The year 2020 was a redefining year for not only the insurance industry but for most businesses. The lockdown forced all large and medium-size businesses to allow their knowledge workers to work from their homes.
With vaccination on the way, everyone is wondering how long will it take for the virus to subside and for work, and the economy, to return to normal. For insurers, claims and related losses are down significantly, so the need to innovate and improve operational efficiencies has been muted. However, once we move to the other side of the pandemic and normalcy returns, losses and claims will return to their highs, making it imperative for insurers to improve operational efficiencies, maintain and enhance service quality, and keep the innovation engine functioning to improve profitability. However, achieving these outcomes requires accelerated digital transformation adoption.
The digital shift is enabling insurance carriers to bring a new problem-solving approach to fight fraud, find more subrogation opportunities, and faster claims closure with AI technologies.
There are six fundamental changes that I believe are likely to happen in the post-pandemic era.
In this blog, I will discuss the digital shift that is enabling insurance companies to bring a new problem-solving approach for better and faster claims processing and improving the overall customer experience.
1. Digital Business Models for Processing Claims Will Become Essential to Sustain Business Growth
The digital business model is slated to become the only viable business model in many industries. The size of the global eCommerce industry is about to touch $5 trillion in 2021.
The insurance industry is not untouched by a demand from customers to improve their digital interaction capability. In fact, as customers become more accustomed to executing everything from food to medicine delivery online, they are demanding a better and more seamless digital experience while filing claims and receiving payments. In fact, according to a survey, 39% of customers who canceled their policies between 2017 and 2019 did so because of issues related to customer experience (including claims).
As is evident from an estimated enterprise IT expenditure by the IT industry in 2019 of $225 billion, the spending is slated to grow between 5% and 10% until 2023. The way to finding a competitive edge lies in finding the most effective, adaptable, and technically sound digital solution.
The right technological solution would be able to predict customers’ insurance needs, analyze claims and categorize them (simple, fraudulent, require further investigation) accurately, and help automate the entire claims settlement process. A seamless and transparent digital experience has shown customer satisfaction scores to improve by as much as 20%.
(Source: Claims in the digital age, Mckinsey&Company)
Here are a few things that an AI-powered claims management platform can deliver:
- Automated information exchange between the insurance provider and other systems like repair shops
- Digitization of documents with image recognition ability of deep learning algorithms
- Accurate payout estimates for each claim as per policy terms using driving data and other behavior patterns
- Authentication of claims using fraud detection modules that leverage data from real-world, historical, and other sources
- Prioritizing cases based on scoring and weightage-based system for claims processing
2. Dealing with Digital Insurance Fraud Will Require Better Application of Technology
Cybercriminals and insurance fraudsters have found new and myriad ways to commit insurance fraud. A few of the most common threats are:
- Using stolen identities to set up new policies: By setting up fraudulent claims, a cybercriminal can build a fake profile, establish its credentials, and then apply for fake insurance claims. Such policies are hard to track and shut down if the premiums are paid regularly.
- Filing false claims by hacking into existing policyholder accounts: By accessing real accounts illegally, such as through malware or other tools, cybercriminals can raise fake claims requests. They would then collect it by changing the payment information on the account. The claim would affect the premium of the policyholder and lower the authenticity of their account.
- Payment hijacking: As mentioned above, hackers can access policyholders’ accounts with approved claims and funnel their settlements into different accounts by changing their payment information.
Using an AI/ML solution to identify cyber fraudsters can go a long way in reducing the loss due to fraud. By analyzing patterns using various types of data such as social, public, enterprise, historical, and geographical, among many others, a fraud detecting algorithm can accurately identify fake claims and even social engineering schemes.
3. Cybersecurity Will Need to Become More Robust to Manage Cyber Risk and Ensure Data Protection and Privacy
One of the biggest reasons why insurance companies are wary of moving towards total digital transformation is the risk of exposing their data to cyber-threats. As everything moves towards digitization, the threat of cyber-attacks is also increasing exponentially. Cybercrimes such as data ransoming lead to a loss of $2-$3 billion worldwide, which may seem like a comparatively low number. However, such a breach or attack’s indirect consequences are relatively high and may lead to a loss in the tune of $20 to $40 billion in lost customer trust. Cumulatively, cybercrime can cost the worldwide economy hundreds of billions of dollars, as it was $600 billion in 2017 and $800 billion in 2018.
The insurance industry faces many challenges when it comes to cyber risk:
- Threat to consumer data and privacy
- Loss of trust and reputation
- Business disruption
Consumer data is sensitive, confidential, and highly regulated, and protected by law. If it gets leaked from an insurance company due to its security vulnerabilities, the consequences for all parties concerned can be quite severe.
However, as risk increases, so does the ways to prevent risk exposure.
With advanced capabilities and security protocols, it is possible to minimize the cyber-risk and keep enterprise insurance data secure. The best way to manage cyber risk and prevent cybercrimes is to have an effective data security strategy and review it periodically and frequently to ensure all the latest threats are covered.
In my view, COVID-19 has triggered a tipping point that results in a more aggressive digital transformation plan for the insurance industry to meet their customer expectations. These are the business and operational implications as driven by the digital evolution of InsurTech and its application across the industry. In the Part 2 of this blog, I will talk about the aspects driven by the people and the transformations taking place in the way the industry works.