This blog is part of a series written by Alan Demers, founder of InsurTech Consulting and author of Insurance Thought Leadership. For part one of this series, visit: The Top Challenges of Property & Casualty Insurance Product Development. Stay tuned in the coming months for more.
The Emergence of Technology for Insurance Product Development
It seems that the volume and variety of analysis describing P&C Insurance industry trends and predictions have been on the rise over the last few years which happens to coincide with the insurtech movement itself. In this, new meets old paradigm there is much discussion about adoption rates, whether by consumers or insurance carriers themselves, privacy concerns, legacy systems and a host of other barriers. There’s an even greater volume of excitement for all the amazing possibilities to drive revenue, improve bottom-line results and modernize customer experiences. Terms like transformational, industry disruption, and reimagine (everything) were hardly, if ever used, to describe insurance just a few years ago.
Over the past 5 years, insurtech investment has soared with consecutive record-setting levels each year. According to Forrester Research, Inc., over $15b was invested through Q3 in 2021 surpassing global insurtech investments for all of 2020. The gravity of capital infusion has inspired a wide range of technology, new insurance models, and more digital deployment, in turn, raising consumer and business owner expectations. So, it only makes sense that the volume of predictions, speculation on winners and losers and everything insurance news-related, is simply amplified. Well, for 2022 that is changing too with greater attention on climate change, cyber risks, and emerging embedded insurance models just to name a few highly talked about trends. And many of these trends call for new insurance products which are still mostly developed and deployed by each individual insurance carrier, whether with external provider support or not.
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Popular 2022 Predictions:
Among the numerous insurance industry trends and predictions for 2022, some of the more popular and noteworthy themes include:
- Cyber exposure, demand for protection, products and services
- Climate change risks and rising insurance costs
- Changing definition of insurers with the likes of Amazon, Tesla, and Toyota selling insurance
- Embedded insurance models by combining insurance at point-of-purchase with other products
- Parametric insurance for events, travel and the first layer of protection
- Digital adoption and demand for new products
- Usage-based, sensor technology and reward-for-behavior offerings
There are several other trends extending beyond 2022 that are expected to impact how insurance is bought and sold, serviced, experienced and priced for years ahead. Artificial intelligence is already being deployed, however early on, for many of the more complex use cases. Meanwhile, image analytics are being widely leveraged throughout underwriting and claims, reshaping the customer journey processes with great success. Blockchain continues to be cited as having lots of future promises and autonomous car features are making driving safer and increasing the cost of repairs simultaneously. A common question is, “which emerging technology(s) and startup(s) are most exciting?” The answers range from pragmatic to futuristic, like completely automated and instant underwriting might be someday.
Editor’s Note: In our 2022 Industry Predictions Series, we asked Alan Demers, to weigh in on product and systems development trends he’s anticipating for the insurance industry in 2022 and beyond. Visit 2022 Insurance Predictions Banning Credit Scores Automation and A Highly Competitive Marketplace to read his full insights!
Demand for new products
A common denominator for each of these trends, especially among incumbent insurance carriers, is mounting pressures to launch new and/or modify existing insurance products at a much faster pace. Historically, insurance product development has been relatively slow and methodical, where it can take a carrier months or even longer from start to launch. Thus, speed-to-market remains a top challenge. Complex and individual state regulations, sophisticated pricing segmentation models and nuanced policy language are just a few reasons that explain why insurance product development is so difficult. Add in insurance carrier IT backlogs and competing programming priorities and it all begins to explain why new product development takes such time and effort. Yet, the pace of new product launch is not keeping up with the tempo of new market entrants and changing consumer preferences. Those companies that can launch faster and more efficiently will have a clear advantage moving forward.
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Legacy systems and ways of working
In recent years, most of the large carriers have upgraded or are just completing retirement of core systems, replacing far outdated legacy insurance policy administrative, claims and billing systems for new and more adaptable platforms. Such transformations are extremely expensive, in the tens of millions of dollars, and can take several years to complete – and that’s just to contemporize 30+-year-old technology and does not contemplate cloud migration and other investments. The upsides of modernizing core systems are numerous, including ease to integrate new technology which enables insurers to partner with additional solution providers, startups and others relevant to modernizing agendas. Consider leveraging real-time data to better price and manage risk, for example. This can hardly be done with legacy systems and without integration but comes to life with a modernized platform and numerous data integrations from various sources and providers. Much like everything else these days, businesses and consumers demand things to be instantaneous and real-time or insurers run the risk of missing on new business.
In reality, the insurance industry has evolved at a steady pace from the 1980’s conversion from paper to desktop computing, in the 1990’s moving from highly regional to centralized service centers, 2000’s mobility and more recently toward digital and automated. Many in the industry say that more changes have occurred in the last 5 years than the last 20 combined and that is an accurate statement.
When factoring industry trends – insurtech, changing consumer demands, emerging risks and insurer investments, and all other related dynamics – it’s easy to see how new product and product differentiation will play an important role going forward. Partnership insurance models – such as OE car manufacturers paired with an insurer leveraging data sharing, usage-based insurance, and possibly with financing and even connected car payment options – call for product and pricing features much different from traditional insurance policies. Sensor data to predict, avoid, and detect losses will reshape insurance from a reimbursement model to insurance-as-service and likewise will influence new and different insurance products.
Now that the insurance industry is tackling legacy systems, it’s opportune to address legacy ways of working. The seemingly never-ending aftermath of Covid 19’s impact to working environments is still very much unsettled. Despite employee survey results suggesting most office workers prefer work from home for some or all of their work, insurance executives are challenged with measuring productivity and uncertain about sustaining team collaboration going forward. Team collaboration, especially given insurance carriers’ highly specialized and siloed constructs, is imperative when it comes to developing new products. In fact, the speed and efficiency of development cycles is a direct outcome of how well departments and people collaborate, move and approve work, make decisions and move the ball forward. Yet, Excel spreadsheets, email, and meetings are cited as the main ways of working when it comes to product development. So, there is much room for new tools and forward-thinking team collaboration ahead for the insurance industry.
No matter how 2022 insurance industry predictions pan out, it will be another exciting year for insurtech adoption, new tools, and new products alike.