Insurance companies are realising that digitisation is starting to have an effect on the way they do business. A Boston Consulting Group (BCG) report says in every area of insurance, traditional insurers can use the internet, mobile technology and social media to fend off new rivals and get ahead of long-time competitors.
The challenge lies in coming up with a road map for digitisation: Where to start, what to change, how much to invest, and how to make it all happen.
The report says companies should build their digital platform on three parts of the value chain: Internal operations, go-to-market strategies and risk. For internal operations, the benefits of digitisation starts from straight-through processing, which lowers the insurers' transaction costs. For example, in health insurance, digitisation of operations involves developing interfaces for providers, such as physicians and hospitals, which will make claim settlement faster and reduce frauds in billing.
Digital technology can help immensely in automobile insurance. The BCG report quotes an example of one insurer where the processing cost is 30% lower than those of traditional insurers. If traditional insurers are to remain competitive, they must move faster to make their legacy system more flexible an better able to operate in real time. This is a significant implementation challenge that will require a lot of planning and investment, the report says.
An innovative way to increase efficiency is by introducing self-service portals, which could allow policyholders to do certain transactions online without any paper work or assistance. However, insurers face a challenge with such portals and have to move beyond just allowing customers to access forms online and send those PDFs back to in electronic form.
In the current structure of the industry, independent agents develop customer relationships and, in many cases, even handle customer service. However, self-service portals would reduce the work load of agents without necessarily increasing customers' loyalty to the insurers themselves.
Insurers have launched pilot digital projects in risk analysis. Underwriting is one of the prominent areas of risk in which insurers could capitalise on digitisation. While the science of using actuarial tables and other statistics to create and price insurance products has been around for a long time, information from social media, GPS systems and big data could lead to improvements in insurers' ability to assess risk and even manage claim in an efficient manner. Globally, auto insurers are gathering data by using telematics devises and mobile phone applications to determine premiums for new clients. It enables insurers to price the premium lower for safe drivers and higher to those who have a track record of accidents and rash driving.
Moreover, the data also helps auto insurers adjust the price of policies in subsequent years and more accurately assess the risk of each policyholder. Similarly, life insurers can use data from social networks to estimate its loss reserves more accurately by spotting lifestyle changes.
When it comes to technology infrastructure, the BCG report underlines that traditional insurers are in a difficult spot. While on the one hand they have to start delivering some of the benefits of digital technology to their customers quickly, on the other hand, they are sitting on top of the legacy system, which, by their nature, can be changed only through a prolonged and multi-step process. The answer lies in rolling out some new digital services even as insurers move towards a long-term overhaul of their legacy architectures.