Emerging technologies such as artificial intelligence, machine learning, smart data analytics, telematics, IoT, and others are powering rapid evolution within the insurance industry. Digital transformation is the solution for insurers seeking improved efficiency, better productivity, and enhanced customer satisfaction. Let's take a look at the top technology trends shaping the insurance industry as we move further into 2024.
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As the world becomes increasingly digital and connected, incumbent insurance firms face mounting pressure to undergo complete digital transformation to stay competitive. Over the next decade, technology advancements will drastically change the insurance landscape, making tech-savvy firms vastly different from today's counterparts.
To stay ahead, insurance organizations must keep a sharp eye on technologies that could potentially disrupt the industry and open up new opportunities to improve operational efficiencies, increase cost savings, and offer more personalized experiences.
While adopting innovative technologies seems inevitable, the question of where to focus efforts remains. With the rapid pace of technological advancements, the ability to accurately analyze, evaluate, and adopt the right technologies has become an essential skill for insurers.
As we enter 2024, several trends will have a strong impact on the insurance business models and technology in the year ahead and beyond.
Regarding technology trends, there is no way to avoid mentioning the elephant in the room. Capabilities of Large Language Models (LLM) popularized by ChatGPT have the potential to fully reshape different aspects of insurance operations, particularly claims processing and underwriting.
LLMs are on everyone’s radar because of the potential to automate repetitive tasks, improve the accuracy and speed of underwriting decisions, and enhance customer service.
For example, when it comes to claims processing, LLMs can automatically extract information from various sources during the claims intake process and enter it into the insurance company’s back-end system for further processing. LLMs (or LLM-powered digital workers) show performance superior to manual entry and can free up people to focus on other tasks.
AI-powered Chatbots built on LLMs have proven highly effective in customer service. The level of conversation is way above that of traditional chatbots, and their capacity and time to respond to customer inquiries are much higher than that of humans. LLMs can be trained on your internal documents and materials to ensure effective and accurate responses.
Underwriting is another area that will be transformed by natural language processing. ChatGPT and similar models can be used for analyzing large volumes of unstructured data to identify patterns and empower more accurate underwriting decisions.
Technology is already here. Companies using virtual assistants based on LLMs report that AI already handles up to 90% of inbound documents and up to 70% of claims. With high accuracy (95%), these systems can be used to streamline operations, reduce costs, and enhance customer satisfaction.
The insurance industry is now more data-driven than ever before. With the emergence of various data sources such as social media, online customer journeys, the Internet of Things (IoT), satellite and aerial imagery, and even natural language processing applications, insurers have access to a wealth of information.
By combining this data with their traditional sources, such as claims history, insurance policies, and health records, insurers can harness the power of artificial intelligence (AI) to gain valuable customer insights, increase the speed, efficiency, and accuracy of processes, and reduce risk.
AI can be utilized throughout the insurance value chain, making it an essential tool for customer-facing and back-office operations, frontline employees, and distribution and service partners.
Mike Connor of Silicon Valley Insurance Accelerator (SVIA) stresses that AI is no longer simply a technological add-on and now constitutes a full business strategy. He highlights the capabilities of AI in terms of collaborative risk assessment:
"The strategic use of AI in risk assessment and underwriting is evolving into real-time, contextualized analysis. By employing Swarm AI, where specialized AI systems collaborate (e.g., focusing on climate, traffic conditions, driver behavior, vehicle safety, repair costs), insurers can achieve a comprehensive risk profile."
Connor also identifies four other key areas where the impact of AI will be most noticeable:
Dynamic changes in the insurance market and the pace of business growth dictate the imperative for replacing manual processes. To embrace process automation and provide better experiences for clients, partners, and employees, insurers are implementing AI capabilities across their entire value chain. By incorporating AI-based tools and solutions into their operations, insurers can not only improve their market positions but also efficiently compete with threats from Insurtech and other new market entrants.
The cloud stands as one of the most transformative technologies that has revolutionized the way modern businesses operate. Though this technology has now been around for over a decade, companies in the financial services industry were slow to adopt it.
In Europe, insurance companies have been slow to adopt cloud technology for various reasons, such as regulations, data privacy concerns, and financial constraints. As regulations become clearer, cloud technology advances, and attitudes toward digital transformation change, the adoption of the cloud in the European insurance sector is poised to increase.
Gartner's Market Guide for Non-Life Insurance Core Platforms, Europe highlights that insurers are increasingly seeking cloud-based Solutions and SaaS-based models. It is likely that in 2024, for the first time in Europe, there will be more Cloud-based than on-premise-based core insurance platform deals.
The emergence of new business models in the insurance industry and faster product innovation cycles demand an agile, flexible, and scalable digital infrastructure. All this favors the cloud, which plays a crucial role as a driver and enabler of digitization and model innovation.
The benefits of improving efficiency, prioritizing customer-centric approaches, and becoming a data-driven organization will push insurers to ramp up cloud adoption. As insurance carriers continue to embrace digital tools and solutions extensively, cloud computing is becoming a critical element of their IT strategy.
An increasing presence in the cloud also created additional cybersecurity concerns. Broader network footprints create more opportunities for malicious actors to penetrate. Successful data breaches and other cyberattacks put business and client data at risk and erode client and policyholder confidence.
The Digital Operational Resilience Act (DORA), introduced by the European Union, aims to fortify the digital operational resilience of the financial sector, which includes the insurance industry. It outlines the essential measures that all financial institutions (online and otherwise) must undertake to protect, detect, and contain cyber threats.
The act presents a significant regulatory framework impacting not only insurers but also technology vendors and service providers, particularly those offering solutions as a service (SaaS), operating in cloud environments, or designated as critical ITC service providers.
Because compliance with DORA is not just a regulatory requirement but a strategic imperative, we will see embedding resilience and security at the heart of insurance technologies to ensure insurers' adherence to regulatory standards.
As a technology that bridges the physical and digital worlds, the Internet of Things (IoT) has become a rapidly growing trend that will have a major impact on the insurance industry in the coming years. The increased number of IoT devices enables insurance companies to expand significantly, not only the amount but also the quality of data related to the accuracy of risk assessment and price modeling.
But, IoT is not only about risk factors and improved risk management. The network of sensors and connected devices collects data that is shared across the ultra-fast 5G infrastructure, analyzed, and processed to create the foundation for real-time data exchange. This opens up new possibilities, such as automated real-time accident and claims reporting having a major impact on claims processing times and superior customer experiences.
The increased frequency and amount of data collected on customer behavior, risk profiles, and usage patterns allow insurers to get a clearer picture of the actual risks associated with specific customers. Improved risk management does not apply only to retail; it also has major implications for commercial lines.
Using these results and advanced analytical capabilities, insurers can design policies that specifically address the needs and behavior of these customers. Both the retail and commercial applications of Telematics present a great opportunity for insurers. Insights into driving habits and telematics data of vehicles can be leveraged for usage-based and behavior-based insurance models that enable them to calculate and alter policyholders' rates based on real-time data.
Matteo Carbone, the founder and director of the Connected Insurance Observatory, points out that members of health and wellness schemes who use IoT devices such as fitness bands and smartwatches are already eager to share their personal data in exchange for potential benefits.
"... policyholders crave to share their healthy behaviors with their insurers and enjoy substantial advantages, with benefits that can be higher than the premium paid," Carbone wrote in a recent article. He went on to say: "As intuitively expected, a program encouraging healthy behaviors and incentivizing individuals showcasing such conduct inherently possesses the capability to attract and retain more people with a healthy lifestyle."
An investment in incentives for policyholders that utilize IoT devices to share health data could, therefore, be highly profitable for insurers.
One of the most noticeable trends we expect to see in 2024 is the broader adoption of low-code/no-code methodology. With technological advancements, speed has become the name of the game for modern insurance companies. To stay on top of their competition, modern insurers need the ability to manage insurance platforms, deploy updates, and develop new products as fast as possible.
The low-code/no-code methodology enables companies to manage their software and applications with minimal coding, using an intuitive, user-friendly drag-and-drop functionality instead. Taking advantage of this modern methodology allows insurers to increase the number of non-technical employees capable of executing critical technical tasks. Gartner predicts that by the end of 2024, 75% of large enterprises will be using at least four low-code development tools for both IT application development and citizen development initiatives.
Research from Everest Group indicates that 56% of organizations in the financial and insurance sectors are already utilizing no-code/low-code solutions as part of their digital transformation strategies. They've found success using these tools to enhance automation, support remote workers, and even create meaningful front-end interfaces for customers.
This concept is gaining traction because of its ability to allow insurance companies to move quickly. At the same time, it helps insurers offload development tasks from overburdened IT departments to non-technical resources, reducing backlogs, automated insurance processes, substantial cost savings, higher productivity, and better customer experience. However, the most vital quality of this methodology comes from the ability to significantly accelerate the time to market for new products compared to traditional development. Thanks to this, business users can independently configure and design, and rapidly launch new insurance products without the involvement of technical staff.
While the adoption of low-code technology is predicted to experience a significant increase in 2024, insurance companies need to be aware of its limitations. In the insurance industry, low-code/no-code tools are mainly designed for business users to develop and maintain insurance products without needing to involve IT resources. They should not be used for complex projects or other solutions that have specific development requirements.
In this process, insurance carriers need to keep an eye on the risk. While democratizing development can improve agility, it should happen under the oversight of IT to prevent the creation of “shadow IT”, where applications and solutions are developed outside the IT purview, creating security and regulatory risks.
Another thing to consider: our research has shown that many low-code/no-code tools still lack support for insurance-specific workflows and provide too little insight into the low-code results. Another drawback is that users find it difficult to add new features after initial development.
Digitalization is having a significant transformational impact on companies across all industries. Modern, digitally empowered customers look for personalized and customizable products and services delivered in a fast, transparent, and convenient format.
Fierce competition and changing customer expectations are raising the bar on customer satisfaction.
To expand their reach and provide risk coverages at the right places, insurers need to connect with the right partners that provide capabilities that extend their offerings and enhance customers' digital experiences. While direct digital channels present a feasible opportunity, the majority of insurance products are still sold over distribution partners that gained intimate insights into their clients.
The rise of API (Application Programming Interfaces) technology enabled insurance companies to tap into partner networks and design, develop, and integrate various products and customer services on a single insurance platform to provide frictionless buying experiences.
Participation in digital ecosystems (or even building of their own) allows insurers to expand their market, keep pace with current trends, and embed their insurance products within complimentary products or digital services. Through these digital ecosystems, insurance companies can reach customers more easily, offer comprehensive products, and exceed policyholder expectations.
Robert Anderson, Endava's principal architect for the insurance industry, notes that effective ecosystems include people as well as technology and must center on customers to be effective.
"Ecosystems include digital and technical systems and explicitly include organizations, people, and their relationships. In practice, this means multiple participants are working together to generate benefit for all but especially for their customers."
He goes on to say that models like the Amazon ecosystem that embrace multiple brands and services could be the norm for insurers in the future.
Fast technological advancements are emerging as a major disruptor within the insurance sector.
These disruptions create significant opportunities for insurers to increase competitiveness, productivity, and efficiency while enhancing customers' digital experiences and reducing risk.
However, they also pose a substantial threat to traditional players. To readily embrace the digital future of insurance, forward-looking brands must continuously track and evaluate emerging technologies and trends and understand their business implications.
The technology trends highlighted in this article can profoundly impact and reshape the insurance market as we know it. In an uncertain and ambiguous world, adaptability, resilience, and the capacity to innovate have become critical for navigating ambiguity and uncertainty.
Find out how Adacta can help you stay ahead of the curve and remain competitive.