The global insurance market faces many challenges this year, from ever higher customer expectations, to soaring inflation, climate change, cyber security risks and pandemics. Few insurance lines will be unaffected by these issues. Insurers operating in every jurisdiction and across every line will need to think about how to deal with them.
Here is how Sprout.ai envisions the year ahead playing out, as well as some thoughts on what might happen further ahead.
Inflation will drive up insurance premiums
Inflation is significantly impacting the insurance industry as the rising cost of goods, repairs, and services drives up claims payouts for insurers. As a result, premiums may also increase as insurers look to offset their losses. Traditional insurers may have an advantage in this market as they have a more established brand and deeper coffers, which customers may find more reassuring during uncertain times.
However, traditional insurers also have higher operational costs compared to technology-first insurance providers. To remain competitive, traditional insurers will need to optimise their operations and invest in technology that allows them to provide better service at a lower cost. The insurers that can do this quickly and efficiently will come out on top.
The insurance industry will also need to meet cost-of-living pressures
Despite the higher costs caused by inflation, insurers will need to adapt by offering flexible and competitively priced products to their customers as cost-of-living pressures continue to bite. To stay competitive, insurers should invest in product innovation and offer flexibility and choice. In 2023, customers will look for lower cost policies that are tailored to their specific needs.
To help prevent or mitigate potential losses or risks, many insurance companies will provide additional services to their customers. These will reduce exposure, reduce overall claims volumes, and improve profitability for the company. For example, offering health insurance customers periodic health checks or gym memberships can improve customers’ health and well-being, which reduces the likelihood of making a claim, while generating additional revenues if the right partnerships are created. This can be seen as a win-win situation for both the insurer and the customer.
Insurtech startups will face funding challenges
The decline in tech funding in 2022 has affected the insurtech sector, with companies experiencing a drop in later-stage growth funding and reductions in valuations. Investors are becoming more cautious and focusing on growth metrics, which poses a risk for insurtech startups that rely on funding to fuel their growth. However, this presents opportunities for well-financed companies with deep pockets.
Traditional insurers may be able to regain market share or drive consolidation in the market as they partner with new and traditional insurance companies. The future of the industry is uncertain and the funding situation may change, but for now, venture capital and private equity funds still have money to invest and insurtech is still considered a “hot” area.
Artificial intelligence and the Internet of Things will continue to disrupt
Artificial intelligence (AI) is overhauling the insurance industry by automating complex tasks that were once difficult to perform with traditional software , as well as the simpler, repetitive ones. With the use of deep learning and other AI techniques, many decision-making processes in insurance can be automated or assisted by software. For example, identifying the circumstances that led to a customer’s insurance claim and cross-referencing it with the terms of the current policy is a complex task that can now be automated. More and more insurers are leveraging this type of technology.
In 2023 and beyond, insurers will begin to use the Internet of Things (IoT) and wearable devices to track customers’ behaviour to identify and mitigate the risk of claiming on insurance. This technology can be helpful in tracking patterns and behaviours, or monitoring health and activity levels for health insurance customers. IoT and wearables can provide insurers with valuable data that can help them better understand the risks their customers face, and allow them to offer more tailored insurance products.
Customer-centric approaches to claims will become the norm
Today, the majority of insurers structure their operations by insurance lines. For customers, this is highly inefficient. One customer holds multiple policies for different insurance lines. It becomes even more inefficient and problematic if the customer needs to claim on more than one type of insurance.
Here’s what that problem looks like:
Customer ‘A’ owns a house where a fire breaks out. The fire destroys the entire contents of the home and causes the customer severe respiratory issues. Customer ‘A’ will need to claim on up to three insurance policies: buildings, contents and health insurance. This are likely to be held with different companies.
Customer are often emotionally, financially, or physically vulnerable when filing an insurance claim. Improving efficiencies in the claims process will help reduce that stress and enhance the overall customer experience.
Flexible workforces and embedded technology will enable resilience to global crises
The Covid-19 pandemic had a far-reaching impact on health insurers. Claims volumes increased by 40-60% and have not fallen since. This dramatic increase has been driven not just by Covid infections, but by the knock-on impact of the pandemic on other long-term health conditions. Insurance companies have had to retrain claims handlers from other areas such as motor insurance to manage health claims. This has been a long and expensive process as it can take up to 9 months to train claims handlers.
This highlighted the challenge of dealing with a crisis and a spike in claims using legacy processes and technology. In the years ahead, global warming will present enormous challenges for insurers in the form of wildfires, rising sea levels, and floods. Insurers will prepare for these events by automating much of the claims process and increasing the flexibility and elasticity of their workforce.
To learn more about how Sprout.ai can boost efficiency and enhance customer experience, book a call today.
