What’s Slowing Down Digital Transformation in Insurance?

Insurers can allay their fears about investing in new technology by making compliance a priority, getting all stakeholders aligned around digital transformation, ensuring the technology scales, and working around the constraints of legacy back-end systems.

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Despite all the talk surrounding digital transformation, disruptors such as Lemonade and the changes that coronavirus has spurred on, the insurance industry is still moving slowly on digital transformation. Why is that? After all, the prospect of fulfilling customer expectations, saving on operational and processing costs, and improving efficiencies should provide plenty of incentive for insurance carriers and distributors to fully digitize their processes.

In this piece, we’ll look at some of the real obstacles to going digital such as fears about compliance, stakeholder resistance, scalability issues, constraints of legacy IT systems—and how insurers can address these challenges to thrive.

A Digital Future for Insurance

Despite customers’ widespread financial concerns, interest in purchasing insurance isn’t going anywhere. In fact, 21 percent of all consumers are actively searching for new home or auto insurance, and 19 percent are looking to add more life insurance-related products. And of course, insurance claims aren’t going anywhere either.

Yet a recent survey of US insurance policyholders found widespread dissatisfaction with insurers’ insufficiently digital communications and interactions with only 34% able to easily connect with their insurers to ask questions or make modifications to their policy.

And while consumers are eager to communicate with insurers online, insurers aren’t meeting that need, with 50% behind on consumer demand for online chat servicing and 25% behind on consumer demand for website servicing.

Failure to provide customer-centric, digital insurance journeys results in Not in Good Order (NIGO) documents, customer attrition, bloated overhead costs, and prolonged turnaround times—all of which ultimately damage insurers’ bottom line.

Obstacles to Digitization––and Potential Solutions

Despite growing customer demand for digital services, insurance companies are lagging behind in their digital transformation. Choppy digital journeys, such as when customers attempt to purchase insurance or file a claim online but are then directed to a different channel, are unfortunately typical.

There are real reasons why insurers have yet to fully digitize, but each reason has solutions. In many cases, shifts in understanding what digital journeys are really about and gathering stakeholder support make a world of difference in expediting digitization. Below are the most commonly cited obstacles we’ve heard about digitizing from prospective customers, and potential solutions.

  1. Compliance Fears

The concern: Compliance burdens have never been higher. Sure, it’s now common for insurance customers to be able to apply for insurance products or even start the First Notice of Loss (FNOL) process online. But inevitably, there comes a stage when they are asked to meet with an insurance agent, fill out cumbersome physical paperwork, or show ID in person.

This is understandable: insurance companies are often dealing with high-value settlements and the possibility of fraud, and subsequent associated loses such as fines. Meeting in person or requesting physical paperwork seems to reduce the likelihood of those risks.

The solution: Many digital tools and forms meet or even exceed federal and state regulations such as ISO 27001, PCI DSS, ADA, and more. They tend to rely on encryption technology and are tamperproof to ensure data integrity. In addition, there are plenty of technological capabilities that are specially designed to help insurers stay compliant and prevent fraud, such as risk management information systems (RMIS) and automatic ID verification.

  1. Stakeholder resistance

The concern: Insurance leaders who wish to bring more innovation into their company frequently encounter resistance from other leaders, middle management, salespeople, independent agents, and back-office employees––the list goes on.  Other leaders may have different priorities, middle managers are often more concerned with the day-to-day, independent agents may worry about learning different technologies at different companies, and back-office employees may be accustomed to legacy systems.

The solution: Acquiring new technology is never just about getting approval from the IT and security team. For adoption to be successful, the vast majority, if not all of the people who will be using or potentially benefiting from the technology should be onboard.

Other executives should be shown how the technology can help them advance their own goals; middle management should be shown how the technology will make their teams more productive and effective; independent agents should be shown how the technology will save them time and effort; back-office employees should be shown how the technology will improve coordination among departments.

  1. Scalability Challenges

The concern: Insurance companies that bring on new technologies may worry about how they will scale once workloads grow or even put off adopting the technology in the first place due to scalability concerns.

The solution: Many technologies, especially those that are cloud-based, are designed specifically for scalability. Insurance companies should have their IT teams discuss with the providers how the technology will work as systems expand their usage. Can more users be easily added when new policyholders join? Is the pricing fair, especially given fluctuating usage (e.g., certain times of years when more or fewer claims are likely to be filed)?

Some technologies are more likely to promote a scalable insurance business than others. For instance, automated and AI-based processes can actually allow insurers to maintain a smaller staff year-round, and as the company grows.

  1. Constraints of Legacy IT Systems

The concern: Insurers are often reluctant to adopt new customer-facing technology because they worry it won’t sync with backend systems that are too complicated to currently replace. Robotic process automation (RPA), which is normally implemented to integrate the backend with the frontend, can be very expensive.

The solution: Legacy systems that drive core processes and new frontend solutions don’t necessarily require robust RPA. A digital frontend that integrates seamlessly with existing core systems can provide a similar function to RPA at a fraction of the cost.

Before insurers upgrade their core systems, they can adopt customer-facing technology to make claims and sales processes more efficient, fast, and enjoyable for customers and agents alike. While this doesn’t replace the need for a robust core system, it can be a quicker and more cost-effective way to improve the customer side of operations.

Don’t Let Fears or Misconceptions About Digitizing Hold Your Back
McKinsey research shows that investing in automation and digitizing processes can result in savings of up to 80 percent. This comes on top of the improved customer experience, faster time to settlement, and more policies signed that insurers can look forward to by adopting new technology. Insurers can allay their fears about investing in new technology by making compliance a priority, getting all stakeholders aligned around digital transformation, ensuring the technology scales, and working around the constraints of legacy back-end systems.

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Zviki Ben Ishay // Zviki Ben Ishay is the co-founder and CEO of Lightico, a SaaS platform for customer interactions, that digitally transforms millions of connections between businesses and their customers. With over 20 years of experience in customer experience, call center technology and service, Zviki has developed a keen understanding of what businesses can and need to do in order to provide better service through digital and remote means to the benefit of both businesses and their customers.

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