Technology and Innovation

Digital Transformation in Insurance

What is Digital Transformation?

Digital transformation has been in the business lexicon for some time, but that tenure has worked against it. The meaning of the term has become muddled, so when people reference “digital transformation,” they could mean a lot of things.

Here’s a clear definition: Digital transformation is the evolution of how a business operates through the thoughtful deployment of new technologies.

Take a Domain-Centric Approach

Digital transformation programs are most successful when they focus on an entire business domain, like the customer experience, product innovation, and management, or back-end business processes.

The more valuable the domain is to the health and performance of your business, the more significant the ROI of digital transformation. The key to taking a domain approach is to address all the processes, tools, and touchpoints that fall under that area of the business.

Let’s use the customer journey as an example. Rather than focusing on one customer touchpoint—like how customers create an account through a web portal—a domain approach considers all the other experiences and processes in this journey, like account setup, data verification, back-end automation, etc.¹

How does digital transformation affect insurance companies?

Digital transformation can have a profound impact on the customer experience, technology infrastructure, and product development of insurance carriers.

The insurance sector is experiencing a seachange regarding technology. The emergence of new back-end systems has revolutionized how product development works. At the same time, changing customer expectations means insurers must deliver exceptional digital experiences.

Here are the main ways in which digital transformation is reshaping the insurance sector.

Better Customer Experience

Whether it’s paying a policy at the point of sale through embedded insurance or choosing coverage through digital-first journeys, customers are rapidly changing how they engage with carriers.

A successful digital transformation can help insurers keep pace with the expectations of their market by building intuitive customer experiences. For example, integrating data from disparate sources can lead to more in-depth and accurate customer policy information. Likewise, streamlining the experience of choosing and updating policies can substantially improve customer satisfaction.

The ROI of improving the customer experience can be significant. Market data shows that carriers with the highest customer satisfaction outperformed their competitors in shareholder return by 65 percentage points over five years.²

Faster Time to Market

Insurance carriers have three primary methods for gaining an advantage in the market:

Finding and capitalizing on new market opportunities first
Delivering excellent customer experiences
Keeping operational costs low

Digital transformation can help with all three areas, but it can be particularly effective regarding speed to market. That’s because many insurers are still transitioning away from (or modernizing) legacy systems that slow down product development.

These legacy systems are monolithic, meaning many core functions and data repositories are interconnected. Consequently, adding a new feature, updating an old one, or connecting new data points affects the entire system.

Since digital transformation addresses an entire domain, improving a core policy administration system can revolutionize how the entire product development process works. By applying modern, modular technologies like insurance microservices, insurers can remove operational barriers and apply project management techniques that reduce the time it takes to develop new products.

Ultimately, this means insurers can move more quickly when they see opportunities in the market by rapidly launching new products that meet customer demand. Entering a new market early allows carriers to more easily acquire new customers because of reduced competition.

Download Our Guide: How To Launch Insurance Products Faster

Improved Business Operations

Utilizing the principles of digital transformation to revamp core systems can also improve productivity across the whole organization. Because internal processes are more streamlined, employees are more easily able to complete their tasks.

Market data has shown that insurers using modern IT systems are significantly more productive than their rivals. Specifically, carriers with modern systems write 40 percent more policies than their competitors.²

Operations Management on the Mechanism of Metal Gears.

Lower Operating Costs

Like productivity, operating costs also improve by implementing new policy administration systems. Reduced product development and maintenance time and transitioning away from expensive mainframe technology are just a couple of the ways costs can be reduced by digital transformation.

Again, research on the market illustrates just how profound this change can be. Insurance carriers equipped with modern systems can realize 41 percent lower IT costs than their rivals in the market.²

Businessmans hand takes out dollar from wallet with finance graphic on the background

Components of a Successful Digital Transformation

Across industries, successful digital transformations share a collection of characteristics. Without these pieces, even the most well-funded digital transformation efforts can fail.

Here are the most important focus areas for insurance carriers.

Cloud

Utilizing cloud resources is a fundamental part of any digital transformation. Migrating data and workflows to the cloud frees insurers from expensive hardware costs, provides increased flexibility for resource scaling during peak seasons, and allows legacy data to be combined with modern analytics.

Automation

Robotic process automation (RPA) uses small code scripts to perform simple, repetitive tasks. RPA allows insurance employees to focus on more complex or strategic tasks. RPA can also significantly reduce human error in data entry, improving the customer experience and reducing organizational risk.

Robotic process automation use cases range from collecting customer information and auto-fill forms to providing automated follow-up alerts to flag mismatches or data errors.

Real-Time Data and Predictive Analytics

With the insurance market more volatile than ever, it’s critical to be able to call upon up-to-date data whenever possible to assess policies, claims, and customer behavior. Real-time analytics improves the accuracy of traditional claims management and enables new types of products, like embedded insurance.

Using data analytics to optimize forecasting is an important component as well. By analyzing data gathered from an increasing variety of sources, insurers can better forecast changes across their entire book of business and measure the effects of different scenarios to improve decision-making.

Digital-First Strategy

The way consumers shop and purchase insurance has changed. The customer journey very often begins and ends online. Providing optimal experiences for customers—which leads to tangible ROI for the business—requires taking a digital-first approach.

Digital-first means digital customer journeys that don’t involve any person-to-person interaction with an agent are fully supported and continuously optimized by the insurance carrier.

Modern Architecture

If digital transformation in insurance takes a domain-level approach, then one of the most important—and most complex—domains is the modernization of core systems. While it’s difficult to completely migrate away from legacy systems, they can be updated using a mix of insurance APIs and microservice architectures.

The APIs connect new features and data sources, while microservices create a modular, dispersed framework where individual system components can be created or updated without disrupting the entire thing.

These two technologies not only enable real-time data and predictive analytics but also vastly improve the product development process.

Learn how to future-proof your insurance system and avoid wasted time and money.

Start Your Digital Transformation with Solartis

We’ve helped hundreds of insurance carriers modernize their legacy systems and transform how they administer policies. Contact us today.

¹ https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-digital-transformation

² https://www.mckinsey.com/industries/financial-services/our-insights/insurance/elevating-customer-experience-a-win-win-for-insurers-and-customers

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