4 Ways to Overcome and Capitalize on Insurance Sector Disruption in 2021

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After a year of economic and global volatility, in which historic and reliable risk models were overturned and claims trends were reversed, the insurance industry is bouncing back after a few disorienting rounds up against the ropes. Yet for insurers to maintain their footing and stability, they need to embrace the fact that the forces of disruption are here to stay – and will be coming at them from every angle.

The only answer is to innovate, but narrowing all of the trends sweeping the industry down to the most cost-effective innovations is no small feat. At this point, insurance sector disruption is near comprehensive, so how do you choose what to prioritize? Based on the research of thought leaders and our own experience, you need to defend against and respond to these insurance industry tech trends.

1.) Open Insurance APIs

Data not only is the fuel for profitable insight, but is a unique source of profits in its own right. The ability to exchange data from proprietary systems and platforms with third-party companies can expand earning power as well as enhance customer satisfaction and increase service offerings. For example, this open banking API innovation is being embraced by traditional banks, conventional insurers are far more hesitant to break new technological ground. This creates an opening for disruption.

Unlike traditional insurance companies, InsurTech firms are more malleable with their approach. True, they may lack the fortified capital and reputation that established insurers possess, but they are nimble and embrace the power of their digital assets and open APIs. In fact, research firm Celent believes that those insurers that ignore these innovations will lose their competitive edge in a matter of years.

The early results of open APIs are fairly impressive. Take Lemonade as an example. The digital P&C insurance carrier launched their open insurance API to enable policies to be sold through apps and websites. Now, they even provide a widget called Maya the AI bot which helps potential customers begin the process of qualifying themselves for the right insurance policy.

APIs can be a two-way street. In the spring of 2020, some auto insurance companies used data from traffic analyst Inrix showing a 50% drop in traffic volumes to justify customer rebates. Actions like this can go a long way to building trust during times when consumers are craving real partnership.

2.) Increased Automation of Underwriting

There has long been a push to find greater speed and efficiency in the underwriting process. Last year, adoption accelerated. According to a LIMRA survey during the early days of the pandemic, a quarter of North American life insurers who responded said they had expanded their underwriting automation practices. Though most insurers are not looking to completely phase out underwriters, there are definitely opportunities to make them more efficient in the coming years.

How can automation augment rather than replace human underwriters? One way is to accelerate the underwriting process. Robotic process automation can help to streamline the more routine elements of data gathering. Machine learning algorithms can evaluate extensive amounts of data about each applicant, cross-comparing that data with previous policy decisions to determine whether underwriting can be completed automatically or requires the perspective of human agents. Additionally, automation can help to verify the work done by human underwriting, eliminating mistakes in the process.

InsurTech companies are taking a more aggressive approach to their underwriting. Root is a prime example. Their automated underwriting system not only is capable of writing policies and offering prices that reflect each customer’s personalized risk, but also providing ongoing risk assessments that can reward customers for safe driving practices. Though the long-term profitability of Root Insurance, like many disruptive tech startups, is debatable, there is no doubt that any established insurer, with deep comprehension of industry risks and regulation, could be a game changer.

3.) Growing Compliance Scrutiny over Evolving Legislation

Federal regulations and standards are always evolving, and though the current federal administration is still fresh, expectations are that strict regulatory oversight will be a leading priority. Since the enactment of the California Consumer Privacy Act (CCPA) and the increasingly decentralized nature of financial industry enforcement, signs point to stronger state-based systems and benchmarks for regulations and compliance. Regardless of what’s to come, it’s important for established institutions to properly address the quality of data governance and data management.

In their 2021 Insurance Regulatory Outlook, Deloitte suggests that insurers evaluate the collection, proliferation, and destruction of personal and confidential data on an ongoing basis. The cycle of renewal and change around data standards puts insurers in a position where it is more opportune to perform regular scans and implement intensive security standards to prevent data from falling prey to cybercriminals.

Financial incentives are strong as well. The fines for regulatory noncompliance are increasing – and your business cannot afford to take the financial hit in an increasingly competitive insurance sector.

4.) Enhanced Decision Making

The last year showed just how irrelevant historical data and risk management models can be when novel, unpredictable, or chaotic events occur. Though not completely inconsequential, the insurance sector can no longer use historical scenarios as a crutch. Instead, it’s high time the industry adopts greater analytical maturity models and machine learning tools in their decision making process.

Though insurers have a mastery of descriptive and diagnostic analytics (what happened and why did it happen), there are varying degrees of adoption with predictive and prescriptive analytics (what will happen and what should be done about it). Even though most have dabbled with machine learning and AI, there’s a lack of total implementation across the industry.

In the Future of Insurance Data 2021 report, only 20% of respondents said they have a unified, enterprise-wide approach to AI decision making. Moreover, as many as 35% of organizations have not proceeded past a proof of concept. This lack of analytical maturity is holding back insurers in significant ways, preventing them from achieving the full results of everything from behavioral intelligence and hyper-personalized services to more precise risk-adjusted costs and dynamic pricing.

Staying Attuned to Your Unique Needs

Though these insurance industry trends are going to have a sweeping impact on most insurers, it’s equally important to be conscious of and ready to address your own unique tech challenges. Different obstacles (your unique verticals, business goals, current capital resources, etc.) can shape the response you need to take to maintain profitability, customer experience, and agility in the current market.

Yet as long as your organization remains open to technical self-audits and capitalizing on tech trends at their peak, you should be able to overcome insurance sector disruption, whether it happens today, tomorrow, or years in the future.

Want to stay current with the latest insurance sector disruption and innovation? Our blog keeps the pulse of major trends that are reshaping your world.