Rising climate change risks, heightened consumer expectations, and a dearth of tech talent loom large among the insurance industry’s near-term issues and opportunities. Industry experts share how these demands—and more—will shape the industry in the years to come.
Amid a once-in-a-century global pandemic and an uptick in natural disasters, insurers have kept doing what they do best: predict and protect against volatility. And all the while, they’ve integrated new technologies to deliver more efficient claims processing, improved customers’ digital experience, and supported increasingly hybrid and far-flung workforces.
But recent innovations also underscore a stark reality facing insurers: The future of the industry will see accelerating change on multiple fronts, from digital capabilities to customer expectations. To thrive in increasingly complex operating environments, insurers must become digital leaders.
For starters, that involves casting aside legacy, on-premise systems to embrace cloud-based technologies that support a range of competitive advantages, including data-driven decision engines, tailored customer experiences, and a tech-savvy workforce.
And while each insurer’s path forward is unique relative to its position in the market and strategy, insurance leaders are in agreement about one thing: an inflection point has been reached when it comes to the value of insurers’ adopting new tech to drive change.
“Having many years of working in the insurance industry, understanding not only the trends but also the regulatory environment, we see that the forces occurring inside this industry can be solved through technology. It’s up to us to really bring that to the table,” said Dave Zager, a partner in the Workday financials practice at Deloitte, on a recent Workday Podcast.
Firms that take the plunge and modernize their core systems can expect a range of benefits across operations, strategy, customer experience, and talent management. Insurance experts and leaders say there are four key areas the industry should focus on in the coming years, and they are certain that cloud-native technologies will help power change.
Drones are now inspecting disaster areas. Customers can upload their own photos and videos to mobile apps to facilitate claims. And the proliferation of smart sensors and other Internet of Things (IoT) devices has broadened insurers’ risk assessment and fraud prevention abilities.
However, many insurance firms are leaving value on the table when it comes to analyzing data to unlock insights about customer behavior and the costs of risks. In large part that’s due to technical debt from relying on clunky, time-intensive legacy systems.
No wonder that Workday’s Digital Acceleration survey found that 62% of executives at financial services firms believe the single most important factor to improving their ability to make data-informed decisions will be technology that breaks down silos or unifies financial, people, and operational data.
Expect change to speed up on this front—updated regulatory and accounting requirements, which place undue stress on outdated legacy systems and inefficient processes, will help firms push past inertia to retire debt and put true data-driven systems in place, Zager explained. Recent technological advances will also make change irresistible.
“Over the past couple of years, a lot of the technologies and capabilities in the market have been enhanced to focus on data and how to harness it to drive value for the organization,” Zager said.
Moreover, artificial intelligence (AI), machine learning (ML), and cloud-driven technologies will increasingly help insurers set up more efficient and automated underwriting and claims settlement processes backed by data-driven decision engines, according to KPMG’s “Future of Large Commercial Insurance” report.
Eight out of 10 decision-makers at large insurers say their customer-centric strategy is a high or top priority, according to KPMG.
The ability to fully tap internal data—including customer data in an ethical and sensitive way—will allow insurance organizations to stay ahead of trends in consumer demand, introducing new products, driving growth, and reducing risk. The cost of sticking with the status quo, meanwhile, will climb higher.
“We’ve seen cyber events that left some of our insurance clients disconnected and unable to be productive—especially those that were still operating legacy, on-premise systems,” said Tony Alejo, a partner at KPMG. “These unfortunate events helped our clients see the benefits of being in a cloud-based digital environment.”
These days, customers expect the same personalized, streamlined experience from their insurance company that they encounter from online shopping and banking or social media scrolling.
Insurtechs have captured, and spurred, this shift in customers’ digital expectations—something that hasn’t gone unnoticed by leaders at large commercial firms. Eight out of 10 decision-makers at large insurers say their customer-centric strategy is a high or top priority, according to KPMG.
One way that insurance CIOs say they’re boosting their organizations’ competitiveness is through customer experience and engagement. Forty-four percent of CIOs said their organizations are investing on this front, followed by infrastructure and cloud spending (35%), according to a KPMG survey.
Customer experience and digital transformation are closely connected, says Jay Rabinowitz, vice president of financial services and insurance at Workday, but many insurers are hamstrung by data silos. “A lot of organizations have grown organically, and their sales leaders and engineering teams often have grown in silos,” Rabinowitz said. Financial services companies, including insurers, “need to understand that their customer is the same person regardless of which team is serving them. Connecting those dots is much harder than people think.”
Less than 25% of the insurance industry is younger than age 35, and by 2036, 50% of the current insurance workforce is expected to retire, according to a U.S. Chamber of Commerce report.
But establishing a unified data environment ultimately enables organizations to harness the data they have to drive innovation that meets consumers’ preferences. “Why do customers have their home insurance policy here, their auto insurance there, and their life insurance over there—what if insurers offer them a bundle?” Rabinowitz asked.
That’s just one example of a tailored customer experience that can build trust and loyalty, helping established insurers win what McKinsey calls the ongoing “fight for the customer” that insurtech startups have in their sights.
As insurers look to stay competitive in the talent wars, they’ll seize an advantage by using cutting-edge technology to support both talent management strategies and the employee experience.
The stakes, after all, are high. Demographic trends point to an insurance industry talent crisis, as many workers approach retirement without adequate millennial and Gen Z talent eager to replace them. Less than 25% of the insurance industry is younger than age 35, and by 2036, 50% of the current insurance workforce is expected to retire, according to a U.S. Chamber of Commerce report.
Perhaps more urgently, demand for IT and data talent remains sky-high, with some of the largest tech companies in the world recruiting remote talent away from local insurance companies.
To both attract and retain top talent, the insurance sector will need to leave legacy systems behind and move to the cloud. The reason is simple: IT workers and data scientists don’t want to work on outdated, on-premise systems. “Young professionals don’t want to deal with legacy infrastructure—they want opportunities to be part of something new and innovative, like cloud-based technology, enhanced data tools, new programming languages, and artificial intelligence,” Rabinowitz said.
But when it comes to cloud-based tech and talent, the benefits go beyond attracting and retaining local employees. Having fully modernized systems in place—ideally for both core operations and human capital management—expands remote work possibilities and helps insurance providers tap the right talent, regardless of geography.
Technology has become a key differentiator for recruiting and retention, Rabinowitz notes. The pandemic has reset employee expectations—more than ever, people are seeking value and purpose at work. Insurers realize that digital transformation efforts can help meet this crucial employee need. “A company’s technology strategy is critical to people strategy,” he said in an Insurance Journal interview, noting that recent Workday research found that around half of financial services CFOs plan to invest in consumer-like interfaces for finance tasks to attract talent within the next five years.
The right technology investments allow employees to focus on more meaningful work. “When everyday tasks are automated and workflows are streamlined to optimize productivity, employees can focus on more strategic tasks and bring greater value to the business,” Rabinowitz said.
After the last few years of multiplying natural disasters, insurers are acutely aware of how climate change is altering the risk landscape. That dynamic will only intensify in the coming decades, heightening both regulatory and customer scrutiny—and spurring innovation.
As the consequences of climate change become more tangible, regulators are likely to ask financial services companies to identify and engage with environmental, social, and governance (ESG)-related and climate-specific risks, KPMG predicts. Regulators will want particular attention paid to things such as stress testing and scenario analysis, credit risk, and due diligence monitoring.
“Young professionals don’t want to deal with legacy infrastructure—they want opportunities to be part of something new and innovative.” Jay Rabinowitz, Vice President of Financial Services and Insurance, Workday
The fact that climate-related risks were the top priority for insurance chief risk officers, according to a recent EY survey, speaks volumes. Climate risks, which affect both assets and liabilities and extend across long time horizons, are incredibly difficult to model. Their complexity will require bold new solutions involving “efficient risk capital, risk transfer, and risk syndication strategies,” which will allow coverages to be expanded and risk to be spread, EY notes. The insurance industry is indeed responding innovatively, developing new approaches to managing climate risks such as public-private partnerships and new insurance products.
To keep up with shifting ESG-related regulatory requirements and develop sophisticated solutions to evolving climate threats, insurance companies need a strong data backbone that the entire organization can operate around. That’s what cloud-native platforms can deliver—along with advanced analytics, reporting capabilities, and predictive tools that can help strategies align to the future.
“What we see in the market now is the marketplace is changing, and it’s changing at a pace that’s hard to keep up with. And you need to have a supporting technology underneath what you’re looking to achieve that allows you to do it quickly,” said Zager.
To learn more about how Workday helps insurance firms drive digital transformation, visit our website.
To best meet intensifying challenges, insurers are becoming digital leaders—adopting cloud-based management platforms that make the most of their wealth of data.
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