January 21, 2021
Despite COVID, Tech Investment Continues
by Matthew Josefowicz and Harry Huberty
Interest remains high in technologies like artificial intelligence and big data.
Insurers will continue to experiment with emerging technology in 2021, despite the challenges of 2020. When the COVID-19 pandemic hit, many insurers paused their 2020 innovation plans, emphasizing digital workflows and cost control at the expense of emerging technology pilots. Heading into 2021, technology priorities for many insurers, especially those in the property/casualty space, are similar to those of 2019.
The U.S. is still in the midst of the pandemic, and some insurers are anticipating lower premium revenues for the coming year. In spite of this, insurers are investing in technologies like artificial intelligence and big data, though some are narrowing the scope of their innovation efforts for the coming year.
Understanding Emerging Technology Today
Insurers typically take a few main approaches to emerging technologies. Early adopters experiment with the technology, typically via a limited pilot. If the technology creates value, it’s moved into wider production. Insurers that have taken a “wait-and-see” approach may launch pilots of their own.
Novarica’s insights on insurers’ plans for emerging technology are drawn from our annual Research Council study, where CIOs from more than 100 insurers indicate their plans for new technologies in the coming year.
No insurer can test-drive every leading-edge technology at once, and every insurer’s priority is a result of its overall strategy and immediate pressures. Still, at a high level, several industry-wide trends are apparent:
There is big growth in RPA; chatbots continue to expand. More than half of all insurers have now deployed robotic process automation (RPA), compared with less than a quarter in 2018. Chatbots are less widely deployed but on a similar trajectory: from one in 10 in 2018 to one in four today.
AI and big data continue to receive significant investment. These technologies take time to mature, but it’s clear insurers believe in the value they can provide. More than one in five insurers have current or planned pilot programs in these areas for 2021.
Half of insurers have low-/no-code capabilities or pilots. These types of platforms are relatively new but have achieved substantial penetration in a short time. Early signs indicate they could become a durable tool for facilitating better collaboration between IT and business experts.
Despite continued tech investment, 2021 might be a more difficult year for innovation. Insurers’ technology priorities have generally reverted to the mean — more so for property/casualty than for life/annuity insurers — and technology budgets for 2021 are within historical norms. Still, some insurers are paring down pilot activity in less proven technologies, like wearables, to maintain their focus on areas like AI and big data. Technologies with substantial up-front costs, like telematics, may be harder to kick off in 2021.
See also: Technology and the Agent of the Future
How Emerging Technology Grows
Emerging technologies have widely varying rates of experimentation, deployment and growth within the insurance sector. Their growth rates boil down to a few key related factors:
- How easily the technology is understood.
- How readily it can be deployed and integrated with existing processes.
- How clearly the value it creates can be measured and communicated.
At one end of the spectrum are technologies like RPA and chatbots. These technologies create clear value, are readily added to existing processes and are relatively easy to deploy. As a result, insurers have adopted them rapidly.
Artificial intelligence and big data technologies require longer learning periods; sometimes, they require business processes to be completely reengineered. The technologies create value for insurers but have grown more slowly because they take time to understand and integrate.
Drones, the Internet of Things (IoT) and telematics can create new kinds of insurance products or collect new kinds of information. These can also create value, but their growth remains slow because developing these technologies may require orchestration across several functional areas, and they can be costly to ramp up.
On the far end of the spectrum are technologies like augmented and virtual reality, blockchain, smart assistants and wearables. Most of these technologies don’t yet have established use cases that demonstrate clear value, so it remains to be seen whether they will be adopted more widely.
Using Emerging Technology
One key insight from Novarica’s study is that technologies that integrate readily to existing processes can grow more rapidly than technologies that require new workflows to fully use. This observation comes with a few caveats for both insurers and technology vendors.
Insurers sometimes fall into the trap of “repaving the cowpath” — they adopt new technologies but integrate them into their existing (inefficient) business processes. Doing so means they can’t get maximum value from their investment. Ironically, it’s usually the shortcomings of legacy technology that have made these processes cumbersome in the first place.
It’s easy to understand the value that technology creates when it integrates with an existing process and can be measured with the same key performance indicators (KPIs). It’s much harder to create a new process enabled by new capabilities, train employees to execute it and demonstrate that the new way is better than the old way. Yet getting the most out of emerging technologies often requires rethinking how business might be done.
See also: 2021’s Key Technology Trends
For their part, vendors should focus on the value their products create and the problems they solve, aligning them to insurer needs. It’s not enough to use a new technology for its own sake, and using new tools sub-optimally may make them seem less effective. Vendors should coach their insurer clients through best practices and help them understand how their tools can ease, change or make obsolete existing processes.
At its core, insurance is a simple industry focused on connecting those exposed to risk to capital that can defray potential losses. At the center of that value chain are insurers, that continue to explore new technologies to better understand their risks, sell more and operate more efficiently. Even in uncertain times, insurers are innovating.