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Despite COVID, Tech Investment Continues

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.

How Risk Managers Must Adapt to COVID

Risk managers who specialize in catastrophe planning and pricing are coming to grips with the idea that the financial cost of today’s pandemic will dwarf last decade’s​ ​historic​ losses from natural disasters and cyber hacking. According to researchers​, insurers kept pace last decade, saving lives and mitigating the economic hit, through increased use of data analytics and technology in risk modeling and claims processing. Today, the global scale of the pandemic’s economic fallout makes it more urgent for insurers to adopt and upgrade their digital enablement strategies quickly.

But, given the industry’s large base of cumbersome legacy systems, insurers notably​ ​lag behind other market sectors in adopting these much-needed innovations. To modernize core risk management systems and future-proof policy underwriting processes at the scale and speed required, ​experts​ say low-code application development tools should be incorporated within the enterprise.

“Low-code”— a visual development approach for building software using drag-and-drop components that is transforming the way applications are built — has been​ ​vetted​ by analysts as a powerful and effective means to reach a strategic end. For risk managers, that goal is to jumpstart the targeted use of next-generation capabilities, including cloud-based software deployment, artificial intelligence and augmented reality/virtual reality, all of which can be integrated into legacy systems with low-code tooling. Each has a specific way of empowering lean teams of specialists to handle the coming spike in claims, sort through market confusion, conduct complex tasks remotely and assess new sources of risk, while relying on core systems to maintain daily operations.

How Low-Code Bridges the Gap

First, a robust, low-code development platform enables a diverse talent pool of business experts to collaborate with IT teams and coding professionals. This approach captures the knowledge, expertise and iterative feedback of business-focused experts throughout the entire software development lifecycle, enabling quick deployment of customized, targeted software for web and mobile use.

Second, the underlying architecture of low-code platforms prioritizes integration, connectivity and openness. This enables enterprises to extend their digital capabilities with next-gen innovations while keeping their legacy systems’ core clean and secure.

Here are four aspects of technology enablement that empower risk managers to handle newly scaled-up demands and position the enterprise for success in the “new normal.”

The Cloud Enables Resilience

Compared with other business verticals, the insurance industry is late to adopt and fully leverage cloud-based software deployment. A 2019​ ​Deloitte survey​ on insurance trends found that nearly half of all respondents — 48% — were comfortable with a three-year time frame to adopt cloud technology.

But pandemics have a way of rewriting the rules. Today, risk managers are working remotely and require access to data and workflow processes often managed on mainframes. More than one insurance firm recently experienced operational delays when its data centers were hit with connection challenges. Ops teams were not allowed to go onsite to restart these systems until state officials modified their shelter-in-place orders.

In contrast, cloud-based operations are highly resilient. By design, the cloud enables business continuity from small and large interruptions, with a rolling system of global availability spread across geographically dispersed locations. Cloud-based operations today play a vital role in enterprise business continuity, including an insurer’s own disaster recovery strategies.

The low-code platform is cloud-native, offering the security of housing systems remotely and enabling seamless workforce access from anywhere. Regardless of what triggers a systemic shutdown, cloud-based systems will mitigate the impact.

See also: Where Were the Risk Managers for King’s Landing?  

Multi-Cloud Deployment Options Add Security

The majority of insurers have delayed cloud adoption due to data security and regulatory compliance concerns. To date, many firms still place their trust in on-premises data centers. However, cloud providers have evolved their product offerings to meet a wide range of enterprise cloud deployment strategies.

Companies requiring maximum security can adopt a fully private cloud model, or a hybrid model with the ability to “burst,” moving things to the public cloud when disaster hits or when demand spikes. Risk managers should also consider that the major cloud providers have the resources to hire the world’s best security engineers, a valuable and cost-efficient means of supplementing internal security capabilities.

AI Accelerates and Automates Contract Liability Assessments

As closures, cancellations and supply chain disruptions affect businesses, policyholders will file more and more claims. Risk managers also face uncertainty from mounting legal challenges, as underwriters are pressured by state governments and organizations to use business continuity policies to cover losses from government mandates to shelter in place, overriding existing contracts.

Business continuity policies are highly complex legal documents. Enterprise legal teams can quickly run out of bandwidth to evaluate contract liabilities triggered by the pandemic. While it is incumbent on brokers and underwriters to analyze existing contract language to map out covered risks and exclusions during these extraordinary circumstances, they need help to get it done accurately and in a timely fashion.

Applications built with low-code tools can integrate back-end systems with AI and natural language processing tools to review and flag contract language and risk mitigation strategies to ensure proper coverage. Here again, collaboration is key. Input from risk managers, executives, legal experts, process executors and IT professionals is needed to map out a firm’s current level of risk exposure, evaluate its preferred risk appetite and adjust strategic planning. Because it employs a visual “language” understandable by both technical and non-technical personnel, low-code is a powerful collaboration tool for conceiving, building and deploying digital solutions that address the massive disruption triggered by the pandemic.

Quality Assurance and Training Can Be Digitized

The limited number of risk management specialists is a challenge for the industry. Their ranks will never be large enough to thoroughly execute the tasks of onsite assessment and analysis, especially during and in the aftermath of a pandemic.

Risk managers should already be working with a checklist of qualitative items, including operational risks and associated controls, plus event and escalation triggers for risk identification and measurement. Too often, these essential processes are paper-based or stored in Excel documents. One solution to streamline these processes would be a customized mobile application combining a digitized checklist with a time-stamped photographic inventory of a plant or facility. Such an application would also improve training, documentation and knowledge transfer when new risk managers join the team.

See also: 3-Step Framework to Manage COVID Risk  

With current restrictions on business travel, the case for augmented reality tours through plant operations and factory floors makes economic sense. It may sound futuristic, but low-code developers have already integrated augmented reality into warehouse management tasks, insurance claim workflows and even cancer detection by radiologists. Similar capabilities could be leveraged by the risk management industry to confirm a range of safety standards and to analyze visual information that may require a specialist.

Collaborative Digital Initiatives to Power in the New Decade

With revenue taking a big hit, it’s key to remember that risk and recovery are two sides of the same coin. To speed the recovery process, risk professionals must help the enterprise understand the risk profile of every potential customer and reduce the overall risk profile of the organization.

Low-code application development in the cloud, along with AI, AR and other ascending technologies, can bring visibility to otherwise hidden relationships and liabilities, while ensuring that data is understood, available and actionable Risk managers and C-suite executives need to champion innovative technologies that can scale up an effective response and protect the bottom line, speeding the pace of digital adoption from ​later​ to ​now.