What It Will Take For Technology In Insurance To Survive And Thrive In 2023

What It Will Take For Technology In Insurance To Survive And Thrive In 2023

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The global insurance technology market is expected to reach US$10.42 billion this year, up from US$8.07 billion in 2021, confirming that the digital transformation of the insurance industry caused by the pandemic is here to stay. Additionally, insurance companies want to stay relevant and reduce operating costs as supply chain disruptions, geopolitical crises, labor shortages and changing consumption patterns increase the cost of doing business.

As a result, insurers are accelerating their digital investments by implementing artificial intelligence (AI) and automation strategies across all business functions. These technologies help insurers operate more cost-effectively and efficiently.

However, as this digital transformation accelerates, it can be difficult to know which technologies to adopt. Let's take a look at the key technology trends that will shape the insurance industry in 2023.

Climate change is having a major impact on the insurance industry and only 8% of insurers are adequately prepared, according to Capgemini and Efma's Global Property and Casualty Insurance Report. "Insured losses from natural catastrophes have increased by 250% over the past 30 years, with perils such as wildfires and hurricanes being particularly affected by climate change, causing insured losses to grow even faster," the report states.

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The key to climate resilience is a balance between prevention and risk management. Demand for technology solutions that can help companies leverage and integrate climate risk data into their models will continue to grow. Around 53% of companies are already using new data sources such as satellite data, remote sensing data, geospatial data, ESG models and water levels to assess more accurate and detailed real-time risk information. Machine learning (ML) can then be used to interpret this data and provide insight into the likelihood of a climate event or its potential impact.

Advances in data analytics are also enabling insurers to more accurately measure exposure to climate events such as floods. Parametric insurance is becoming a popular solution to combat these risks. Instead of making payments based on the value of assets and actual losses, parametric insurance uses all data about the possibility of a specific weather event to calculate the cost of insurance coverage. This approach can be a more acceptable alternative to risk transfer if thresholds are calculated as close as possible to potential losses.

Telecom and PAYG insurance are here to stay

Telematics technologies include tracking vehicle movement data. For example, it can detect accidents immediately and even initiate the claims process with the car owner's insurance company. Various suppliers such as workshops can also access telecommunications data in order to create cost estimates or order parts. This can significantly reduce claim processing time and improve customer satisfaction.

Telematics data can also inform insurers about the driving behavior of their policyholders. This is fundamental to usage-based insurance (UBI), a type of insurance that bills policyholders based on actual usage rather than estimates. According to Forrester Research, UBI policies could account for 20% of all auto policies by 2024.

A case in point for UBI is pay-as-you-go, which allows drivers to pay based on the number of miles they drive. Not only is this a cheaper option for low-mileage drivers, but it can also be used to encourage customers to change their driving habits. For example, to reduce their environmental impact or the risk of accidents.

Shift customer expectations to self-service

The pandemic has forced insurers to turn to technology and find ways to deliver a truly digital customer experience. Policyholders now expect to be able to contact insurance companies remotely and repeatedly without even having to interact with a live representative.

Mobile apps, chatbots and online portals help all customers navigate everything from price comparisons and online quotes to handling complaints and after-sales inquiries in one place.

These self-service options are proven to significantly improve customer experience and satisfaction. It can also mean huge savings for insurers, especially when it comes to time-consuming, manual processes. Self-service platforms that use visual intelligence, a type of AI, can help insurers generate estimates, process claims, and even procure needed parts or materials much faster and minimize manual intervention. McKinsey predicts that by 2030, artificial intelligence will reduce claims costs by 70-90% compared to 2018.

Survive and thrive in unpredictable times

The insurance industry is undergoing a significant transformation as unprecedented economic and environmental challenges emerge. From inflation and the ongoing economic impact of the pandemic to rising climate risks, insurers need to find ways to cut costs and prepare their business for the future. In the coming year, insurers will continue to redouble their efforts to provide more flexible, customer-centric and affordable digital solutions.

Julio Pernia Aznar is the CEO of Bdeo.

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