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Defining the insurance company of the future

The global re/insurance markets are in the early stages of a fresh technology-driven revolution which will transform the way they do business. From how they interact with customers to the new ways in which they process the avalanche of information coming from myriad sources, the fundamentals of the insurance business model are being radically disrupted.

The industry is braced for and absorbing a wave of new technologies  which broadly sit under the umbrella of InsurTech. It’s a surge of robotic process automation (RPA), artificial intelligence (AI), machine learning (ML), augmented reality, and blockchain, which are converging with Internet of Things (IoT) data and sophisticated analytics and data sciences.

But InsurTech is also a competitive force of well-capitalized, nimble, and unencumbered upstarts who challenge the traditional insurance operational model.  In fact, the InsurTech movement is a clear harbinger that in the next five to ten years, insurance organizations will likely operate very differently than today. More technology-driven re/insurers will enter the market and existing players will have no choice but to evolve rapidly. As companies transition into a digital operating model, they will be heavily reliant on smart technology, prescriptive analytics, and advanced data sciences.

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In the current insurance landscape, hard economic and regulatory realities are driving re/insurers to re-examine the need to change and become more efficient. Globally, companies have struggled in the prolonged soft market where premiums continue to slide for most classes of business. Low interest rates mean investment returns have been meagre. Even the recent spate of natural catastrophes does not mean pricing will necessarily harden. Indeed, most market observers seem to agree that the combined impacts of recent U.S. hurricanes Harvey, Irma and Maria, as well as global earthquakes, flooding, storms and other extreme events are unlikely to significantly change the fundamental insurance market dynamics.

Another continual driver of change is the growing realization of inefficiencies in both front and back office operations, and in the distribution value chain. The standard model for most insurers is one in which approximately 30 percent of staff generate revenue and 70 percent perform support functions. Meanwhile, the overall structure of the insurance life-cycle will not change dramatically in the near term. But for insurance organizations, those technology-enabled initiatives that can drive expense out of insurance operations can be a competitive differentiator.

Just as customer demands are changing in a digital economy, InsurTech-driven change is also inevitable

Against this backdrop, intelligent technology can be a key factor to energize a sluggish global market. While the industry is, by and large, aware that fundamental disruption is necessary, individual insurance organizations are at vastly divergent levels of readiness when it comes to embracing InsurTech-inspired change. Some are extremely proactive, establishing in-house venture capital units or incubators to absorb and test InsurTech initiatives. Others realize that just as customer demands are changing in a digital economy, InsurTech-driven change is also inevitable; and they are preparing and committed to being fast adopters. Still others are deciding whether to develop in-house expertise or to partner with external consultancy and service providers.

With the growing abundance of information available, insurance companies of the future should be able to price most risks individually and dynamically. This will be made possible through superior data standards delivering a consistently higher degree of granularity and precision in risk evaluation. For example, auto insurers currently continue to use outdated questions to determine risk and assign premiums. But telematics and geo-spatial data from a variety of sources mean underwriters can increasingly access much more accurate and up-to-date information and details about vehicles and operators to help determine exposures and premium pricing in near-real time.

Automation of back-end processing to price risk should also increase. It won’t be too long before much of the repetitive aspects of underwriting, policy and claims operations are handled by self-learning and self-correcting automation. As more of these tasks are performed by software-driven machines, insurance employees will be able to divert their contextual knowledge to analyse complex problems and make smart, efficient business decisions. In other words, the data availability and sophisticated automation footprint driven by InsurTech can bring rapid and vast productivity and cost containment benefits to insurers.

As a new wave of intelligent technology takes hold, a combination of process optimization and new technologies can help re/insurers of the future turn those 30-70 percent revenue-generating staff ratios on their head. In addition to reducing costs, the smart and practical application of new technologies can radically decrease operational friction, eliminate a good amount of the mundane, repetitive, and error-prone tasks. Doing so frees up insurance knowledge workers to perform higher value decision-making responsibilities, and improve transactional and service experiences for increasingly demanding, digitally inclined policyholders.

How can you navigate InsurTech, and make sure you aren't creating technology for technologies sake?

Justin Davies, Vice President at Xceedance, discusses the up and coming technologies which are having an impact and adding value to the industry already. Join in the conversation with #InsurTechRising.

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