Digital Transformation in Insurance (Challenges, Examples) (2024)

• Digital Transformation, Insurance Transformation

• Published: August 5, 2024
• Updated: September 11, 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 asInsurTech 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.

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:

1. Automated underwriting using algorithms to generate contextual policyholder quotes
2. AI & automation reducing claims processing time & cost
3. Omnichannel customer experience tools improving policyholder communication
4. Telematics technology enables personalization at scale
5. Blockchain and smart contracts add transparency to P&C insurance industry
6. Digital adoption platforms improving agent productivity & performance

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: theirDesktop Underwritersystem 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 orloan 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%.

Manual claims processing typically takes around 30 days or more. And because there aremany people involvedin the process, it’s susceptible to human error.Artificial intelligence(AI) and machine learning tools, on the other hand, reduce claims processingerror ratesto 0% andspeed upthe process by one to 15 days. AI has alsodecreased processing costsby 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.

Providing anomnichannel 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 aremore loyal and less likely to churn.

Omnichannel CX also means providingcustomers witheasy access to information, accurate and predictive customer service, and fast processing times across all platforms. According toSalesforce, 58% of customers say that their expectations have changedbecause ofexisting technological advancements, including omnichannel CX tools such as insurance chatbots. They want a moreretail-like experience—easy access to your product offerings and quick responses from your customer service team.

Insurance chatbotshelp your firm educate your customers, collect customer feedback, and run simple processes.Artificial Solutions’ AI-powered chatbotis 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.

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 canpersonalize policiesand 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 telematicshelp insurers make better decisions around underwriting and claims, in addition to personalized policies.

Insurers have also started looking at smart home devicesoutside 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.

Blockchainis 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 throughblockchain-based platforms.Smart contractsare 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-initiatesclaims 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.

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 usetraditional classroom training methodsto 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 toincrease agent efficiencyand reduce redundancy.

Adigital adoption platform (DAP)likeWhatfix DAPprovides 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.

One example of how DAPs can drive efficiencies in the insurance industry isSentry Insurance, which created end-user training40% faster with Whatfix. They used Whatfix features to create and deploy training modules across six different applications for over 77,000 people.

1. Improved customer experience for policyholders
2. Reduced costs
3. Increased scalability
4. Reduced risks & frauds

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 withcustomer expectationsfrom 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 Insuranceaggregates 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 arehappy to sharebehavioral data in exchange for such benefits.
• Faster claims processing: Insurtech Lemonade’s claims bot assesses andpays out claims in three seconds. It also provides quotes for renters insurance and homeowners insurance in as little astwo 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.

Online self-service platforms, cloud storage, andautomation 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 profits70.7% YoY, thanks to its investments in loss assessment and customer profiling technology.

Self-service digital platforms allow companies to serve more customers while reducing pressure on customer support staff.

Case in point: AXA’s broker platform helps3,000+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 incatastrophe claims processing. When disasters, providers, and agents need to scramble quickly to providegreat customer serviceand process claims quickly for policyholders that have gone through a traumatic event and make sure they’re comfortable.

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.

TheSmartRideprogram by Nationwide tracks miles driven, nighttime driving, hard braking, and acceleration to offer appropriate quotes.

Analytics and artificial intelligenceplatforms help insurers identify false claims. They refine social and publicly available data and apply it to claims decision-making.

Seventy-three percent of enterprisesfailed to derive any benefits for their business from digital transformation. Here are some of the top insurance challenges when it comes to digital transformation:

1. Inefficient change management
2. Dependence on legacy systems
3. Talent shortages and training challenges
4. Regulatory compliance
5. Claims processing and fraud
6. Risk assessment and underwriting challenges

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 wonder42% of companiescitechange managementas 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.

Like many sectors, the insurance industry has faced challenges adapting and adopting rapid technological advancements. Thisdigital transformationhas 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, thelegacy application modernizationprocess 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

The quality of an insurance company’s workforce impacts its capacity to grow, adapt to changing markets, and provide exemplary customer service.

Everest Groupfounda lack of internal skills and talent to be a major barrier in technology adoption among insurance companies.

There’s also a highskills 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.

Onesurveyfound 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.

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.

Insurance Software & Technology Clicks Better With Whatfix

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.

• 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.