Use Cases and Value Explain Emerging Technology in Insurance

As the new decade dawns, insurers are focusing even more heavily on technology that can help them sell more, manage risk better, and cost less to operate.

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Since 2000, insurance technology has gone from client-server to microservices, mainframe to cloud, automated decisioning to machine learning, and client software to web to mobile. Technologies that once were cutting-edge are now commonplace. As the new decade dawns, insurers are focusing even more heavily on technology that can help them sell more, manage risk better, and cost less to operate.

Novarica tracks insurers’ interest, pilot activity, and deployment of 16 key technologies in its annual Emerging Technology in Insurance report, which has recently been updated for 2020. This report covers technologies from big data to blockchain using data provided by more than 100 property/casualty and life/annuity insurers to understand their maturity levels and use cases within the industry.

Year over year, most emerging technologies tick up a few points across each category as insurers become aware of cutting-edge technologies, design pilot programs to test their value, and move successful pilots into deployment. Deployments of emerging technology tend to fall into three broad categories:

  • Wide deployment, approaching table stakes. This category includes technologies like APIs, which are becoming a requirement for communication and sales, as well as robotic process automation, which many insurers are using to improve legacy processes. Many insurers have deployed these technologies, and those who haven’t are usually piloting them.
  • Moderate deployment. This category includes technologies like AI and big data, which have clear value to insurers but can be difficult to implement or integrate to existing processes and environments. It can also include newer technologies like chatbots that are rapidly gaining traction among insurers but haven’t yet reached wide deployment.
  • Low deployment, use case TBD. This includes technologies like blockchain, where the use case is unclear or where the technology doesn’t provide clear value over existing tools.

This year’s report produced several key takeaways:

  • APIs and microservices are widely deployed, reflecting the growth and importance of external integrations to third-party systems. More than two-thirds of all insurers have deployed APIs, and use cases span the value chain, though underwriting, claims, and distribution deployments are the most common. Almost all insurers with API capabilities report positive value.
  • RPA is now also widely in use after several years of rapid growth. RPA was deployed at less than a quarter of insurers in 2018; it is now in place at more than 40 percent, with another 15 percent piloting the technology. While activity in this area was formerly more focused among life/annuity insurers, this year their property/casualty counterparts have caught up.
  • Chatbots are the most piloted technology, continuing a trend from 2019, when they were the second-most piloted technology. Chatbots are still deployed at fewer than one in five insurers, but interest in the space is strong. Most insurers deploy chatbots for service functions, including for internally facing knowledge indexing.
  • AI and big data capabilities are becoming mainstream. While not yet truly widespread, deployment in these areas continues to increase, and AI and big data are among the technologies most frequently piloted. Unlike chatbots and RPA, fully leveraging AI and big data may require process or technological transformation, so they can be more difficult to integrate.

Maintaining awareness and understanding of emerging technologies, as well as of their potential values and limitations, is critical for insurer leaders across all business units. IT and innovation groups inside insurers can play a critical role in educating their colleagues on emerging technology, but pilot programs and deployment strategies need to focus directly on the creation of business value.

Emerging Technology and the Three Levers of Value

Over the past year or so, Novarica has found that the Three Levers of Value can be a helpful framework to develop a use case for technology deployments, including emerging technology. In order to create value, technology should help insurers either (1) sell more, (2) manage risk better, or (3) cost less to operate.

The Three Levers of Value also help illuminate the deployment and adoption of emerging technology. Technologies that have achieved wide deployment, like RPA and APIs, have a clear value. RPA deployments reduce operating costs in ways that can be demonstrably measured, while the use of APIs to connect with distribution partners can help insurers increase sales by streamlining communications and speeding processes.

Other technologies with less clear benefits, like blockchain or augmented/virtual reality, are lower priority for insurers. Blockchain is still a technology looking for a problem to solve. It’s too soon to declare that augmented reality and virtual reality are irrelevant to insurance, but like other technologies with low deployment and slow adoption, they need both a clear use case and demonstrable value to gain traction.

As the 2020s begin, the pace of technology evolution is only increasing. Insurers should continue to actively monitor developments in individual technologies as well as the synergies that related technologies create across the ecosystem.

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Matthew Josefowicz // Matthew Josefowicz is the President and CEO of Novarica. He is an expert on insurance and financial services technology, with two decades of experience advising CIOs on IT strategy and solutions. He has written more than 100 reports on insurance technology issues and is the lead moderator of the Novarica Insurance Technology Research Council. Prior to launching Novarica in 2007, he founded and led the global insurance group at analyst firm Celent and worked at D. E. Shaw & Co., LP. He holds a BA magna cum laude in Classics from Brown University. He can be reached directly at [email protected].

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