more complex products such as whole life insurance with segregated funds – consumers are looking for guidance before purchasing such products.
Deliver a fast, simple, and flexible customer experience that is accessible across channels. This will require more complex technology, such as AI, ML, predictive modeling, and IoT.
Advisory services require a deep understanding of customers. Leverage prescriptive and predictive analytics to deliver a personalized experience at every touchpoint. This requires a strong data center that is integrated across all platforms.
70% of insurance CEOs surveyed say they will prioritize or invest in customer experience in the next twelve months.
Source: PwC, 2020
Traditional insurance firms need to stay competitive
Traditional Insurance Firms are slow to innovate compared to digital firms
Traditional insurers are losing to the competition in solving client solutions. Increased competition from digital-only or insurtech startups who are leveraging technology with a customer-centric approach is getting the attention of young buyers. Although new digital entrants are in their early days, traditional insurance carriers face tough competition.
Lack of digitalization results in inefficient operations. Digitalization came to insurance later than other industries. Most traditional companies are still working with either manual or paper-based processes that are inflexible, slow, and costly, using up employees’ valuable time without giving value to the client.
Data and analytics are lacking. Traditional insurance carriers don’t have the data available to identify customer needs and relationships. New digital startups are using mobile apps and IoT devices to gather data, getting an edge in areas from customer engagement to pricing and risk assessment.
Legacy systems have high costs. Traditional insurance often suffers the high cost of maintaining legacy systems, applications, and the infrastructure supporting them. Rapid changes are not possible, often making the environment inflexible. Technical resource dependency, technical debt, and the need to develop future-ready technology teams are also barriers.
Traditional insurance firms are slow in adapting to customer preferences. With more and more millennials buying insurance, customer preference has changed to favor a more digital customer experience and personalized services and products. Traditional insurance firms are using the old methods and technology to solve new challenges and are failing to cope.
“It's hard for big carriers to innovate as they have so much to contend with already—industry headwinds, legacy issues. But they need to be in the game right now.”
– Caribou Honig, cofounder of QED investors
Source: McKinsey & Company, 2017
Insurers need an aligned approach
Alignment between the business and technology is instrumental for success
Business and IT functions are converging. It is increasingly difficult to distinguish business goals from the technology that enables them. Providing successful financial products and services requires deep coordination with IT resources. IT is serving as a catalyst for digitalization in accomplishing business goals. Business stakeholders need to have better acumen for technology.
The need for technology governance is increasing. Effective technology governance is increasingly important as the number of demands on IT grow and become more complex. The business needs to effectively manage its technology priorities to assure that IT can properly align and maximize its resources.
Ongoing communication is a key to success. The speed of market changes and the complexity of products and services make ongoing communication between the business and IT essential.
Agile and flexible methods continue to gain traction. At their core, these methodologies are about frequent engage, alignment, and continuous conversation. Certain adaptations are required to meet insurance-specific challenges.
Collaboration with external parties is necessary. In addition to working closely internally, insurance firms need to collaborate with vendors, startups, and insurtechs that will provide much-needed innovation to their product and service offerings. Understand how cloud services can be leveraged to optimize the business opportunities.
80% of insurance executives say that their organization’s business and technology strategies are becoming inseparable.
Source: Accenture, 2021
The future of insurance is increasingly technologically complex, advisory focused, and powered by data-driven AI
The traditional insurance industry focused heavily on segmented/siloed business lines and a sales-based customer engagement model. The result was a heavy fixed-cost infrastructure supported by a highly transactional revenue model. The prevailing regulatory environment encouraged and protected this approach. Customer convenience and service was highly influenced by the sales team and personal relationships with customers who had limited alternatives. In most cases, insurance carriers and their products, services, processes, and business models were created well before the internet.
The technology that powered insurance carriers was costly to purchase, program, and support. These characteristics created significant barriers for new insurance carriers to enter the market. They also created significant risks for existing insurance carriers looking to change or consolidate platforms.
Brick-and-mortar insurance carriers were expensive to build and maintain. New entrants needed a physical footprint.
Policy premiums and investment income were the primary source of revenues that were sustained in a noncompetitive environment. Consumers had limited choice in terms of the types of policies available.
Incumbents still rely on legacy foundations that flow to the general ledger but are leveraging APIs to integrate overarching capabilities. APIs have mitigated risks and provided new opportunities for traditional insurance carriers to compete with startups.
Cloud/platform computing is transforming insurance. The democratization of technology has allowed the growth of new insurance carriers (insurtechs, digital only) to accelerate massively. Hosting in the hybrid cloud has enabled small insurance carriers to compete with larger firms.
The future of insurance is hyperpersonalized. Insurance firms must anticipate client needs and focus on convenience, personalization, and advice on complex product lines.
Insurance carriers will deliver value-based revenue streams and move away from transactional revenues and punitive fees. Emerging needs of customers, such as digital assistants that monitor accounts, are being met by data analytics and technology
Deep customer insight is required to drive the future of insurance. Access to AI and ML is becoming easier. Cloud services expand access to analytical tools. Insurance carriers will anticipate client needs before the client does.
What is the future of insurance?
Customer centric, predictive, and collaborative
Insurance must evolve to meet customer needs. The growth of new insurance carriers, fueled by new low- or no-fee business models and innovative products and services, is challenging the status quo.
Technology companies are meeting client needs. Insurtechs are driving innovation with their sophisticated technology, deep customer data, minimal regulatory oversight, and ability to meet customer needs.
New products and services are needed based on client engagement. Insurance needs to be able to create new products to meet changing client needs.
Data is driving hyperpersonalization. In this new environment, customer insights are not just important – they are a lifeline.
The client relationship is increasingly based on predictive analysis. Insurance providers have access to multiple data sources that can provide insights into customer behavior and market trends.
Real-time data facilitates risk management. Data from IoT devices is leveraged to create advanced statistical techniques and predictive modeling.
AI is used to analyze customer interactions across all channels. AI/ML is being applied to large data sets to gain deeper and more valuable insights.
Avoid disaster. Predictive modeling can be used to predict potential accidents and equipment failures using patterns and environmental conditions
Financial firms in the insurance industry are collaborating to reduce cost and improve efficiency. By collaborating with suppliers and vendors, insurers reduce costs and claims processing time by streamlining processes and negotiating prices.
Foster innovation by working closely with academia and startups. Insurance firms can access new technologies and ideas in the industry by testing and adopting new solutions, not just replicating what others have started.
Enhance the customer experience. Working with other stakeholders and technology providers, insurers can offer personalized, seamless, and user-friendly services
Three enabling trends
Developing and enabling new products and services
Using big data and artificial intelligence to enhance products and customer experience
Agile Platforms to compete
Creating a technology strategy to align to organizational size and need
Identify potential sources of competitive advantage. Work with business-led strategy teams to identify areas of competitive advantage to digitize existing products and services or build new ones.
Focus on systems architecture in the context of the ongoing strategy and product and service creation process.
Develop competitive market analysis to participate in ongoing business reviews.
Lead a culture of innovation with clearly defined roles and responsibilities.
Rationalize where necessary. Staff levels can be reduced as inefficient legacy models are replaced with self-service tools.
Sales teams can improve customer segmentation. Customer behavior, risk profiles, and preferences will help insurers define new target markets.
Enhance underwriting. Insurers can make more informed decisions in a timely fashion with customers’ claims history and behavior as well as market conditions.
Improve fraud detection. Insurers can detect and prevent fraud by identifying patterns, behaviors, and any anomalies.
Increase profits with accurate pricing. By assessing the risk of clients using their demographics, health, and financial status, insurers can assess the risk of a claim, thus building more accurate pricing for the policies.
Ensure you have the right platforms to enable your organization to compete now and in the future.
Evaluate your organization’s role and place. It is important to understand the scale of your company in the context of the market.
Develop an IT strategy that is right-sized for your organization to effectively develop an IT budget and strategy that will allow you to compete against all insurance carriers in your area.
Prepare for IoT if required. To quickly achieve scale, the business may pursue IoT. IT should be deeply involved in this process and prepared for potential platform integrations.
Four trends driving the future of insurance
Drive customer satisfaction to remain competitive
Creating the next generation of impactful customer experience
Develop hyperpersonalized products, services, and customer experiences. Use data analytics to better understand the needs and wants of your customer and create hyperpersonalized products to stay competitive.
Reduce cost and risk through advance modeling
Using predictive analysis, AI, and ML
Increase operational efficiency by making accurate predictions and enhancing automation of repetitive tasks to create fast and seamless claims and payments processing, fraud protection, and customer experiences.
Implement internet of things (IOT) to capture data
Using connected devices to use data in real time
Develop personalized products. Insurance companies can personalize products and services based on their clients’ profiles. Smart devices are used in monitoring key parameters.
Implement blockchain for storing customer information
Improving the security and efficiency of insurance transactions
Use smart contracts to automate claims processing, payments, and policy renewals. Allow real-time data sharing, reduce the need for intermediaries, and mitigate risk by creating a decentralized database of insurance risks.
As part of your next steps checklist, leverage this trends report for priorities that drive measurable top-line organizational outcomes and unlock direct value.
The future will hold more trends and technologies, making it pivotal that your insurance company establish itself as the disrupter, not the disrupted. You must establish a structured approach to innovation management that considers external trends as well as internal processes. Info-Tech’s Define Your Digital Business Strategy blueprint and Build a Business-Aligned IT Strategy blueprint give you the tools you need to effectively process signals in your environment, build an understanding of relevant trends, and turn this understanding into action.
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