Future trends in the insurance industry

Let’s take a look at the major trends which are likely to play a big part in the insurance industry over the next few years.

1. The rise and influence of Insurtechs

   The insurance industry has been relatively slow to modernize in comparison to others in the financial industry and this has left a gaping hole for the likes of Insurtechs to take hold in an industry expected to reach US$10.14 billion by 2025, growing at a compound annual growth rate of 10.8% during the period from 2019 - 2025. These start-ups have leveraged new technology and a strong understanding of customers to disrupt the industry. Consumers now want to be able to transact online from any device and expect tailored insurance rather than just a one size fits all approach. Led by millennial consumers there’s a move away from big brands, across all industries, as customers become more willing to try out new technology solutions.
   
   According to KPMG, the pandemic highlighted inefficiencies and created new friction points for carriers and customers alike. Insurtech’s are likely to play a vital, ongoing role in bringing digital innovation to the insurance sector overall. As a result, this has led Insurtechs to change tact and become partners and enablers for big insurance companies. These collaborations are likely to become the new way of doing business and will ensure insurance companies continue to move with the pace of technological changes. Others in the industry are cleverly bringing the innovators in-house or even tapping into the global talent pool by seeking offshore resources in a bid to keep up with their digitally native competitors.

2. Personalization and the changing consumer

   In every aspect of business, consumers are expecting the purchase experience, as well as products and services they’re purchasing, to be personalized to their wants and needs. In the insurance industry, this means personalized premiums and services based on utilization.

   Customers want choice, flexibility and simplicity. And according to Business of Data, the insurance industry is meeting the demand with episodic options such as insuring a vehicle only when it’s driven, golf clubs when they’re played with, and a camera when on vacation. Bundling is also likely to become more common eg. home insurance with home purchase, as well as health-wealth options so that customers can plan for retirement together with planning for medical expenses.
   
   The additional opportunity here for insurance agencies is to move away from the typical renewal and claim relationship with customers and engage in a deeper interaction, tapping into the wealth of data that’s available, in order to understand, and play a role in customers’ lifestyles, values and wellbeing.

   “Though everything has changed for consumers, insurers can help them feel normal again with new solutions and new ways to engage.”
   
   EY Global

3. Digital transformation

   The key to personalization however, is a complete digital transformation and this has been underway in the insurance industry for a while with a focus on seamless interaction between channels, data and analytics, mobile apps, cloud and more agile ways of working. However digitization is taking place across the entire value chain from underwriting through to distribution and claims, and is seen as a means to increase efficiency and reduce acquisition costs.
   
   And while insurance companies have been improving their direct-to-consumer digital interfaces, it’s just as important to provide agents with digital tools so that traditional channels work more efficiently and productively. What’s more, the human touch still has a role to play but is expected to be available when and how customers need it, even via digital channels. As a result, contact centres are being set up across the globe, often in low cost economies as a means to service customers via phone, email and online help messaging, to compliment the digital self-service business model.

   “To set a digital transformation on the right course a company must place it at the core of its agenda, and understand the magnitude of that undertaking.”
   
   McKinsey

4. AI, automation and technological integration

   Part of the digital revolution taking place in the insurance industry has also been occurring across all business types and involves process automation and artificially intelligent solutions that are continually learning about customers wants and needs. Insurtech companies such as Tyche and Lemonade have been utilizing AI modelling to accurately determine the risk and likelihood of claims by applicants and also assists in minimizing fraud - saving companies valuable time and money.
   
   AI advances in areas such as wearable technology, vehicle telematics and satellite imagery have allowed insurance companies to become more proactive in risk detection, prevention and intervention. And it’s a win-win situation for both insurers and policyholders by lowering risks and policy claims. Deloitte mentions that insurers need to find ways to balance technology adoption with maintaining the human touch. They found that insurers are becoming increasingly dependent on emerging technologies and data sources to drive efficiency, enhance cybersecurity and expand capabilities across the organization. By focusing on improving the customer experience by both streamlining processes with automation as well as providing customized service where needed, insurers will become more socially valuable to customers. Nationwide insurance has even implemented a SmartRide program offering policy discounts to participants who agree to have their driving monitored. Participants then receive personalized feedback to assist them in making safer driving decisions.
   
   The integration of technology and machine learning will only continue to grow in daily life, but the insurance industry is set to be at the forefront of those that will benefit most from utilizing these technologies.

5. Personalization and the changing consumer

   The huge volumes of customer data being processed by insurance companies and the need for it to happen in real time has required secure data management solutions across multiple interfaces. According to KPMG, blockchain projects have been in the proof of concept stage for some time and we’ll now start to see mainstream applications in the financial and insurance sectors.
   
   There will be an increased use of blockchain-based automation to update, validate, trigger and alert when insurance-related events may occur. And it will also play a vital role in data security which is becoming increasingly important to customers.
   
   While we’re not likely to see sudden implementation, we are probably going to see more impactful use of blockchain technology with wider adoption in the coming years.

6. Climate change and increasing natural disasters

   Insurance companies have bore the brunt of climate change and the increasing occurrence of natural disasters in recent years, however that also brings about premium growth and opportunity for the sector.
   
   Comprehensive modelling will be required in order to assess the likely risks of wildfires, crop failures and pandemics amongst other impacts of climate change. An innovative approach to product development will be needed in order for insurance companies to remain relevant during these times. It’s also a great opportunity for insurance companies to become involved in risk mitigation, providing services around risk prevention. Once again, we’ll see a surge in the use of drones, satellites and sensors in assessing disasters and attempting to speed up the claims process which currently can take months.
   
   There’s also an increasing economic and social demand on the industry to not just assist communities in recovering from catastrophic events, but also in improving resilience to such events. Furthermore, some European insurers have demonstrated leadership in environmental policies by becoming signatories to the UN Sustainable Principles and even declining to provide coverage to projects such as coal-burning power plants.

   

7. Focusing on skill and talent

   With the transformation that’s occurring in the insurance industry particularly in the digital realm, there comes a need to find, foster and retain skilled talent to lead the way in innovation. And insurance companies need to look beyond a traditional local pool of talent, to find the necessary skills wherever they may be in the world. Although some work may be replaced by automation, the development of these technologies and the strategies behind the implementation will require thought leaders and investment in the right human resources.
   
   Focus will need to be on how tasks and roles will change. In some instances, training and upskilling of current staff is a viable way forward. In other instances, day-to-day claims support and customer service tasks can be easily taken up by an offshore outsourced team, which leaves the local team free to concentrate on product and technological development. The added benefit comes in the form of cost savings to the business which can be funneled back into new developments.
   
   The insurance industry also faces the likelihood of large-scale retirements as older generations leave work and take with them a large amount of institutional knowledge. As a result, the time to plan is now, putting in place long term staffing and talent solutions to develop new technologies and reach the exceptionally high expectations of customers, in the most cost effective way possible.

8. Talent shortages

   Nearly 69% of organizations are having difficulty sourcing and retaining skilled talent thanks to the current global talent shortage, resulting in about U.S. $8.5 trillion in unrealized annual revenues. With the pandemic pushing global unemployment over the 200 million mark, it would be fair to assume that employers might ‘have their pick’ from a large pool of quality, skilled workers who suffered because of sudden employment losses or financial turmoil during this time.
   
   However, there is research to suggest that applicants are now in control, wanting more value-based benefits from potential employers rather than just financial gain. Considering alternative resourcing strategies, like offshoring, is a way organizations can open up to a global pool of quality talent while reducing employment costs by up to 70% in the process.