Also, bundling of insurance with products and services across industries is on the rise, creating a new breed of ‘invisible insurer’
Everest Group reports that two major trends are shaping the future of insurance, driving insurers to redefine their business strategies and IT outsourcing engagements. First, insurers are moving from passively “insuring loss” and managing claims to proactively “ensuring protection” for customers. Second, insurers are bundling insurance with products and services across a broad spectrum of industries, with insurers themselves increasingly becoming invisible to the end customer.
To navigate these shifts, the insurer of the future will leverage next-generation technologies such as analytics, artificial intelligence (AI), blockchain and IoT.
For example:
- Insurers are already using IoT to “ensure protection” by monitoring homes (smoke and carbon monoxide alarms), cars (mileage, driving patterns), persons (exercise, lifestyle patterns), and businesses (boilers and water systems).
- Insurers will use digital channels to sell hyper-personalized products; for instance, an insurer’s mobile application might use geo-location data to offer travel or airline insurance to a customer who is at the airport.
- Insurance will be bundled with products and services. Market leaders have already begun bundling insurance with remittance transfers and real estate purchases. As this trend expands across all industries, insurers will become “invisible” to the end user.
- Insurers will tap the connected ecosystem to underwrite risk in near actual time. Analytics and AI will be used on real-time as well as historical data to assess risk, generate quotes, negotiate premiums and execute smart contracts.
- Policy administration processes are already shifting from being highly manual and paper based to automated and digitized, and this will rise to another level as connected systems, blockchain and machine learning applications mature.
- Machine learning will transform a highly manual, reactive claims management process to an automated, proactive one, and blockchain technology is showing transformative potential for use cases such as claims validation, fraud detection and prevention, and automated claims payments.
These are just a few ways technology will play a major role in the transformation of the insurance industry over the next decade as insurers shift focus from “protection” to “prevention” and as the bundling of insurance with products and services becomes more prevalent. Today, insurers have begun collaborating with IT service providers to build and evaluate proof-of-concepts, develop customized solution offerings, and test use cases in innovation labs and centers of excellence.
“We’re already seeing evidence of insurers beginning to embrace their future reality,” said Jimit Arora, partner and leader of the IT Services research practice at Everest Group. “For instance, insurers are moving from long-term, traditional IT outsourcing projects to short-term, digital projects. These projects allow insurers to adopt emerging technologies, reduce time-to-market, and improve customer experience. We’re also seeing a steep rise in demand for artificial intelligence, blockchain, IoT, and automation in the scope of insurance IT outsourcing contracts.”
Insurance constitutes 30-35 percent market share of the overall US$142 billion BFSI (banking, financial services and insurance) IT outsourcing industry. Over the past four years, the insurance ITO market size has grown by a CAGR of 5.3 percent, and going forward it is expected to grow at a steady rate of 4-6 percent. Digital services components were included in 46 percent of the 348 insurance ITO deals signed in 2016 and analyzed by Everest Group. The deals having automation in scope increased by nearly 250 percent while deals involving IoT, blockchain and AI nearly tripled.
These findings and more are explored in detail in Everest Group’s recently published report, “Insurer of the Future: Insurance ITO Annual Report 2018.” The report explores key trends in the insurance industry and their implications for application services outsourcing.
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