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“Which technology that will have the biggest impact on the Insurance Industry?” As an insurance technology strategic advisor and researcher, I get asked this all the time. The question is more complicated than it may appear at first, but the answer is simple: The Internet.
Even though the insurance industry has had more than two decades of experience with the Internet, the impact has not been fully felt. The continuing adaptation of the industry to the Internet will dwarf the impact of any other emerging technology.
There is no shortage of emerging technology contenders. The market is replete with innovative tools that enable products and services across industry verticals. Examples include AI, AR/VR, drones, RPA, and blockchain, among others. Each technology brings a unique set of benefits, challenges, and gaps in service. Each is a contender for biggest impact.
But let’s think about what we mean by “biggest” and “impact” in the context of the insurance industry. For something to have the “biggest” impact, it would affect the most people, the most components of the value chain, and the broadest swath of the industry.
And what do we mean by “impact”? There are three fundamental ways to impact the insurance business: drive more sales, improve underwriting and adjusting, or reduce operational costs. For a technology to have an impact on the insurance industry, it must achieve one or more of these feats. Other success metrics are relevant only if they influence one or more of the above three in some way.
So how significant are the impacts of some of the latest technologies to hit the market?
Adoption and Scope
High-interest tech areas with low adoption are out of the running. They still need problems to solve that traditional process cannot already deal with as or more effectively. Technologies in this category include blockchain and AR/VR. While there have been some promising blockchain pilots, the jury is still out on what it can accomplish for insurance that can’t be solved by other technical approaches. It might reduce cost and affect a large number of products. AR/VR shows promise in field training and claims adjusting. But both technologies remain limited in scale and scope.
Drones and other IoT devices—sensors and telematics devices—can improve underwriting and adjusting by augmenting the amount of real-time data insurers can access. Some effects are already being felt in auto and marine. Drones can also cost less than deploying field adjusters and field inspectors, but they don’t have many industry applications beyond of property risk.
What about a technology like robotic process automation? It can enable companies to improve underwriting and adjusting by eliminating errors. RPA also has the potential to reduce cost by eliminating the need for manual execution of rote tasks. However, RPA technology doesn’t do much on the sales end and doesn’t affect a wide range of stakeholders.
The Internet, on the other hand, allows carriers to sell more. It shares information, conducts transactions, persuades prospects, expands targeting, and grows engagement. Electronic information capture, data pre-fill, and online collaboration enable better underwriting and adjusting. The Internet also reduces cost across the value chain. It facilitates electronic communication, payments, documents, and self-service. The Internet touches all $1.3 trillion of the United States insurance industry. It has already had (and will continue to have) the most profound effects on the industry.
In driving sales, the Internet’s effects have been felt most strongly in personal auto, where it has supported tremendous growth for those who have leveraged it effectively (and coupled it with effective marketing spend). There are also signs of growth in direct internet purchasing for homeowners, renters, and even small commercial. InsureTechs are beginning to target those markets.
JD Powers research shows that 74 percent of personal auto shoppers have quoted online. Some 25 percent have already bought online. But only 32 percent of consumers have bought or tried to buy life insurance online, according to LIMRA. But there are signs of coming change. Thirty-two percent last year is up from 11 percent in 2011. For millennials, last year’s number is 45 percent rather than 32 percent.
In terms of incorporating the Internet into operations, there’s still a digital divide in the industry, and closing it would have a tremendous and wide-ranging impact. Novarica research found only 61 percent of large life insurers respond to customer service emails same-day. Only one-third of large P&C insurers deliver commissions info via mobile channels. Only two-thirds of midsize insurers have electronic bill presentment and payment. Only half of midsize P&C insurers have paperless claims processes.
Demand for Digital
It’s not as if there’s no demand. Today’s consumers seek digital experiences. Data from Pew Research indicate that half of Americans always or almost always check online reviews before making purchases. Javelin found that 76 percent of small businesses use online banking at least once a week. Capgemini found in 2014 that over 80 percent of affluent wealth management customers 40-and-under consider their relationships to be primarily digital.
These numbers indicate that there is still plenty of room for insurers to build out their digital strategies. Today, a robust digital strategy mostly boils down to improved web capabilities. It is a matter of serving customers where they want to be served and designing products optimized for that digital experience.
Emerging technologies intrigue insurers, but the foundation to leverage them effectively is a robust set of Internet-optimized capabilities across the value chain. Or, as my father might have said to me, “You can’t have any innovation until you finish your Internet.”