Top 6 Digital Transformation Applications in Insurance (2024)

The insurance industry is undergoing massive changes thanks to emerging technologies and changing customer expectations. While insurance has traditionally lagged behind other industries in adopting new innovations, the rise of insurtech and demanding policyholders are forcing insurers to digitally transform.

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In this comprehensive guide, we‘ll explore the top digital transformation trends, use cases, and applications in insurance for 2024 and beyond.

Why Digital Transformation is Critical for Insurance Companies

The insurance sector has fallen behind the curve when it comes to digital transformation. A McKinsey survey found that on average, only 10% of interactions between insurers and customers are digital.

However, adopting digital capabilities is no longer an option but a necessity for insurance providers. Here are some of the key reasons:

Increasing competition from insurtech startups: Insurtech firms are using technology to create superior customer experiences and streamline operations. Incumbents need to digitize to stay competitive.
New customer expectations: Today‘s consumers, especially millennials and Gen Z, expect seamless digital experiences. They want to be able to purchase policies, file claims, and get support anytime, anywhere on their channel of choice.
Pressure to improve efficiency: Digital transformation can eliminate manual processes and paperwork, reduce costs, and enable insurers to scale more efficiently.
Leveraging data and analytics: Digitization provides access to customer data that can be used to develop hyper-personalized products and pricing models through advanced analytics.
Regulatory requirements: Regulations like IFRS 17 are also pushing insurers to improve data management capabilities.

Clearly, digital technologies are redefining the insurance sector. Companies that don‘t transform risk losing out to nimble competitors.

Top 6 Digital Transformation Applications for Insurance Firms

Here are six of the most impactful digital transformation use cases for insurers:

1. Automating core processes with AI

Insurance operations involve many manual and repetitive tasks that are ripe for automation. An Accenture study estimates that AI could cut insurance costs by $300 billion by 2035.

Some processes that can be automated by AI include:

Underwriting and risk scoring: AI can analyze applicant data to instantly determine premiums and make underwriting decisions. This eliminates manual reviews.
Claims processing: AI techniques like optical character recognition (OCR) can extract information from documents and images to process claims faster. Chatbots also speed up initial claims notification and information gathering.
Fraud detection: By detecting anomalies in claims data, AI makes fraud identification faster and more accurate. This reduces losses from false claims.
Customer service: Chatbots and virtual assistants equipped with natural language processing handle basic customer inquiries, freeing up agents for complex issues.
Back-office operations: Robotic process automation (RPA) performs repetitive administrative tasks in the back office without human involvement.

Insurance industry automation potential (Image source: McKinsey)

Adopting AI-driven automation allows insurers to improve efficiency, reduce costs, and deliver superior customer experiences.

2. Data-driven underwriting and pricing

Traditional underwriting relies on limited applicant data and human judgment. This leads to subjective pricing and decisions.

With digital transformation, insurers are shifting to data-driven automated underwriting. This involves:

Collecting vast amounts of data on customers from both internal and external sources.
Building risk models using predictive analytics and machine learning algorithms to score applicants.
Dynamically calculating premiums based on these risk scores.

Data-driven underwriting has many benefits:

Reduces reliance on human underwriters and manual reviews.
Enables usage-based insurance pricing using real-time customer data like driving behavior through telematics.
Allows granular risk segmentation for personalized premiums.
Quicker underwriting decisions and policy issuance.

For example, Allstate Insurance automates underwriting for auto policies through its QuickFoto Claim® technology. Drivers take photos of their vehicles through a mobile app. Computer vision algorithms extract details to pre-fill estimates, cutting underwriting time by 50%.

As another example, life insurance startup Bestow uses AI and thousands of data points to provide real-time underwriting and policy prices. Applicants receive quotes in minutes without medical exams or lab tests.

Such innovations in data-driven automated underwriting are prompting legacy firms to digitize as well.

3. Omnichannel customer engagement

Today‘s always-connected consumers expect seamless experiences across channels and devices. An omnichannel approach allows insurers to engage policyholders through:

Mobile apps: Apps with features like photo claims submission, payments, and real-time notifications provide convenience.
Chatbots: AI chatbots offer 24×7 support on messaging platforms and websites. They handle common requests, freeing up agents.
Self-service portals: Online policy management portals enable customers to get quotes, buy plans, modify policies, file and track claims, and more.
Social media integration: Customers can be engaged via social media messaging. Chatbots can monitor channels to address issues.
Multi-touch attribution modeling: Analyzing customer interactions across channels provides a holistic view. This allows delivering consistent experiences.

Digitizing customer touchpoints across the insurance journey is vital for customer retention and growth. McKinsey states omnichannel customers have 30% higher lifetime value.

For instance, Farmers Insurance allows customers to file claims via mobile app, web portal, phone, email, live chat, and in-person. This omnichannel approach reduced call volume by 20% and improved Net Promoter Score by 5 points.

Similarly, American Family Insurance launched a new self-service portal with AI chatbot and intelligent virtual assistant. This omnichannel strategy increased customer satisfaction by 11 points in testing.

4. Leveraging IoT and telematics for usage-based insurance

The Internet of Things (IoT) is enabling innovative usage-based insurance (UBI) offerings. By installing telematics devices in insured assets like vehicles and equipment, insurers can capture real-time usage data and offer personalized, pay-as-you-go policies.

For example, auto insurers are offering policies priced based on driving behavior measured by in-car IoT. Safe driving lowers premiums. Home insurers leverage smart home sensors to monitor assets in real-time and reward risk reduction.

Benefits of IoT-enabled UBI include:

Dynamic risk-based pricing.
Increased pricing accuracy and granularity.
New revenue opportunities.
Incentivizing customer risk management.
Richer data for underwriting.

Verisk Analytics predicts that UBI will make up 20% of all auto insurance in the U.S. by 2025. While IoT integration requires upfront investments, the long-term advantages make it a digital transformation priority.

Progressive‘s Snapshot program, one of the largest UBI programs globally, measures driver behavior through a telematics device and offers discounts for safe driving habits. Over 15 million drivers have joined Snapshot, and Progressive captures over 20 billion driving miles of data daily.

Policy Term	Average Savings with Snapshot
6 months	$130
12 months	$145

Average savings on Progressive auto insurance using Snapshot telematics device (Source: Progressive)

Lemonade provides homeowners insurance with IoT integration. Customers get discounts for installing water leak detectors, smoke detectors, CO monitors and other devices that reduce risk.

5. Leveraging blockchain for improved data sharing

Blockchain‘s decentralized, transparent structure has intriguing applications in insurance:

Fraud reduction – All parties validate claims data immutably logged on blockchain, reducing fraud.

Automated claims – Smart contracts automatically pay out verified claims meeting rules encoded on blockchain.

Secure data sharing – Data is shared securely between entities without intermediaries.

New products – Parametric insurance products pay automatically when a triggering event occurs.

While still an emerging technology, blockchain pilots are already underway. Allianz tested blockchain claims with Bharti AXA General Insurance, cutting settlement time from weeks to minutes. Adopting blockchain alongside IoT, AI, and cloud will be key to digital transformation.

For example, IBM and AXA developed a flight insurance product called Fizzy using smart contracts on blockchain. Customers immediately receive compensation if a flight is delayed by more than 2 hours. This transparent automated system does not require claims assessment.

AXA goes were hailing Fizzy as a huge success. They stated:

"Fizzy immediately demonstrated strong appeal in the market, with more than 14,000 policies sold in just a few months. Customers benefit from compensation deposits processed almost instantly through smart contracts."

Blockchain and smart contracts allow insurers to service clients in new ways not possible with legacy systems.

6. Adopting the cloud

Transitioning systems and infrastructure to the cloud provides insurers with agility, security, cost savings, and innovation capabilities required for digital success. Cloud enables insurers to leverage technologies like IoT, AI, blockchain, and advanced analytics.

The cloud offers many advantages:

Scalability – Insurers can scale to meet fluctuating demand.

Security – Cloud providers implement the latest cybersecurity tools.

Cost reduction – No large upfront investments needed in infrastructure. Pay only for used resources.

Speed – Launch new products and services faster.

Accessibility – On-demand access from any location.

Innovation – Leverage latest cutting-edge capabilities through cloud providers.

According to Accenture, 83% of insurers agree the cloud is critical to digital transformation. Insurers like Liberty Mutual and MetLife are already migrating to the cloud.

Liberty Mutual moved core insurance systems to AWS cloud in just 13 months compared to traditional 3+ year timelines. This agility allows launching new digital capabilities faster for customers.

State Farm reduced data processing times from 36 hours to just 1 hour by leveraging AWS analytics and machine learning services. Cloud-based analytics provide the rapid insights needed for digital insurance.

Real-World Examples of Insurance Digital Transformation

While insurers acknowledge the need for digitization, execution remains challenging. Here are some examples of companies at the forefront of insurance digital transformation:

Ping An (China)

Invested $1 billion in R&D to launch Ping An Good Doctor, an online platform providing telemedicine, drug deliveries, and appointment bookings.
AI chatbot handles 1 billion customer queries annually.
Claims processed through mobile app within 1 minute through facial recognition and blockchain data.

John Hancock (USA)

Partnered with Vitality to offer interactive life insurance policies with premium savings and rewards for healthy living.
Real-time data collected via wearables to encourage exercise, nutrition, rest, and meditation.

Lemonade (USA)

Fully digital experience including sign-up, underwriting, and claims via AI chatbot and mobile app.
Uses behavioral economics and machine learning to pay claims fast and deter fraud.
On track to achieve 40% market share in renters insurance.

Allianz (Germany)

Launched Allianz Business Portal providing 24×7 online insurance management.
Chatbot serving over 1 million conversations annually.
Piloting blockchain smart contracts for auto claims with Bharti AXA India.

These examples showcase how insurers globally are utilizing emerging technologies to offer seamless digital experiences, create innovative policies, improve operations, and make data-driven decisions.

Key Challenges in Insurance Digital Transformation

However, many hurdles remain in digital transformation:

Legacy IT systems – Older technology architectures constrain capabilities.
Data challenges – Data trapped in silos, gaps in data, and poor data quality.
Cybersecurity risks – Increased attack surfaces with new digital assets.
Organizational resistance – Cultural affinity for traditional models and siloed thinking.
Unclear ROI – Difficulty in calculating return on investment from digital initiatives.
Regulatory constraints – Restrictive regulations on use of external data, AI, etc.

Overcoming these roadblocks requires strategic transformations supported across all levels of the organization.

Let‘s explore some of these challenges in more detail:

Legacy Systems Hindering Transformation

Many insurers rely on legacy systems that are decades old and obstruct digital capabilities. Core systems designed in the 80s and 90s lack flexibility to integrate emerging technologies.

Critical systems that support key functions like underwriting, billing and claims processing need modernization. Legacy systems with embedded business logic are complex and risky to replace.

Steps to modernize legacy platforms include:

Assessing systems based on relevance, risk and replacement complexity.
Implementing APIs to connect newer digital tools to legacy systems.
Re-platforming specific components in a modular fashion.
Pursuing core modernization incrementally over time.
Leveraging cloud, microservices and other technologies to enable innovation.

Upgrading rigid legacy systems requires significant time and investment. But it remains a key digital transformation priority.

Organizational Resistance Impedes Progress

A cultural affinity for traditional models and organizational silos often hinders insurance digital transformation.

Many executives and employees are accustomed to legacy approaches and averse to change. There may be distrust of data, analytics and new technologies.

Siloed teams with narrow focus inhibit enterprise-wide digital adoption. Insufficient collaboration occurs across teams like IT, operations and marketing.

To overcome internal resistance, insurers need leadership commitment and alignment at all levels to drive change. Steps like education, communication and cross-functional teams also help gain buy-in for digital transformation.

Calculating the ROI of Digital Investments

Justifying the ROI of digital investments is also difficult for insurers. Benefits like improved customer experience, faster product launches and long-term competitiveness are hard to quantify.

Short-term costs like technology spending and process changes are easier to measure. This complicates getting approval and resources for digital adoption.

Insurers need frameworks to estimate the ROI of digital transformation, such as:

Surveys to quantify improvement in customer satisfaction.
Tracking new premiums from accelerated product development.
Analyzing operational efficiencies like reduced underwriting costs.

While not perfect, combining metrics can provide ROI estimates to justify digital investments.

The Bottom Line

The message is clear – digital disruption is coming for the insurance industry. Policyholders now expect seamless mobile experiences, usage-based premiums, and on-demand insurance.

To stay competitive, incumbent insurers have no choice but to digitally transform. Adopting artificial intelligence, big data analytics, IoT, and cloud technologies will be indispensable.

Companies that embrace digital transformation will be able to optimize operations, make data-driven decisions, create hyper-personalized offerings, and exceed customer expectations. Those that fail to adapt risk losing out to incoming insurtech disruptors.

The insurance industry is now at a critical inflection point. The decisions insurers make today on digital transformation will determine their future success and survival.