The insurance industry has largely resisted, but companies that aren’t racing to innovate will soon be left behind.
It’s a remarkable time in the insurance industry. Looking around at other major industries — retail, banking, manufacturing — it’s easy to see the changes that disruptors and technology have brought about. Yet in many ways it hasn’t hit home for insurance carriers. The same established players dominate at the top, and thousands of smaller firms maintain loyal clients throughout the insurance ecosystem.
“Get ready for change,” is a message that has been ringing out in the insurance market for a decade but finally seems to be getting through. Everyone from global consultancies to insurance leaders is predicting that, in the next five years, major insurance companies could fall, existing ways of doing business will become obsolete and disruptors big and small — from insurtech startups to Silicon Valley giants — will punish those clinging to the status quo.
Here’s an illustrative example from PwC of how demand is outpacing market offerings: Among millennial small business owners, 75% would prefer purchasing commercial insurance online, yet only about 1% of policies are sold without any intermediaries. Other market segments are further ahead: 30% of personal auto policies are sold without intermediaries, for example.
See also: Are You Tapping Your Innovation Energy?
It’s clear where carriers and the third-party administrators (TPAs) that serve them need to be moving. Now it’s just a question of how they get there, and specifically how to keep their legacy systems while operating with the efficiency and agility needed in today’s market. One way to do this is collaboration, by viewing tech-savvy innovators as potential partners in the race to gear up for the digital age.
This is true across the value chain, from sales to risk management to claims intake and distribution. Carriers and TPAs are searching for solutions. And there are clear signs that the do-it-yourself mentality is giving way to a culture of collaboration. Capgemini found in 2017 that 53% of insurance executives around the world prefer partnering with insurtech firms to leverage digital technologies, as opposed to 36% who favor in-house development.
These partners can increase agility and configurability everywhere from front-end services like applications and renewals to back-end services like claims processing. And because the technology has already been developed — and often has the support of a team of digital natives — set-up time is quick and requires minimal changes to the carrier’s infrastructure.
Projected spending on artificial intelligence solutions among insurance companies illustrates the broad application of new technology. Deloitte predicts that insurers will increase their spending on AI by 48% in the next five years, boosting automation in everything from claims processing to fraud investigation, program advising and threat prevention.
A new report by NetClaim spotlights what this shift means for claims intake and dissemination. At the moment, most insurers and TPAs continue to handle these functions in-house, but that looks likely to change soon. About a quarter of carriers and TPAs already outsource their intake and dissemination needs to vendors, and about a quarter said they are looking to shift from in-house to outsourcing.
One of the drivers of this change is cost: Vendors have the expertise and economies of scale to do the job cheaper than it could be done in-house. But the days are gone when call centers could bring in business simply by being the cheapest option.
See also: Innovation — or Just Innovative Thinking?
According to the NetClaim survey, almost as many carriers believe innovation is being driven by need for better quality control and fraud detection (64% of respondents) as efficiency and reduced prices (68%). Also, carriers and TPAs agreed on the need for innovation in the claims intake and distribution process. About 80% of carriers and 94% of TPAs saw a need for innovation in these functions. What carriers and TPAs need most are partners that can keep their organizations moving and adapting as quickly as the rapidly changing market evolves. Nimble vendors specializing in intake and built for change offer one way that organizations can add deeper innovation and better solutions than keeping those functions in-house.