Insurance companies are in a high-stakes race involving digitalization, human capital, and innovation. Winning the race means thriving in the business; losing means sinking into obscurity. Though pundits gave a positive 2020 outlook for the insurance industry, they also mentioned a number of caveats that stakeholders may want to keep in mind if they wish to increase their chances of emerging as winners in the race.
This is where monitoring insurance industry trends can help. Knowing the different factors influencing the industry is not only for CEOs, managers, or decision-makers directly involved in the business. It’s also for product developers, vendors, or startups that are connected to or want to collaborate with insurance providers in increasing profitability and delivering better insurance products and services to consumers.
Insurance Trends Table of Contents
Things are going to be shaken up quite a bit in 2020 for insurance companies. The majority of the disruption will come from emerging technologies, such as AI and machine learning. There’s also an undeniable need to focus on big data and using data analysis software to help companies make sense of the information they collect from both structured and unstructured sources.
Insurance and Digitalization
Source: Friss Digital Transformation SurveyCreated by CompareCamp.com
In addition to this technological shift, there are changes in society and the environment that cannot be ignored. For example, customers want more efficient processes and personalized insurance products. The industry may also struggle to find new recruits in 2021 to replace employees who will retire this year. Meanwhile, US state regulators are expecting insurers to take steps to prevent worsening losses due to natural disasters.
Hard Market Conditions
The insurance industry has continued to show resilience in the past years with the P&C sector recording the biggest profits. However, with a reported potential loss of up to $80 billion due to the COVID-19 pandemic, insurers and insureds alike need to brace for hard market conditions—less growth, steeper rate increases, a smaller number of carriers in the market, and more limits on coverage.
In a hard market, most carriers will start raising their rates eventually. So, if you’re an insurance agent, this is a good time to work with your clients in reassessing their risks before their renewal. Customers will look around once they see rates go up, so it’s best to offer innovative plans or products that can differentiate your agency. This will not only help retain clients but also attract new ones.
Source: Deloitte/NAIC/Insurance Information Institute
- Insurers and insureds alike need to prepare for hard market conditions.
- For agents, this is the best time to reassess the risks of your clients and come up with innovative products before they shift insurance providers.
Millennials (now in their 20s and 30s) have overtaken baby boomers as the largest population group in the US. These young consumers have a different set of expectations and spending habits, compared to their predecessors. They prefer products customized to their needs and companies that engage with them on digital platforms.
To live up to the expectation of this tech-savvy, and well-informed customer base, insurers must learn to leverage technology in order to develop personalized products tailored to their customer’s lifestyle.
For instance, by collecting the right data from endpoint devices and social media, insurance companies can offer usage-based insurance policies that are priced based on the individual’s specific needs and behavior. This will not only be financially beneficial to consumers in the tune of cheaper premiums and better coverage but will also help insurers achieve more accurate risk management. Moreover, a survey from BCG and Morgan Stanley showed that customers are willing to provide their personal data in exchange for more affordable coverage.
Source: BCG/Morgan Stanley Insurance and Technology
- Millennials make up the largest consumer population group in the US.
- Insurers need to come up with innovative and personalized products to meet the expectations of their young customer base.
The prevalence of portable gadgets, cloud-based software solutions, and mobile apps have brought the tides of digital change to an otherwise traditional industry. To illustrate, according to the J.D. Power 2019 Insurance Digital Experience Study, 74% of carriers now offer access to policy and claims information using a mobile app.
However, the problem is that many of these apps still lack mobile-rich features like esignatures, legacy integrations, audit trails, and mobile app security. As a result, customers often need to move to other channels like websites, call centers, or in-person meetings.
We predict that more and more insurers are going to dedicate resources to mobile enablement not just to meet the rising expectations of their tech-savvy customer base but to also deliver timely communication to their agents, brokers, and other business partners.
- 74% of carriers now offer access to policy and claims information using a mobile app.
- More resources will go into mobile enablement, especially to developing feature-rich mobile apps both for customers, agents, and business partners.
By 2025, it’s estimated that the number of connected, smart devices will have reached more than 50 billion. For insurers, this means more opportunities to interact with customers, improve underwriting and fraud detection, and streamline work processes. Applications of Internet of Things (IoT) in insurance are found in auto insurance via connected cars and property insurance via smart homes. Wearable IoTs are also being used in the health and life insurance realms, while drones are becoming an integral part of damage reporting and assessment procedures in the wake of natural disasters.
So what’s the next step insurers should take when it comes to maximizing the potential of IoT? Secure strategic partnerships. For example, auto insurers can partner with OEMs, telecommunications operators, or digital platforms like Lyft or Uber to be able to provide new, hybrid insurance models.
- Leveraging IoT devices can help insurers mitigate losses and offer more competitively priced usage-based products.
- Some applications of IoT in the industry are found in connected cars, smart homes, wearables, and drones.
- Securing strategic partnerships with suppliers along the value chain can increase an insurer’s success in utilizing IoT devices.
Big Data Analytics Trends
Data analytics is not a new concept in insurance. Actuaries have been relying on data to assess risk and calculate premiums. However, what makes it different in this digital age is that aside from the usual age, gender, driving record, etc., algorithms can now incorporate non-traditional data points like shopping habits, social media behavior, credit reports, and family background, just to name a few. Thanks to the IoT, insurers now have access to data they’ve never had before.
P&C insurers, for instance, can refer to social media to detect fraudulent claims. Telematics installed in cars and IoT (smart devices) found in homes and buildings is valuable data sources that can help insurers particularly in providing usage-based insurance (more accurate pricing for a customer, better risk management for insurer). Companies have reported 40-70% cost savings and 60% higher fraud detection rates, and 30% improved access to insurance services with the use of big data analytics.
Ultimately, insurance companies who can effectively interpret the data they collect are the ones who can get ahead of the competition. With the right data, insurers can offer personalized products, cheaper premiums, and better coverage to their clients while keeping their loss ratios at a minimum.
- Data analytics is not new to insurance; what’s new is the volume and type of data available now to insurers via smart devices.
- Big data analytics can be used in a variety of cases, such as detecting insurance fraud, risk assessment, or price optimization.
Though quite late in the game compared to other industries like banking and finance, insurance companies are now turning to automation to streamline their operations and offer improved customer experience. From marketing automation software to Robotic Process Automation (RPA), chatbots, and artificial intelligence, we can expect to see a significant rise in the use of technology targeted at automating repetitive and mundane tasks.
An RPA bot, for example, can handle the entire claims process (intake, assessment, and settlement). If there are missing data, it can then pass it on to a live agent for processing. The bot will observe how the agent handles the case and “learns” from it. The more you use the technology, the better it becomes in processing claims. This can reduce the amount of repetitive work for your agents by as much as 80% and cut processing time by as much as 50%, which means you can process more claims and serve more happy customers.
Automation in Insurance 2020
Source: WorkFusionCreated by CompareCamp.com
- The insurance industry is slow in using automation compared to other industries like banking and finance.
- Various automation technologies like RPA and AI can help automate repetitive activities so agents can focus on other high-value tasks
As insurance companies migrate to digital platforms, cybersecurity concerns also come to the fore. A cyber breach is not only damaging because of lawsuits and regulatory fines, but also due to the loss of trust from clients that may forever ruin a company’s reputation.
Cybercriminals know that there is a wealth of personal information available to insurers, such as credit card details and payment data that they could obtain. What complicates matters is that with sophisticated hackers, traditional tools like antivirus software, firewalls, intrusion detection systems (IDS) are no longer enough. Insurers are only able to protect against short-term attacks, not stealthy, long-term intrusions. In fact, based on Verizon’s 2019 Breach Report, 56% of breaches took months or longer to detect. In a separate Ernst & Young publication, 71% of insurers did not think it was very likely that their organization would be able to detect a sophisticated attack, while 59% stated budget constraints as the main obstacle to tackling cybersecurity.
Many issues surrounding cybersecurity measures will continue to confront the C-suite. They don’t only have to assess the impact of technology on their organization but also manage third-party contracts that deal with cyber and data controls. Moreover, with the abundant cyber risks involved in this digital era, it is essential for leadership to proactively answer cybersecurity questions and regularly discuss strategies for cybersecurity governance during board meetings.
- As insurance companies migrate to digital platforms, they should also address cybersecurity concerns.
- Traditional defenses like firewalls and antivirus software are no longer enough to fight sophisticated hackers.
- The C-suite leadership will need to strike a balance between the technologies they use for the organization and cybersecurity governance, especially in dealing with third-party contracts.
The insurance industry has endemic problems, such as inefficiency (policies are still processed on paper), human error, and fraud. Add to that cybersecurity as the sector moves toward digitalization. A cyber breach can prove to be catastrophic for an insurer not just because of the lawsuits and fines but also the loss of trust from its customers. For these reasons, insurers are looking to blockchain’s distributed ledger technology as a promising solution.
One of the most practical use cases for blockchain in insurance is the creation of smart contracts. Like paper contracts, smart contracts contain the terms of the coverage. But unlike their old school counterparts, smart contracts are self-executing. They are able to track claims, update conditions, and transfer premium payments back to the customer if any condition is no longer covered by the insurer. As you can imagine, this creates a new level of transparency and streamlines the paperwork involved in drafting and executing policies.
In addition, blockchain’s data is decentralized, so it cannot be manipulated or corrupted by one single entity. Instead, new information is chronologically added using advanced cryptography. If an unauthorized person tries to access information, the system will reject him and record evidence of the tampering. With this enhanced cybersecurity protocol, blockchain can not only help stamp out insurance fraud but also provide a fortified wall against cybercriminals.
- Smart contracts using blockchain technology can help address the insurance industry’s perennial problems, such as inefficiency, fraud, and human error.
- Blockchain can boost cybersecurity efforts because of its decentralized and advanced cryptography technology.
Extended Reality (XR) Trends
Extended Reality (XR) is probably one of the most exciting technologies that could prove to be a game-changer in the industry. Throughout history, insurers have had to face challenges in many aspects of the business, such as data gathering. That could change soon as XR becomes more sophisticated. In a survey by Accenture, 84% of insurance companies said that XR will create a new foundation for interaction, communication, and information in their industry.
Some of the interesting use cases for XR in insurance include damage assessment, training, and risk assessment. In damage assessment, for instance, investigators can remain at a safe distance while assessing the damage using a 3D image. On the other hand, it can be easier for underwriters to assess risks and safety hazards by studying simulated images from building schematics. As for training, XR can be a great way to train agents or customer representatives by letting them interact with a virtual policyholder.
- XR will create a new foundation for interaction, communication, and information in their industry.
- As XR technology becomes more sophisticated, we can expect more insurers to maximize its use in different aspects of the business.
Climate Change Trends
The increasing costs of natural disasters—whether they’re hurricanes, floods, or wildfires—are pushing insurers to rethink their pricing, investments, and underwriting restrictions. Take it from the actuaries: In a 2019 survey, they placed climate change as the top risk for insurers outranking financial concerns and terrorism.
Regulators are also demanding more from insurance companies in terms of disclosing and demonstrating the actions they’re taking to mitigate climate-related risks. In response to the issue, we can expect to see insurers take a more proactive role in the near future. Instead of automatically asking for rate increases or plan modifications in disaster-prone areas, insurance companies must also update their risk assessment models and work with administrative agencies in developing climate-resilient policies. They should also help policyholders alleviate climate risk exposure through education and incentivization. Several auto insurers, for example, already provide rebates to customers who choose low-emission vehicles.
Top Emerging Risks for Insurers
Source: Canadian Institute of ActuariesCreated by CompareCamp.com
- Actuaries regard climate change as the top risk for insurers.
- Insurance companies must take a proactive role in helping communities, administrative agencies, and their policyholders mitigate climate-related risks.
Employment Gap Trends
Finding and retaining employees is difficult, especially for an industry that’s considered “uncool” by the millennial workforce. Based on Hartford’s Millennial Leadership Survey, only 4% of millennials want to work in the insurance industry. Young talents prefer other “exciting” industries, such as Arts and Entertainment and Technology.
The problem gets magnified once we factor in data from the US Bureau of Labor Statistics (BLS) indicating that approximately 400,000 employees are going to retire in 2020. As a result, insurers must boost efforts to create awareness among young candidates about career opportunities in the industry. They should also start looking at changes they can make in their company culture in order to attract young talents, such as offering more flexible work arrangements or freelance contracts.
Industries Where Millennials Want to Work
(in percentage values)
Arts & Entertainment: 40
Arts & Entertainment
Construction, Retail & Manufacturing: 7
Construction, Retail & Manufacturing
Wholesaling & Utilities : 3
Wholesaling & Utilities
Source: The HartfordCreated by CompareCamp.com
- The insurance industry is finding it hard to attract young talents.
- Millennials prefer to work in exciting industries like technology, and arts and entertainment.
- Insurance companies may have to be more flexible and start offering non-traditional work arrangements like freelance contracts to attract young candidates.
Cloud Computing Trends
With the technological shift that’s happening in the industry, cloud solutions like SaaS will be at the front and center of the discussion. In a 2016 survey, 67% of insurance CIOs said that SaaS would transform the industry in five years or less (20% of fell into the “two years or less” category). Now in 2020, we can say that their prediction has become a reality. That’s because many of the technologies that we mentioned so far are enabled and strengthened on the public cloud. For example, data analysts can have an easier time visualizing data and sharing them with managers or the sales and marketing team by using cutting-edge business intelligence software delivered via SaaS.
Moreover, we discussed the ever-evolving needs and expectations of tech-savvy customers who prefer mobile apps and digital interaction. To be able to keep up, insurers must make sure they have agile IT applications. With cloud computing, companies can easily acquire and deploy new technologies that can speed up the delivery of their services and products to customers.
- 67% of insurance CIOs said that SaaS would transform the industry in five years or less.
- Using the cloud makes it possible for insurers to deploy new technologies to deliver their products and services faster.
Insurers can no longer rely on organic growth alone. That’s why M&A activities will continue to thrive this year and in the long term. Strategic alliances between established companies and InsureTech can produce more innovative products, better digital capabilities in underwriting and claims process, and overall improved customer experience. Insurers are also using M&A to reach new, developing markets in Africa, Asia, and the Indian subcontinent.
For their part, InsureTechs have the advantage of providing more personalized products that are appealing to customers. Their proficiency in using AI, data analysis, and a host of apps and devices allows them to build detailed risk profiles and more competitive pricing. However, InsureTechs will also greatly benefit from the underwriting expertise of incumbent insurers and their network of millions of customers.
- M&A activities will continue in the long term as a means of sustainable growth for the industry.
- Alliances between traditional insurers and InsureTech startups can result in more innovative products, better digital capabilities in underwriting and claims process, and overall improved customer experience.
- 2020 Insurance Outlook
- 2020 Insurance Fact Book
- U.S. Health Insurance Industry
- Millennials Overtake Baby Boomers as America’s Largest Generation
- Insurance and Technology
- 12th Annual Survey of Emerging Risks
- A Generation of Leaders
- CICA Conference Addresses Widening Captive Talent Crisis
- Top Use Cases for Automation in the Insurance Industry
- Robotic Process Automation in Insurance: Changing the Face of the Industry
- NAIC: Big Data
- Ultimate Guide to Blockchain in Insurance
- Five Technology Trends In The Insurance Industry
- Cloud Computing in Insurance Is About More Than Cost Savings
- Data and the Cloud: Two Key Drivers of the Insurance Industry’s Future
- Virtual Reality and Insurance
- Extended Reality Could Solve Insurance’s Oldest Problem
- A demanding future: The four trends that define insurance in 2020
- The Property Insurance Market Will Continue to Harden in 2020
- COVID-19 general insurance losses range from $32 billion to $80 billion
- Mobile Gains Traction with Insurance Customers
- 2019 Verizon Data Breach Investigations Report
- Cyber Strategy for Insurers
- Global Cyber Executive Briefing
- Digital ecosystems for insurers: Opportunities through the Internet of Things