Disruptive technology trends such as artificial intelligence (AI), the Internet of Things (IoT) and cloud computing will be key drivers in 2023 for growth and change and enhancing workflows. Some of these include automated solutions for claims processing, improving the frictionless customer experience and offering personalized products and services.
While some of these digital transformation solutions are already employed by some carriers, we see them becoming more and more commonplace throughout the industry. Insurers looking for a competitive edge should consider embracing these five insurance trends.
1. Instant Payments
Because payments are a critical part of insurance transactions, enabling instant payments will become integral to a seamless, digital insurance experience. Allowing for immediate funds availability, Real-Time Payments (RTP) also provide instant confirmation, settlement finality, simplified reporting, automated reconciliation and information integration. Payments can be made around the clock, 365 days a year, 24 hours a day. That can be a significant benefit to small businesses and independent contractors.
And it’s not just the ability to move money quickly. There is the information and related documentation associated with the payment, such as remittance information. Each payment transaction can provide a wealth of data. The Clearing House reports that new document exchange services will provide added value via access to PDF or XML documents such as bills, invoices and remittances as part of an RTP payment or request for payment message. Another distinguishing attribute of RTP is the ability for bidirectional communication within the secure system.
Instant insurance payments have already gained traction as policyholders demand fast claims payouts and convenient premium payments. Indispensable in a CAT situation due to its flexibility and speed, instant payments is a trend that will continue to grow in 2023. Expanding concerns around both data privacy and fraud prevention, however, mean security will be a priority for instant payments.
2. Embedded Insurance
Digital disruptions like embedded insurance are significantly changing the insurance distribution landscape. According to Lightyear Capital, the U.S. market value for embedded insurance was $5 billion in 2020 and is projected to rise to more than $70 billion in 2025.
To thrive, insurers must rethink distribution channels to better align with customer needs and purchasing expectations. Embedded insurance enables carriers the ability to offer an easy and cost-effective buying experience with personalized products and services that meet the needs of their customers, which is key to staying ahead in 2023.
See also: Digital Self-Service Is Transforming Insurance
3. Parametric Insurance
One new model capturing the attention of carriers wanting to offer coverage in new ways is parametric insurance, an index-based solution that pays out claims based on an event itself rather than actual losses. By leveraging IoT and real-time analytics, carriers can quickly track and determine payouts, giving customers transparency while making the claims process quick and effective.
Per Henry Gale, parametric insurance research lead at Instech London, insurers can pay claims in days, if not hours, depending on the product and amount of money involved. For example, perishable goods insurer Parsyl, in collaboration with Lloyds, used smart sensors to identify a temperature issue with cargo that spoiled a batch. That claim was paid within eight hours.
Per Swiss Re, the global parametric industry generated $11.7 billion in 2021 and is estimated to rise to nearly $30 billion by 2031. Due to its straightforward nature and quick payouts, interest is continuing to grow, with parametric product sales increasing 40% year over year as of August 2022.
4. IoT and Loss Prevention
According to Statista, Internet of Things (IoT) devices worldwide are forecast to amount to more than 29 billion in 2030. The potential for the insurance industry is immense. In the property sector, IoT technology like smart leak detectors are helping homeowners and businesses prevent losses. And NerdWallet found that most insurers will now offer price reductions for certain smart home devices, with discounts as large as 13%; some insurers are even offering programs to make the devices themselves more affordable.
IoT adoption will be important for carriers to not only provide incentives with premium reduction and lower deductibles, but to also introduce new pricing tools such as a separate rating model for a water protected building. Per Sean Ringsted, EVP and chief risk officer at Chubb: “The IoT is very exciting. It creates this value proposition where you can go beyond the “repair and replace” model for insurance and get to “predict and prevent” because you have so much information available to you in real time, not just after the fact.”
5. Cloud Technology Transformation and Adoption
One of the most significant technology initiatives going strong in the insurance industry is cloud technology. Leading carriers are using cloud technology to bolster digital capabilities and better service their customers. McKinsey reports that cloud services are projected to experience 32% annual growth by 2025.
Despite tremendous cloud investment, however, many insurers end up creating hybrid operating systems with remaining pieces of legacy technology that prevent realization of the full potential of cloud technology. Challenges exist that include cost, complexity, capacity requirements and lack of technical skillsets. As Celent reports, the choice comes down to the risk to maintain and the risk to migrate. The risk to maintain legacy cores is increasing as total cost of ownership becomes more burdensome and the lack of flexibility and agility affect the ability to compete.
See also: Ready for Era of Real-Time Payments?
Are You Ready for 2023?
Digital transformation is no longer an option for insurers -- it is necessary. With challenges such as inflation, rising interest rates and climate change, the insurance industry needs to be agile, innovative and empathetic to their customers. Adapting to these five trends will likely lead to growth and success.