5 Digital Transformation Strategies for The Future of Insurance

  • March 24, 2022
five puzzle pieces

Insurers have learned an important lesson in the last few years — expect the unexpected. Insurance executives have seen the industry face immense market disruption over the past few years, instigated by everything from an unprecedented pandemic to the employee movement known as “The Great Resignation.” As a result, unforeseen changes impact how insurers strategize for the future and what the industry will look like in 2022 and beyond.

Here at NTT DATA, we partnered with Oxford Economics and fielded a survey for 1,000 North American business and IT executives — 100 of which came from the insurance sector — to discover how organizations approach digital transformation initiatives. Our research shows that the organizations most likely to achieve organizational success despite these challenges placed a premium on five key areas:

1. Deliver digitized customer experiences
2. Invest in the right technologies and partnerships
3. Make better decisions with intelligent data usage
4. Prepare for the unpredictable
5. Put employees first and attract talent

Deliver digitized customer experiences

In 2022, customers will rule the market. Other industries have quickly adopted digital-first customer experience (CX), and end-users are accustomed to seamless, hyper-personalized customer journeys. Several insurance companies are starting to follow suit.

For example, Lemonade Insurance’s mobile application bot “AI Jim” is available 24 hours a day, seven days a week, allowing consumers to put in a claim and resolve questions before escalating to an agent. Additionally, Lemonade’s claim process includes an honesty pledge. Customers promise only to claim the “fair amount” and can select a charity of their choice to give back 20 percent of a flat-rate fee. In these practices, Lemonade demonstrates its values, such as radical transparency and trust, through action and human-oriented technology.

In another example, Tesla launched an embedded insurance product that uses real-time driving behavior to create a safety score and inform insurance claims. Tesla customers in states such as California, Arizona, Ohio, Illinois, and Texas can purchase auto insurance for specific models at the point of sale in as little as one minute. Tesla is now expanding into Oregon and Virginia, where Tesla General Insurance will underwrite the service’s policies. As Tesla creates an in-house ecosystem for its products, we may see the expansion of Tesla General Insurance into additional areas.

When consumers have access to advanced, digital-first CX, companies delivering outdated or inconsistent experiences stick out. For example, imagine using facial recognition technology to access a banking app easily and interacting with an AI-enabled robo-advisor to manage your finances one moment and then in the next, getting stuck on hold or filling out pages of paperwork for your insurance provider.

Insurance executives know that they must improve digital efforts to deliver customer value, but they’re struggling to meet new customer demands. According to our recent survey, a select group of the total respondent pool (about 6%) have invested in artificial intelligence, developed culture and organizational purpose for their workers, and ensured all strategic and operational changes put customer needs first.

Leading executives who invest in AI, workplace culture, and operational changes see the following benefits:

  • They are better able to keep up with rapid changes in data regulation (63%, vs. 34% others)
  • They are 35% more likely to experience increased revenue growth (35% more likely to witness growth over 5%)
  • They are 33% more likely to provide higher quality products and services to their customers

Insurance respondents fall short when it comes to delivering meaningful customer experiences. More than half say speed (of service, product introductions, etc.) is the top driver of these experiences — but only 40% of insurance executives say they can effectively follow through on these efforts. In the new era of insurance, carriers will prioritize customer experiences above all else.

Invest in the right technologies and partnerships

Technology will drive performance for insurers in 2022 and beyond, but a swift move to digital-first experiences exposed insurers that lack the agility to tackle market disruptions quickly. As a result, established industry players are turning to technology to help maintain their position to overcome their shortcomings.

Both public and private clouds have proven helpful in this area: Almost three-quarters of private cloud users say that it helps in risk reduction and preparedness, and 51% say that public cloud aids in the survival of disruptive competition and market changes.

The insurance sector is also investing in emerging technologies, including the following:

  • Artificial intelligence (61%)
  • Internet of Things (46%)
  • Conversational interfaces and virtual assistants (44%)
  • Predictive data analytics (40%)
  • Machine learning (37%)

Artificial intelligence has helped insurance executives weather the unpredictable, as 64% of those who use the technology say that it is helpful in the face of disruptive competition and market changes. AI-enabled technologies can help insurers reduce risk, enhance financial performance, and face disruptive competition.

Insurtechs are evolving and following the path of fintechs. As a result, digital-first insurance companies are enabling streamlined underwriting and claims, which will continue to sit at the center of the insurance landscape. Insurers that can leverage the right technologies have seen the following outcomes:

  • Developed point solutions in areas such as damage estimation, aerial imagery, and fraud detection
  • Aggregated data solutions for risk mitigation and risk prevention
  • Fast-tracked video-based solutions for U/W and claims

Most insurers understand the need to invest in these areas, but they do not have the infrastructure or internal resources to implement and maintain next-gen technologies. At this stage, insurers must select the right partnerships to make organizational change feasible and move toward becoming an interconnected company.

Make better decisions with intelligent data usage

Data protection is still reaching maturity, and insurers are experimenting with emerging technologies to ensure their customer data is safe and secure in a volatile risk environment. Insurance companies must keep up with regulations and cybersecurity best practices in an industry that access and shares sensitive health and financial data.

How are insurers responding? Three-quarters of insurers say that effectively managing data is increasingly difficult. Half of the respondents (51%) effectively prevent data security breaches, while just over one-quarter (26%) can navigate differences in global data regulations.

Failing to implement data protection practices will bring consequences. For example, consumer loyalty is built on trust, and insures with inadequate security measures may suffer in attracting and retaining consumers. Just 44% of insurers are confident in maintaining customer trust in privacy and security. In 2022, the industry landscape will be rife with innovative, digital-native competitors prioritizing data security, transparency, and regulatory compliance.

Insurers wishing to compete in this landscape must move data protection up their priority list and consult with evolving risk and compliance best practices to be successful.

Prepare for the unpredictable

Resiliency is one of the most significant differentiators between organizations that fail and organizations that succeed. Over half of insurance respondents focus on strategic planning with long-term aspirations despite encountering turmoil in recent years.

Performance and return on investment (84%) and customer satisfaction (59%) are core drivers of their long-term planning. Still, many insurers expect competitive threats and industry disruption, health crises, natural disasters, and geopolitical factors to have increasingly negative impacts on operations in the future. A foundation of technology, skills, and cybersecurity acts as a safety net that prepares insurers for unpredictable challenges.

More than half of respondents say that innovation is critical to their survival in our recent survey. Despite this reality, many insurers continue to maintain old working methods rather than investing in new business models, technologies, and organizational objectives. This method of reactive prioritization is slowing insurers down.

Today, only one-quarter are quick to market with new products or services, and just one-third have adjusted culture to embrace innovation. The most successful players are future-focused and proactive. However, insurers still need to adapt their culture, workforce, and technology to create a harmonious, innovation-driven environment.

Put employees first and attract talent

Amid The Great Resignation, a record 4.3 million U.S. workers quit their jobs in August 2021, and this figure jumps as high as 20 million when measured back to April 2021. As a result, employee engagement is more important than ever before to attract and retain the workforce.

It’s time to stop treating employees’ wants and needs as an afterthought. Although insurers understand that skilled and engaged workers help businesses keep pace with rapid technological change, only 14% of insurers say they prioritize employee engagement. Moreover, a staggering 40% of insurers do not believe that employee skills currently support innovation at all.

Can insurers keep up with new employee demands? According to our survey, half of the insurance executives say that employee wants and needs change too quickly to provide a high-quality employee experience. In addition, roughly one-third say flexible work options are essential to employee satisfaction and engagement, and just 29% say they are highly effective at providing it. The most successful insurers will be the ones that put their employees first. Those who fail to do so will waste time and budget managing a revolving door of temporary team members that don’t provide lasting value.

Additionally, insurers are in the midst of a talent war. Insurance companies must attract recent graduates to fill kills gap, encourage innovation, and usher in the next generation of the workforce. To do so, insurers are competing with Silicon Valley, the global center for high technology and innovation, and other Tech Giants dispersed across the country. Insurers capable of keeping up will build a culture of innovation and demonstrate to the talent that a career with them will be stable, stimulating, and future-focused.

What does success look like in 2022?

Outlining an organizational priority list starts with an organizational vision. Insurers must revisit company objectives and envision where they want to be in 2022 and what gaps or blockers currently hinder their evolution. Success looks a little different for each unique organization based on its current level of maturity, customer base, offerings, and vision.

Core systems vendors see that insurtechs play a vital role in enabling digital adoption for insurers. As a result, many vendors evaluate point solutions and offer insurers access to them through ecosystem platforms. SI partners are working with these core vendors to build ecosystems and accelerators to facilitate consolidated access across the value chain, from distribution to U/W and claims.

Insurers are also prioritizing fraud and risk protection efforts. In an uncertain landscape with more innovative and intelligent cybercriminals, insurers must step up their risk and compliance tactics to protect customer data, assets, and reputation. With the right proactive strategies, accelerating digital transformation does not mean accelerating cybercrime, breaches, or non-compliance penalties.

Insurance executives are taking steps in the right direction, including leveraging established technology to improve resiliency and have invested in emerging tech to better position themselves for the future. However, adopting new technologies and ways of working is not enough. The next great challenge will be recruiting the right talent and culture to maximize the value technology can bring and aligning team members to propel organizational change.

Amid The Great Resignation, insurers will see substantial returns from investing in training and skilling of employees to give rise to an innovation-forward culture that ensures these workers are constantly engaged in high-value work. Communicating new priorities and bringing everyone on board for organizational change will fast-track the journey to make an organizational vision a reality in the new year.

Visit the Innovation Index: How Insurers Are Preparing for An Era Of Constant Disruption to see the survey results from your insurance peers, and feel free to reach out to me with your perspectives.

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Rob Baughman

Rob is the Insurance Practice Leader for NTT DATA Services. He is a senior executive with 30+ years of experience in enterprise transformation solutions. He has expertise in relationship management, business development, digital transformation, application development, application maintenance, and business process outsourcing. Rob has worked with insurance, banking, healthcare, manufacturing, and distribution clients. In addition, he has managed global insurance and banking practices.

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