10 Insurance Technology Trends Reshaping the Industry in 2022

Insights From Earnix Excelerate 2021: Capgemini’s Executive Vice President, Seth Rachlin, Ph.D. 

The world is changing fast and no industry is immune to the pressure to evolve, upgrade and innovate. Mass digitization, artificial intelligence, machine learning, climate change, and the rise of financial-based cybercrime are all having an impact on the business arena. At the same time, consumer expectations have changed dramatically – fueled to no small degree by companies like Netflix and Amazon who have the technology and business models to provide the instant access to products and services today’s consumers have grown to expect. In considering these changes, it becomes clear that no industry can afford to stand still – not even a traditional, robust, and stable one like the insurance industry. 

Key Insurance Industry Trends: 

At the recent Earnix Excelerate 2021 Summit, industry-veteran Seth Rachlin, Executive Vice President and Global Insurance Industry Leader at Capgemini, outlined ten future insurance industry trends that are rapidly transforming the insurance space – urging companies to “prepare for the world as it is today, and not as it used to be.” 

Here’s a recap: 

Trend One: CARE-based Distribution Channels  

Insurance companies are in a “digital arms race” as they rush to furnish their distribution channels with digital tools to support better customer experiences. While CARE (see below) is the core experience most insurance companies aspire to provide in both their distribution and sales experiences, few are actually achieving it across the board. 

What is CARE?  

  • Convenience – We should make it easy to buy insurance  
  • Advice – Our clients should have easy access to the information they need to make smart product decisions 
  • REach – We should be able to get to our clients when they most need and want our products 

Over the coming years, insurance companies must focus relentlessly on digitizing all distribution channels so as to provide standards of CARE that will keep them competitive.  

Trend Two: Faster Payouts  

Pay cycle time (the amount of time that lapses from the opening to the closing point of a claim) is fast becoming one of the most important differentiators between insurance companies. The winners of the future will use insurance technology to help them resolve claims quickly, at the touch of a button. 

To this end, companies are adopting (or looking to adopt) AI-enabled tools to automate both estimation and inspection. Telematics solutions are expected to provide greater levels of contextual information that will support the smoother, faster and more comprehensive settling of claims.  

Trend Three: The Rise of Usage-Based Models 

2021 saw a huge spike in interest in Usage-based insurance products as the pandemic made consumers aware of the waste involved in paying for insurance on cars that sit unused in the driveway. As the nature of work transforms and the daily commute becomes a thing of the past for many, winning insurance companies will offer products more in line with the way their consumers live today. Telematics devices will enable insurers to provide products based on how and how much users drive.  

The rise in UBI insurance will be hotly followed by a rise in commercial UBI as 2022 is expected to show a heightened demand from commercial vehicle businesses and fleet operators. 

Trend Four: Cyber Attacks – From Payouts to Prevention 

2021 will most likely go down in history as the year when cyberattacks spiked dramatically alongside the increased usage of ransomware to extort money from businesses of all sizes. While the industry has responded with cyber insurance, this only addresses half the problem – it pays for restitution once that attack has already happened, but does little to stop the attack in the first place. In fact, Rachlin mentions that there is talk within the industry that cyber insurance may actually encourage cybercriminals who specifically pursue cyber-insured companies, knowing there is money there to pay back the ransom.  

Expect a pivot to occur in 2022 whereby insurance companies will move from being payers to protectors. Forward-thinking insurers will increasingly collaborate with cyber-security experts to try and limit the attack-plane for bad actors and provide a layer of protection that will help prevent attacks, rather than just pay for restitution after the event. To this end, a slew of new cyber products focused on protection will enter the market. These will not only interest large corporations – who are the traditional buyers of cyber insurance – but also small businesses and even individuals, who will increasingly constitute a new market for cyber insurance products.  

Trend Five: Shorter Application Development Cycles  

Agility has become a true benchmark of competitiveness in today’s insurance space. In the old days, insurance companies would release new software every 6 months, or perhaps every 3 months for those in a more aggressive growth stage, and the release cycle would take somewhere between 18 and 24 months.  Now, tech giants have introduced a new paradigm where software constantly changes, features continuously evolve, and products come into the market as quickly as they can be dreamed up. To keep up with the expected pace, insurance companies must focus aggressively on reducing application development cycles so as to shorten speed to market.  

This will require a major shift in how companies think about and build insurance software. Low code platforms that can be changed dynamically and quickly without significant coding, deployment, and testing paradigms will be needed. CICD (continuous integration and continuous development) will become the name of the game as companies will need the capability to build and deploy software as fast as the market demands. In a world where trends like cybercrime and climate change are creating a dynamic, rapidly-changing pricing environment, insurance companies must have the technology to enable them to change their products whenever the market moves. 

Trend Six: Intelligent Automation  

The insurance industry has been experimenting with automation for a while. The first phase was Robotic Process Automation (RPA) which was seen as a way to speed up processes and keep costs down without significantly changing any underlying applications. While this was effective at capturing the low-hanging fruit – those ubiquitous repetitive steps that were an unnecessary feature of so many insurance processes – it never really attacked the productivity and core functions that require automation. 

The current phase of intelligent automation, enabled by AI and Machine learning, is performing a much more important function than simply automating repetitive tasks – it is automating the decision-making process itself. In 2022 and beyond, intelligent automation is expected to increasingly drive decision-making in underwriting, claims, and other areas of operations. This will not only speed up operations and reduce costs, but it will also enable insurers to offer better customer experiences – faster processing, and more rapid deployment of targeted insurance products.  

Trend Seven: Climate Risk Modeling  

Climate-related disasters have occurred more frequently in recent years. Hurricanes, storms, floods, forest fires, tornadoes, and more create unparalleled losses within society as well as within the insurance dimension. 

Such losses mean that over the past several years, there have been massive increases in property insurance prices. But cost rises cannot continue unabated, or insurance will become unaffordable. To counteract the trend, the industry will need to deepen their understanding of risk and find ways to more accurately and precisely predict the impact of severe weather events and the relevance of various protections.  

A major trend will be the movement towards resilience-oriented strategies that mitigate and reduce the losses associated with the events- similar to the prevention we already discussed in relation to cybercrimes. Competitive insurance companies will increasingly turn to big-data type modeling solutions capable of predicting risks that take weather conditions into consideration. While this will be a long journey, 2022 will mark a starting point whereby these technologies will be under greater consideration and development than ever before.  

Trend Eight: Accurate Risk Pricing  

In Berkshire Hathaway’s May 2021 annual meeting, Ajit Jain, Vice Chairman of Insurance Operations, discussed the importance of telematics not only for offering discounts to customers but also for creating the right price for insurance products, or as he put it, “matching rate to risk”. There is currently much innovation focused on achieving greater fidelity in the relationship between risk and pricing. As such, there has been a sea-change in the type of models insurers are using. Linear, regression-type pricing models are being rejected in favor of AI and Machine learning (ML) pricing techniques that show greater predictability and greater fidelity to the actual risk.  

These new AI-driven models are being deployed at scale by insurers across the globe. Even regulators are embracing these models as they eliminate reliance on credit scores that discriminate against certain kinds of customers. 

Trend Nine: Sustainability and ESG (Environmental, Social, and Governance) Embedded into Strategy   

In a risky world where nefarious cyber events and adverse weather pose a constant threat, insurance companies need to gain some control over seemingly uncontrollable events, such as the mega-events, societal trends, and changes that threaten the very fabric of society.  

While the insurance industry has traditionally been a laggard on social responsibility issues, today, it’s taking the lead on sustainability. A number of insurers are actively working on climate initiatives seeking to divest themselves from fossil fuel investments, refuse to cover extractive industries, or deny insurance to carbon-based industries. Insurers are also increasingly adopting global resilience strategies around things like flood protection or building standards in a bid to try and create a more sustainable and less risky global environment. As ESG grows in relevance in the industry, leading players will devote more resources to this.

Trend Ten: Collaboration With Ecosystem Players  

Perhaps the most monumental trend of all those mentioned here is the selling of embedded insurance products. Embedded insurance refers to selling insurance products as part of another purchase experience, fundamentally changing how insurance is sold and consumed. For example, in the process of buying a car or a home, a customer will be offered insurance. In his article entitled, “Want some insurance with that?” Seth Rachlin refers to insurance as the new ‘fries” – the side that goes with whatever main course a customer is buying. Embedded insurance is growing due to the widespread use of APIs that offer an easy way to connect insurance sales to other customer experiences.  

In the coming months and years, insurance companies will increasingly embrace APIs to make themselves available to a far wider marketplace. As insurance companies prepare to open up this “third leg” of distribution (direct digital distribution being number one, and agent-led distribution being number two) a significant digital transformation will need to take place alongside it.  

Over To You 

 

A number of high-impact business trends are shaping and reshaping the insurance industry as we speak. To achieve the winning edge, insurance companies need to transform themselves by adopting agile technologies that will help them rapidly, seamlessly, and effectively meet these new challenges (and others) as they arise. A winning edge focused on customer centricity, go-to-market agility and the adoption of intelligent processes.  

Insurance companies don’t have to go it alone. As legacy insurance companies race to keep up with the changing times, Earnix provides the insurance technology and support needed for insurers to find their way among the new trends.  

 

Watch Seth’s full summit session right here.

 

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