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Digital transformation has become indispensable to the insurance industry, as innovations in software promise a triple reward to companies in the avant-garde of the technological revolution – lower costs, better customer experiences, and higher growth. And yet, the insurance industry has been much slower than other industries to adopt new technologies, in part, perhaps, due to the high barriers to entry reducing the fear of disruptive new market entrants. Regardless, resistance is futile. Change is coming and insurers need to embrace it, because as Klaus Schwab of the World Economic Forum says:
In the new world, it is not the big fish that eats the little fish, it's the fast fish which eats the slow fish.
Let's delve into how these technologies are set to transform the insurance industry:
The Internet of Things offers a vast array of opportunities for members of the insurance industry, with connected devises ranging from cars to home to health. Whereas before, risk and premiums were calculated on the basis of proxy factors, such as age, the sensors increasingly being installed in cars make it possible to instead base it on a driver's behavior. Good, cautious drivers could receive discounts. Similarly, sensors such as those in Apple Watches or Google's FitBit could be used to determine a person's fitness regimen and his/her risk of certain illnesses. This in many ways represents a move from community/group based risk calculation to individual calculations.
The IT revolution will be most stark in the automotive industry, where the coming advent of autonomous vehicles will likely drop injuries and accidents drastically. Even before cars are truly self-driving, the IoT revolution in cars is helping to reduce risks and make driving safer. From automated parking to sensors alerting drivers of objects in their blindspots, risk is gradually being mitigated. As such, insurers may have to move from a risk-based revenue model to one where they offer additional services, such as warnings when the car is in need of service or selling geo-locational data to third parties for advertising purposes.
Artificial Intelligence and Machine Learning will also have diverse applications within the insurance industry. A.I. chatbots improve the customer experience and reduce labor costs in the form of agents. From issuing new policies quickly, to upselling, to processing claims, these chatbots can provide a faster and superior service to customers, while also reducing the companies' expenses for agents, which for some insurers can amount to the value of the first year's premium. Moreover, the applications of these tech tools will be diverse, including:
The current business model for insurers is ripe for disruption. It's labor intensive, with agents receiving commissions. It's easy to imagine a digitally native market entrant gaining a competitive advantage by eliminating this source of costs and instead selling directly to consumers via apps or websites. This also provides the opportunity for round-the-clock sales.
Automation will likely find widespread applications. McKinsey estimates, for example, that automation could reduce the cost of a claims journey by up to 30%. Automated processes won't just reduce costs, they'll also ensure a faster and superior customer experience. Automation will also help insurers scale. A lot of premiums or policies that used to take days to process can now get done in a matter of mere minutes or hours.
Already by 2019, two-thirds of insurers reported a reduction in expenses and 60% reported an increase in sales thanks to predictive analytics. This will only increase. A growing amount of data will come from first-hand sources, such as IoT, social media, etc. Insurers will be able to more accurately predict price and risk preferences. Likewise, insurers will be able to determine which customers are most at risk of canceling or reducing their policies and give them special attention. With the ability to forecast customers' future needs, insurers will be able to provide a superior customer experience and increase customer loyalty.
The four aforementioned technologies are just the start of the wave of innovation about to hit the insurance industry. However, none of this will be possible without a powerful, effective digital transformation effort.
Digital transformation can be something of a herculean challenge. Outside of the institutional inertia in many insurers, CEOs and CIOs are confronted by the overwhelming complexity of software development. Millions of lines of code are past the point of human comprehension and make software production an opaque, inefficient process.
Software Process Mining brings the much needed transparency into software development. For executives, software visualizations and real-time KPIs provide an intuitive understanding of the health and progress of digital transformation efforts. This can serve as the foundation for digitalization strategy and planning. For developers, actionable insights and drill-downs deep into the source code greatly improve efficiency, reduce the risk of defects, and maximize the output of developers' valuable time.
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