In the insurance space, the pursuit of greater efficiency, better policyholder experiences, and a stronger competitive advantage is synonymous with the need to modernize operations. Though digital transformation in insurance is not a new trend, it continues to play an important role in reshaping how insurers operate and serve policyholders.
In fact, Gartner estimates that global IT spending in insurance will grow at a CAGR of 8.1% between 2021 and 2026, reflecting the continued interest in tech operation investment.
But even as today’s insurers face increasing pressure to modernize, they must overcome common roadblocks like complex data migrations, legacy system upgrades, evolving policyholder dynamics, and internal resistance to change.
Below, we’ll discuss current trends in insurance digital transformation, the challenges of modernization, and some expert strategies and best practices to overcome them.
The State of Digital Transformation in Insurance
While legacy systems and workflows have long been the industry standard, current market pressures and policyholder demands have led many insurers to innovate their processes and services. Those who don’t adapt risk being beaten out by emerging market entrants that offer the digital experience modern policyholders want, like insurtechs, or incumbent players that embrace innovation.
Digital transformation is a broad term that can indicate a variety of changes and improvements for insurers. It can be as simple as digitizing paper documents or as technical as implementing advanced data analytics to predict when policyholders will most likely file a claim.
Either way, digital transformation for insurance is only becoming more pressing. Even though many insurers have already digitized a portion of their operations, the emergence of new tools and technologies like generative artificial intelligence (AI), the cloud, and the Internet of Things (IoT) continues to provide new opportunities for the industry.
Key Challenges to Digital Transformation for Insurance
Despite the many benefits of digital transformation in insurance, organizations face significant roadblocks as they attempt to innovate and modernize operations:
Legacy Systems
Today, many insurers still rely on outdated infrastructure and legacy systems for at least one core process. Because these systems cannot easily integrate or communicate with one another, they create siloed data and processes and inefficient operations. Their integration with new technologies is highly difficult, requiring tedious and costly migration.
On the other hand, the cost to maintain legacy systems also increases every year, taking up a significant portion of insurers’ IT budgets. This puts insurers in the difficult position of having to upgrade their tech stack in a cost-effective manner while navigating the complexities of legacy system migration.
Data Management
Today, there is more data than ever before to power insurance operations. This includes both proprietary and third-party data on policyholder behavior, macroeconomic trends, local weather patterns, competitors, and more.
Handling large volumes of data is a unique challenge for nearly every industry despite the important insights it provides. Especially in the insurance space, upholding data integrity and ensuring data accuracy is crucial to smooth-running operations and quality service for policyholders.
Regulatory Compliance
Navigating the industry’s strict regulatory landscape is another potential challenge for insurers pursuing digital transformation. With cybersecurity threats on the rise, data privacy is critical to consumers and regulators alike.
Insurers must ensure that any new systems they adopt adhere to compliance standards and will safeguard policyholder data. Otherwise, a potential breach could result in regulatory sanctions and penalties or fines, not to mention a loss in consumer trust.
Policyholder Expectations
In recent years, there’s been a rising demand for seamless digital experiences from policyholders. Despite this continued trend, many insurers are still missing the mark. McKinsey & Co. reports that nearly 1 in 3 policyholders aren’t satisfied with the digital channels available to them.
In an increasingly mobile-first environment, where 15% of U.S. adults use only their smartphones to access the internet, insurers must adapt to this new normal and cater to the needs of policyholders. This might mean upgrading systems so prospective customers can browse, compare, and request policy quotes from mobile-friendly browsers, interact with customer support through digital channels, and access important policy documents with a few taps on their phones.
Employee Resistance
Change isn’t always easy, especially in an industry where operations have remained largely the same for several decades. It can be especially difficult for long-tenured employees to embrace changes to workflows and technological advancements. They may see emerging technologies as further complicating their work, not improving it. The success of an insurer’s digital transformation is greatly affected by the willingness of the team to adopt new technologies.
Expert Strategies for Digital Transformation in the Insurance Industry
The push for continued digital transformation in the insurance industry requires a strategic approach by insurers. Here are some expert suggestions and strategies for overcoming common roadblocks during these initiatives:
Incremental Upgrades
Modernize legacy systems gradually to avoid operational disruptions. Though this might mean a longer timeline for digital transformation, it can also create better outcomes. Plus, it allows teams the time to reassess and evaluate completed projects, providing more flexibility to pivot if needed.
Digital upgrades should always streamline or simplify existing processes. Don’t adopt new technologies and systems just for the sake of it. Focus on making gradual changes that provide real benefits for stakeholders. This will present a better return on investment, and make policyholders and staff members more likely to embrace potential changes.
Move to the Cloud
Moving to cloud-based solutions enables far greater flexibility and scalability. In contrast to outdated legacy systems, cloud platforms make it much easier for insurers to scale operations to meet demand, with the computing power to deliver personalized policyholder experiences while maintaining high levels of data security. Cloud-based systems can also be updated remotely and seamlessly, allowing insurers to take advantage of new technologies and capabilities without complicated on-premise maintenance and upgrades.
Use Low-Code/No-Code Tools
Digital transformation is an ongoing process; it’s not just a one-time project. Leveraging no-code or low-code tools makes it much easier for insurance teams to quickly develop and deploy new applications and functions as needed without relying on IT resources.
This way, even non-technical team members can be involved in application development. This allows for better flexibility to respond to changing market conditions and policyholder needs, without an expensive system overhaul.
Employee Training
Proper employee training can help teams overcome reluctance to change. Involving key stakeholders throughout the digital transformation journey is a key aspect of successful change management. This helps employees feel empowered by the new technology, not threatened by it.
Employees should clearly understand how the technology will enhance their workflows and free up their time to focus on strategic work. This means educating them on why the change is being made, allowing them to voice concerns and questions, and providing ongoing training to ensure they know how to use new systems once they’re in place.
Embrace Digital Transformation with Insuresoft
Insurance digital transformation challenges are to be expected. However, with the right strategy and approach, insurers can continue to modernize their operations for better efficiency, competitiveness, and policyholder satisfaction.
Having the right tools and an agile core system is the foundation of digital transformation success. With Insuresoft’s cutting-edge Diamond platform, insurers can leverage an all-in-one insurance system for all P&C lines of business and a convenient COMPOSER tool that gives them the power to make platform adjustments quickly.
Plus, with Insuresoft’s 100% implementation record, insurers can have confidence that the platform will help them compete and win in today’s complex digital world.
Contact us today, and learn how we can transform your operations and deliver the digital experience your policyholders expect.
