Evaluating the insurance industry's digital progress
As we continue into 2024, leading insurance firms are already planning how best to use the latest technology to improve operations and make statements about their grandiose ambitions for the next 12 months. This optimistic forecasting happens every year, and not just in the insurance industry. Separating reality from wishful thinking in these pronouncements is never easy, but it is essential to understand how firms in the insurance industry met their digital transformation priorities last year so that they can make accurate predictions for 2024.
According to a 2023 Gartner CIO and Technology Executive Survey, digitization initiatives would focus on improving the customer experience and operational excellence, with growth taking a backseat to these other concerns. Also, according to Forrester’s Data and Analytics Survey, most data and analytics decision-makers at insurance companies reported that their organizations were adopting or planning to adopt AI as part of a broader initiative to deliver greater operational efficiency. When asked about the benefits of using AI technologies, they most frequently selected increased automation of internal processes and improved customer experience as benefits.
Digitally transforming the customer experience
Insurance companies are undergoing a shift from a product-centric mindset to customer-centricity as they work to build loyalty and long-term relationships. This digital transformation can take many forms. For example some firms have implemented digital customer service platforms that allow policyholders to submit claims and track the status of their claims online. Others have used digital technologies to streamline the underwriting process, making it easier and faster for customers to get coverage.
Firms found success in effectively leveraging emerging technologies to support engagement and experience services, which are then connected with the entire ecosystem of employees, agents, brokers, and others to data, processes, and systems to serve customers better.
Regarding operational efficiency, implementing process changes and technologies is key, especially the need to drive more value to stakeholders. The Gartner survey found that over half of CIOs increased technology investments in 2023, with the most common areas being application modernization, cybersecurity/information security, and business intelligence/analytics. The survey also showed that most insurers plan to reduce their costly infrastructure investments and opt for cloud technologies.
Popular investment areas include cybersecurity, smart automation, machine learning, robotics, application development, and UX enablers like low code that accelerate speed to market.
Large Language Models (LLMs) are another digital transformation technology generating interest among insurance executives. These advanced algorithms use AI to read, analyze, organize, predict, or generate text based on a comprehensive library of published data. One area where LLMs have potential is in customer services and inquiries, where quick and concise responses can radically improve customer experience, reduce waiting times, and quickly provide accurate information. Other areas of application include fraud detection and document analysis. While there are still some limitations and challenges to overcome with LLMs, the insurance industry sees enormous potential for this technology.
Where the industry found digital transformation success
There were several prominent examples of insurance companies undergoing successful digital transformations in 2023. Progressive, for example, invested heavily in digital customer service platforms and mobile apps, allowing them to improve customer satisfaction rates and increase market share. One successful case study uses applied AI to streamline the underwriting process by increasing productivity and allowing higher-quality touchpoints with the customer. As a result of its digital transformation efforts, this firm is now one of the largest insurance companies in the United States.
State Farm reorganized its core IT infrastructure to increase operational efficiency, keep up with digital shifts, reduce costs, enable growth, and catalyze continuous innovation by balancing its in-house and outsourced capabilities. The scope of the transformation includes open systems, mainframes, networks, internal communication, service desk, and supporting technologies. The program expects to deliver several-level agreement-driven operations, improve productivity, increase automation, and reduce incident volumes. It will also help accelerate the modernization of the firm’s hybrid cloud environment.
While a few firms saw success in 2023 along the digital transformation journey, many struggled to meet this year’s objectives. In fact, 87.5% of programs receive a failure rate. Several reasons for this failure include:
Siloed data and the need for legacy modernization.Overly optimistic goals.Poor execution.Lack of proper governance.
Conclusion
Despite being more traditional and slow-moving than some other industries and the problematic nature of implementing large programs, the insurance sector continues to embrace digital transformation and find success, ultimately changing the business landscape. As these changes continue, optimized operational workflows and more personalized offerings will improve customer experience. As consumers continue to evolve in their digital needs and preferences, they require companies to interact in new ways. Today’s tech-savvy customers prefer self-service over assisted service. Customers want their needs solved promptly and feel that searching for the answer themselves is quicker than contacting the company. Ultimately, companies need to be aware of the challenges and opportunities within this space.
Looking forward to 2024, optimizing costs and modernizing processes are projected to remain the highest priority investments (according to an ISG Insurance Industry study), with an increased focus on transforming core insurance systems and leveraging AI, confirming that the customer experience and the operational efficiency programs remain a priority and provide an efficient return on investment.
