When we talk about the Insurance sector, we hardly think about using cutting-edge technology as most insurers still rely on outdated practices and business models. However, embracing digital transformation in the insurance industry can be a big benefit for many insurance firms. Research by McKinsey states that insurance companies having advanced IT capabilities offer clear benefits over competitors in terms of cost ratios and agility.
Digital leaders even show 4x more growth above the industry average. InsureTech is one of the fastest-growing FinTech sectors, growing rapidly at a huge rate of over 34% per year. In this blog, we will learn about the increasing demand for Digital Transformation in Insurance Industry, the trending insurance trends, and business models to reshape the insurance sector in 2023 and beyond.

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Top Digital Transformation Trends in the Insurance Industry

We all know that customer demands in every business are changing especially after the pandemic, which is why knowing how to meet their evolving expectations is the key to thriving in the competitive business market. Here are some of the top 5 digital transformation trends that are shaping the insurance sector in 2023 and beyond as shared by researchers at McKinsey-

• Changing customer needs

Customers today are always in a rush and getting used to complete digital experiences that save their time with instant services and 24/7 information access. This change is becoming a top concern for over 60% of insurers in the Gartner survey. Though big insurance firms may not fear new InsureTechs, startups are building unrealistic expectations for the whole industry.
Insurers that fail to reach this expectation may face rising churn, a decrease in sales, etc. To stay relevant, insurers must create omnichannel experiences aligned with changing customer needs by providing simplicity, quick delivery and access, and better experiences leading to higher retention and profits at lower costs.

• Irrelevant Traditional Business Models

The main issue about traditional insurers is that they face rising pressure on cost and falling profits, which increases the gap between leaders and small businesses. McKinsey research shows that there were 3x higher cost ratios in the bottom 25% of insurance companies than in the top 25% of players. This difference is due to the economy of scale.
During the pandemic, we have witnessed an increase in usage of technology and automation in claims and policy handling leading to higher market consolidation.

• Regulators’ Focus on Data Breaches

The European Union (EU) has been investigating several past incidents in banking firms that occurred due to poor compliance and tech shortcomings. This has led to loss of customer trust destroying the banks’ image in the market.
Regulators are more likely to apply a stronger approach to insurance firms with a legal base in the form of digital operation resilience egg and European insurance and occupational pensions authority guidelines for information and communication technology.

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• Increasing pressure from Tech Giants

if you are new in the market, there is always a threat of big players that are already using superior technology to disrupt your market. For instance, Amazon launched a digital insurance project for small and medium businesses.
Tech giants can easily collect data from mobile phones, fitness trackers, home appliances, and IoT devices. They also have the tech capabilities to analyse them for better customer services with targeted offers.

• Make Way for Sustainability

As insurance sector plays a great role in building climate resilience against floods, hurricanes, and other unprecedented events. McKinsey believes that sustainability is redefining the insurance sector to help insurers gain a competitive age by working with ESG factors (Environmental Social and Governance).

Also Read: How to Embrace Digital Transformation in the Oil and Gas Industry?

Business Models That Will Impact Insurance Digital Solutions

To embrace Digital Transformation for Enterprises in the right way, it is crucial to adapt to the new reality where insurers must rethink all aspects including technology, processes and people. Here are some of the most trending business models to help your insurance business secure a profitable niche in the market-

• Focus On Customer Relations

The first business model that can be considered is to focus on excellent customer service in a specialized niche. To make it happen, insurers need to improve their agility and IT capabilities to leverage economies at scale and build distribution channels.
For example, we can consider Fetch by The Dodo- a pet insurance company acquired by Warburg Pincus in 2019 where insurers served more than 250,000 pet owners in the US and gained $150M in profits.

• Offer Value-Added Services

Another model is to deliver value-added services and this model is being used by InsureTechs, incumbents, and firms that provide services for other insurers. An example is ControlExpert, the German company that automates claim management for car insurers. This brand makes use of AI along with input from industry experts to settle a claim from several weeks to just a few hours saving time.

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• Build Insurance-As-A-Service

The next business model in the insurance sector is to give special attention to building a digital product while allowing partners to take care of distribution and customer service. Insurance-as-a-service is a trending sector driven by tech-savvy insurance companies they are building products for other insurers while taking care of a single process like fraud detection or underwriting through API on a subscription basis.
An example is Phoenix Group, which partnered with IT firms to digitalize processes and bundled them into a SaaS product.

• Create An Insurance Ecosystem

The last business model is to develop an insurance ecosystem. With the increase in the development of digital platforms and ecosystems that packaged insurance together with other services, insurers must find a way to build an insurance system as it can help to gain a huge market share.
For example, we can consider a top health insurance provider from South Africa, Discovery that has built a strong core technology to deliver hyper-personalized insurance plans based on behavioral data & use it to build a digital platform for other insurers.

Also Read: Why Your Business Needs Digital Transformation to Move Forward?

Key Takeaways

After going through the blog, it is clear that insurers must act quickly to gain a competitive edge in the market. However, it is crucial to understand the journey of digital transformation by gaining insights from the early adopters and successful transformations that happened earlier. Technology must always go hand-in-hand in the insurance sector in terms of business strategies to review current business processes, skills and organizational structures, as stated in a report by Accenture.
Though it may seem difficult, successful digital transformation is possible with the right combination of talent and expertise. If you need consultation and Episerver Digital Transformation Services to boost your insurance business with cutting-edge technology solutions, connect with our experts today!

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