Navigating the Digital Transformation of the Insurance Industry: Trends, Challenges, and Guiding Principles

The insurance industry is going through a significant digital transformation, and Finaps aims to be at the forefront of this change. In this article, Managing Partner Lonneke Makhija discusses some of the key trends and challenges the insurance industry is facing, as well as the guiding principles for approaching a successful digital transformation.

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Lonneke Makhija – Meet Our Team

Managing Partner

The insurance industry has been around for a long time, and over the years it has developed a large and complex system of policies and processes, a.o. due to stricter regulations that can be difficult to navigate. This can create specific challenges when it comes to day-to-day operations, such as processing claims and preventing fraud. Nonetheless, developments in the Insurance industry are changing the landscape.

Claim processing

One of the challenges of claim processing is that it can be a time-consuming and complicated process. Insurance companies need to verify the details of a claim, assess the damage or loss, and determine the appropriate payout or compensation. This can involve collecting a lot of information from various sources, such as medical records, police reports, and witness statements. In addition, simplifying the claim process is needed to create a better customer journey. Makhija uses the example that she still has to manually fill in numerous forms of paperwork when filing a claim, this is where opportunities for digitalization lie.

Fraud prevalence

Another challenge is the prevalence of fraud. Some people may try to take advantage of the system by filing false claims or exaggerating the extent of their losses. “So what you actually need is a core processing of your base and a user-friendly user interface that simplifies claims handling, but can also deal well with claims fraud on the backend.” “In addition, there is still a lack of trust in the insurance market. Then there is still the question that arises: should I even get insurance? Or am I always over-insuring myself and is it not beneficial, as I will ultimately pay back any claims through higher premiums.”

When asked which trends Makhija identifies in the insurance industry she lists a few things:

  1. Embedded insurance
  2. Real-time and dynamic pricing
  3. AI for intelligent communication
  4. Organisational data structure & client onboarding
  5. Who owns my data?

Embedded insurance

Embedded insurance is the integration of insurance products and services into other products or services that a customer is already purchasing. This trend is changing the way people purchase insurance, making it more convenient and seamless for customers. This can also lead to increased customer loyalty and retention for the companies offering embedded insurance.  For example, when you purchase a flight ticket, you may have the option to purchase travel insurance at the same time. This translates into API-services in new customer journeys which requires a new vision on integrations.

Real-time and Dynamic pricing

AI powered pricing, creating policies that can be more affordable for low-risk customers. High risk policyholders have a different premium model based on various factors and user behaviours.  For vehicle insurance for instance, the price will be determined based on the type of vehicle used, measured against time, distance, behavior and place. This differs from traditional insurance, which attempts to differentiate and reward “safe” drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of history rather than present patterns of behaviour. This means that it may take a long time before safer patterns of driving and changes in lifestyle feed through into the premiums paid. This trend is changing the way insurance companies evaluate risk and offer pricing options.

AI for Intelligent Communication:

AI for Intelligent Communication refers to the use of artificial intelligence (AI) to improve communication between Insurance companies and their customers. This can include chatbots, virtual assistants, and other AI-powered tools that can help customers with inquiries and claims. This trend is changing the way customers interact with Insurance companies, making it easier and more efficient to get the information they need. It can also help insurance companies improve their customer service and reduce costs by automating some of their communication processes.

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Organizational data structure & client onboarding

A good data structure is crucial for organizations because it forms the foundation for collecting, organizing, and analyzing data. An effective data structure ensures that organizations can quickly and easily find and use data to make decisions and optimize business processes.

However, within the insurance market, it can be challenging to have a good data structure due to legacy systems. These are outdated systems and technologies that have been used for a long time and no longer align well with modern technologies. This makes it difficult to integrate and share data between different departments and systems, resulting in organizations not always having the most accurate or up-to-date information to make decisions.

Makhija highlights the additional challenge of expediting client onboarding, given the increased complexity of KYC regulations due to laws and regulations. She suggests finding intelligent ways to streamline the KYC process and efficiently gather the necessary data, with the goal of making the onboarding process more manageable. As an example, she cites the complicated process of opening a new bank account, which she believes is due to the current complex and non-intuitive process of KYCs.

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Who owns my data?

“And then there is one more thing, which is not necessarily done by the large corporations but is more broadly relevant. That is related to the discussion on owns my data.” She continues “The idea of creating individual data “vaults” where individuals own and control their own data, but companies can access it for specific purposes, is gaining popularity in the insurance industry. However, it is a complex concept that requires technical implementation and industry-wide support. The question remains whether companies will fully support this consumer-driven movement or prioritize their own interests but also how legislation around this topic will further evolve.”

Makhija concludes “It’s a complex operation that still has a lot of room for innovation.” When you take out health insurance, for example, your situation and policy conditions are constantly changing and need to be kept in sync. However, policy documents often contain unstructured data in flat PDFs, making it difficult to maintain consistency. Digitizing the backoffice is a lot of work, but necessary for efficiency and cost-effectiveness in the long run. With rising prices and an ageing workforce, automation is essential to avoid getting stuck.” That having said, strict rules and regulations limit the option of eliminating the friction.

In summary, the insurance market is ready to embrace promising trends that have the potential to revolutionize the industry. Embedded insurance is helping insurers tap into new customer bases, while real-time and dynamic pricing ensures accurate and fair pricing for these customers. AI is increasingly being used to automate price calculations and improve communication with customers. Additionally, digitalization can streamline the client onboarding process. However, the implementation of these trends can be complicated by legacy systems. At Finaps, we stay up-to-date with these developments as we work with clients in the insurance market who are grappling with digitalization issues.

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