Insurance is Overdue for Digital Transformation—Now’s the Time to Innovate

This year, InsurTech companies are zeroing in on a new generation of digitally native consumers. This means re-evaluating tech stacks and integrating innovative tools to stay competitive. Discover why digital transformation is essential to insurers now more than ever, and see the top insurance innovators to watch in 2022.

Simplicity can be a gold mine for insurers. Conditioned by excellent customer experiences in more forward-thinking verticals, consumers want insurance products they can easily understand, buy, and use. Disruptive InsurTechs1 and innovative incumbents that can harness the technology required to satisfy this demand are raking in huge revenues, and will continue to do so in the coming years.

Innovation can drive profitability for insurers

Globally, InsurTech revenue hit $5.48 billion in 2019, and experts predict it will rise to $10.14 billion by 2025.2 To capture a share of all this value from their tech-led competitors, smart insurers have Chief Innovation Officers (CIO) leading their digital transformation initiatives. The savviest of the bunch also have in-house or external teams that can develop, distribute, and iterate solutions that deliver the first-rate customer experience customers demand.

“Disruption” has become a shopworn term across multiple industries—insurance is not one of them. Not only are most incumbent insurers lacking innovation in their DNA, regulators are making it hard for them to experiment. Under these constraints, it seems like major insurance companies can only digitize their existing businesses for short-term value creation, which is like bringing a penknife to a gunfight—insurers that don’t use digital tech effectively aren’t going to last long.

There’s a lot to unpack when it comes to all the opportunities today’s leading tech trends are making available to your company. We could write a book on digital transformation in insurance, but for now, we’d like to give you a rundown on innovation in this industry—why your company needs it; what the top technological trends are; and how you can innovate efficiently, cost-effectively, and profitably.

Why insurers need digital transformation

Everything starts at the end—the end-customer, that is. Therefore, to ensure a fast, sizable return on your company’s innovation spend, you need to deliver a great customer experience across every touchpoint. The technology that will give you the opportunity to compete with new InsurTech entrants and fast-moving incumbents is readily available to your company.

As great as this sounds, trending tech is only as good as the solutions your company can build with it. Insurers with resources that can develop, launch, iterate, and scale insurance innovations may have a bit of a head start; if your company lacks such resources, you have options that will enable you to catch up with, or overtake, those that have them. This means doing more than process optimization; instead, you need to innovate your business on a large scale and offer digital products built according to quantitative and qualitative market analysis.

A 2020 Deloitte survey indicates that American consumers are interested in “capability upgrades empowering them to adjust price and coverage, reflecting changing needs and usage. In addition, a significant proportion appeared open to far less traditional coverage concepts.”3 Younger generations are looking for virtual engagement with insurers, along with DIY apps and “alternative coverage models.”4

Digital transformation benefits the entire insurance value chain

Insurers that are currently offering digital products are seeing benefits across the insurance value chain. For instance, these companies can now collect richer, more actionable data than ever, providing them with more precise insights into emerging risks like cybercrime and macro risks like climate change. Their innovations are ramping up the speed and efficiency of several stages of the customer journey, including

  • Distribution
  • Underwriting
  • Policy administration
  • Claims handling5

Fast, user-friendly insurance products are not only giving customers what they want, they’re also enabling insurers to become more nimble and consumer-centric.

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Source: Jean-Jacques Henchoz, Digitalisation delivers benefits for the insurance industry

One of the hottest new products on the insurance market, parametric insurance, is delivering benefits to insurers and the insured alike. Using flood damage as an example, customers receive payouts once the water level hits an agreed-upon threshold, even if there was no actual damage. This enables the insurer to predict losses and set corresponding rates more easily; at the same time, insurers pay less for coverage and receive faster payouts.

Parametric insurance products also enable insurers to

  • Protect themselves against economic losses and provide liquidity through pre-defined payouts
  • Create offers for scenarios that limit or don’t allow for traditional coverage (e.g. flight delay insurance)
  • Eliminate pricing risk based on customer assets—nobody buys products that are too high for the market, like traditional flood insurance in high-risk regions
  • Assist recovery through fast payouts following a natural catastrophe, unlike expensive claims-based insurance that is slow to pay and typically includes a high deductible6

Ignoring innovation is a serious risk to insurers

Tech-savvy players from inside and outside the insurance vertical are the greatest threat to insurers that can’t digitalize their businesses effectively. The customer experiences in industries like retail and finance have shaped market expectations in such a way that insurers that can’t satisfy or surpass them will eventually lose market share to their more nimble and customer-centric competitors.

Bearing this risk in mind, investing in transformative technology and resources should be a no-brainer for any insurance company. A recent Gartner study indicates otherwise—48% of surveyed insurers state that while “customer experience (CX) technologies play a key role in their recovery, only 26% are deploying or increasing their CX technologies investments post-COVID-19.”7

Your company now has the opportunity to outpace the 74% that are willing to risk taking a customer satisfaction hit, which has a double negative impact—increased customer churn and lost recurring revenue. The right CIO, tech, and innovation team can build products that enable your company to provide an omnichannel experience so simple and swift it not only eliminates the risk of lost revenues, it also has the potential to leave your slower-moving competitors in the dust.

The innovators in the insurance industry are leveraging several technological trends to build and distribute digital products and services. The following quotes from a 2021 McKinsey article highlight the top five digital game-changers8:

  • Applied AI—“Artificial intelligence (AI) will disrupt distribution, underwriting, claims, and service as core processes become AI-enabled, creating a “human in the loop” model that increases productivity and allows for higher-quality touchpoints with customers.”
  • Distributed infrastructure—“As the cloud matures, a rapid shift to the cloud for all core systems will help insurers be more nimble in launching new products and creating better customer service.”
  • Future of connectivity—“Increasing the frequency and specificity of data being shared through IoT devices helps customers provide a more accurate view of their needs, enabling insurers to better understand risk, both at time of purchase and on an ongoing basis.”
  • Next-level process automation and virtualization—“For example, industrial IoT can enable real-time monitoring of equipment to allow for predictive maintenance before claims happen. Similarly, digital twins and 3D and 4D printing have the potential to transform the claims experience for all physical damage areas.
  • Trust architecture—“New technologies will allow carriers to more effectively manage risk and make use of complex customer data—a critical step in evolving to a “predict and prevent” model of insurance where data is shared more frequently between parties with insurers playing a more active role in claims prevention.”

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Source: McKinsey & Company, Top tech trends in insurance

This potential transition from claims to prevention will require insurers to build ecosystems on multiple data sources, such as the cloud and IoT devices. This makes hiring or partnering with talent that knows how to develop, monitor, and iterate on such ecosystems essential to your company’s digital transformation initiative. In addition to satisfying existing customer demands, this will enable your company to capitalize on expected shifts in the insurance industry’s revenue and profit pools.9

An innovation primer for insurers

Progressive insurance companies that embrace digital transformation will see huge gains in value across several areas of business. Those that stick with their dawdling legacy systems, or can’t transform them quickly enough, will miss out on millions of dollars in new revenues.

Your innovation project should begin with you and your team taking the time to learn market expectations before building and launching digital products. Reinforce your online research with your own market research to determine how you can best meet customer expectations in a way that differentiates your company from its competitors.

At the same time, take a deeper dive into industry-altering trends, so you can adapt your digital transformation strategy as tech and the insurance landscape evolve. Consider the impact these trends will have on your business operations and goals and plan accordingly. Identify your innovation gaps so you can hire or partner with digital talent capable of leveraging current and future tech trends to effectively support your company’s conventional insurance staff.

Innovative insurance offerings are still somewhat niche, but shifting customer expectations and evolving technology will eventually drive them into the mainstream. Insurers that digitalize their businesses with a customer-centric mindset will rise to the top of the market—if you need help starting or accelerating your company’s digital transformation, U+ is here for you.

The top insurance innovators to watch

The following InsurTech companies are transforming the insurance industry—U+ recognizes them as the Top Insurance Innovators to watch.

Pula

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Pula is an agricultural insurance provider using technology and parametric insurance to serve a previously uninsured market of 1.5 billion smallholders worldwide. The award-winning company uses insurance and digital products to support small-time farmers with managing climate risks. They offer helpful tips that improve farming and agriculture, allowing farmers to better shield their farms, livestock, and crops from damage caused by unfavorable weather conditions. In 2019 alone, Pula facilitated crop and livestock insurance cover to 1.1 million farmers across Africa and Asia. Since 2015, their products have impacted over 4.9 Million smallholder farmers.

Pula has been recognized by the Financial Times/IFC Award for Sustainable Finance, Credit Suisse the Singapore Fintech Festival, Women’s World Banking, and InsureTech3.0.

Lemonade

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Lemonade is a licensed insurance carrier offering policies for renters, homeowners, car, pet, and term life insurance in the United States; the company also offers liability and contents insurance to customers in France, the Netherlands, and Germany.

Lemonade's strengths include the use of its AI bot to instantly handle many of the tasks that typically require human assistance. Rather than waiting days or weeks for a claim to be approved, the insurer's AI has the ability to process and approve claims instantly, all while reducing costs.

In early November 2021, Lemonade acquired Metromile, an InsurTech offering a unique take on usage-based car insurance.

Zego

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Zego is a commercial motor insurance provider that offers a variety of insurance products to businesses based across the UK, Europe, and beyond. From businesses with large fleets to individual self-employed drivers, the insurer uses best-in-class technology combined with sophisticated data sources to provide insurance plans that save both time and money for businesses.

To date, Zego has raised more than $200 million in funding and was the very first UK InsurTech to achieve a $1 billion valuation. It was also the first InsurTech company to be awarded its own insurance license and won Tech Company of the Year 2020.

Ladder

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Ladder is an InsurTech based in Palo Alto, California that offers life insurance for the American consumer market. The company allows its customers to apply for a policy from an online application and, if approved, get coverage within minutes without requiring any contact with a sales agent.

Ladder uses this innovative technology with elite insurance and financial expertise to make it simple for anyone to purchase life insurance. Where Ladder really separates itself from competitors is the instant coverage flexibility it offers to its users. Customers can “ladder up” or “ladder down” their coverage amounts at any time. This allows policyholders to increase or decrease life insurance costs whenever their needs change.

Mylo

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Mylo provides a revolutionary digital experience for individuals and small business owners shopping for insurance. This fast-growing InsurTech serving the US market is backed by the world’s largest independent broker Lockton and global investor Guggenheim Partners.

Combining human intelligence and AI-powered technology, Mylo promises its users high-efficiency digital experiences and high-value human consultations. Their embedded insurance platform provides data-driven technology, top-rated carrier partners, insurance agents licensed in all 50 states, and 50+ years of expertise.

Hometree

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Hometree is a UK-based company offering insurance solutions for smart homes. It aims to transform how people enjoy their homes by making them more sustainable, smarter, and more affordable to run. The company vows to offer more comprehensive home insurance than traditional competitors and ensures clients get the best value with one simple rate and no surprises.

How can U+ help your company become a leader in innovation?

The U+ Method can efficiently and effectively lead the development, implementation, and improvement of innovations in any sector. To date, we have used this method to bring 90+ products to market, creating over $1 billion in value for Fortune 1000 companies, including major insurers such as Swiss Re and AXA Insurance. Our success stories in this space include an online insurance product for Société Générale and a complete stack revamp for Columbia Insurance Group.

Footnotes

  1. Tanguy Catlin et. al, McKinsey & Company, InsurTech—the threat that inspires

  2. Mordor Intelligence, Global InsurTech Market | 2021 - 26 | Industry Share, Size, Growth

  3. Gary Shaw et. al, Deloitte Center for Financial Services, US Insurance Consumer Survey

  4. ibid.

  5. Jean-Jacques Henchoz, Digitalisation delivers benefits for the insurance industry

  6. Sibylle Fischer, Baloise Group, Growing Opportunities for Incumbents in Parametric Insurance

  7. Kimberly Harris-Ferrante, Gartner, Top 3 Customer Experience Trends for Digital Insurance 2022

  8. Krish Krishnakanthan et. al, McKinsey & Company, Top tech trends in insurance

  9. ibid.

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