Technology is remaking the insurance industry. New capabilities and efficiencies mean insurers must keep up with new apps, software, and insurtech services that can put them on the cutting edge. Part of competing means keeping costs low, and there are many new ways to do that.
Challenges insurers face
Insurers face the challenge of keeping operations going while reducing costs. That requires implementing new technology while keeping legacy systems running, at least temporarily.
Controlling and reducing costs can give an insurance company a competitive advantage and increase profitability.
In addition, increasing revenues means incurring additional costs, so it is vital to keep product-development costs as low as possible. Balancing cost reduction and growth is the delicate task of every insurance company.
One of the most significant challenges is keeping up with new types of coverage needs. Climate change and other emerging threats mean insurers must be ready to move quickly while keeping costs of innovation down.
Six broad categories can help focus attention on the types of capabilities an individual insurer needs the most to reduce costs. Evaluate each one in light of your company needs, and prioritise your next steps.
Ways new technologies help with operating costs
Strategies to manage and control insurance operating costs overlap or compete for priority treatment. It can be helpful to identify the areas that need attention immediately, then move on to the “nice-to-haves.” The process of digital migration is a marathon, not a sprint, so a savvy balance of short-term and long-term thinking can help organise the process.
Evaluate the following areas to determine where to start on the journey to implementing new technologies.
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Adaptability
Legacy systems are often slow, cumbersome, and hard to change. New technologies include machine learning and artificial intelligence, which enable systems to grow in response to evolving needs and circumstances. With events like climate change, population migrations, and shifting crime rates, insurers must be prepared to adjust to new risk threats or favourable trends that reduce risks.
Also, insurers need to be flexible in their approaches to solving problems, and faster technology can make that possible. For example, constant data analysis can reveal changes in the need for climate-change coverage. Being flexible in how disasters and weather events are covered can give an insurer an edge in the marketplace.
Automation
Digitisation and automation of processes help insurers reduce the time to market for new products. The reduced time means reduced costs as the company responds to changing needs in the marketplace. Product development becomes a well-defined, collaborative process when automation is available to interdepartmental teams.
Also, automation eliminates the need to make mundane decisions repeatedly. Everyone sees the same outputs, and fewer people are needed to create those outputs.
In addition, it is easy to analyse digitised portfolios to see where products overlap, and coverages that are repeated in multiple products can be consolidated. Insurance companies don’t have to cut coverages or price solutions too high to make up for possible cost miscalculations. Once the company has a system in place that takes out the surprises, it is easier to predict costs.
By automating back-office processes, insurers can focus on developing new solutions. This creates a double impact in that the cost savings of back-office operations translate into increased revenues from innovating products and services.
Improved response times
New technology gives insurers real-time data analysis that helps risk mitigation. Understanding the implications of an event or change helps insurers react quickly, saving any further costs. Because the technology is shared across teams, responses can come from one source instead of multiple individuals or departments. Shared information reduces the time and cost of adapting to change.
Partner collaboration
Integrating with third-party software and services can streamline processes, including underwriting and risk analysis. Business rules, machine learning, and artificial intelligence can increase straight-through processing without the need for new in-house software or hardware. Also, insurers get the benefit of pooled wisdom and knowledge because third parties help create solutions based on known industry trends and evolving practices.
Predictive analytics
With predictive analytics, data can be used intelligently to price policies and identify the value of premiums by mitigating the risks that are not very obvious to the humans who do the processing. We are in the era of big data, and people find it increasingly difficult to identify which data to analyse. Predictive analytics use technology to cut through the noise and find the most likely trends.
Pricing risk more accurately
Insurers can measure projected costs against actual costs and make adjustments for previously overlooked factors. Inaccurate cost analysis can mean products are priced higher than expected, which results in decreasing customer retention. Accurate underwriting data and rigorous performance management enable optimum pricing.
Also, accurate and continuing data analysis can inform decisions about creating new insurance products based on increasing demand regionally and nationally. This timely analysis can reduce costly mistakes in the development and marketing of insurance solutions. Emerging technologies take much of the guesswork out of risk analysis as it relates to product development.
Conclusion
Emerging technologies pay for themselves through reduced operating costs, with enough savings left over to price solutions reasonably or reinvest in the business. The insurance industry is at an inflexion point. It’s not a matter of whether to embrace emerging technologies, but when.
Insurers don’t need to frantically add technologies merely to keep up with the latest developments. It is essential for leaders and decision-makers to understand how new technology can enhance their business practices.
As the adoption of emerging technologies accelerates, insurers must evaluate three paths to deliver innovation – build, buy or partner. Insurtechs can offer incumbents a faster and cheaper route to digital transformation. Collaboration with external partners makes the transition seamless. The barrier today isn’t cost or availability but the challenge of keeping existing services going while implementing new technology.
Insurers who identify the most pressing needs as they choose technological solutions can retain existing services while adding enhancements and new capabilities. Watch insurance industry leaders discuss ways in which insurers can innovate today, by downloading the exclusive virtual roundtable recording.
