What it will take for technology in insurance to survive and thrive in 2023

The global insurance technology market is expected to reach $10.42 billion this year, up from $8.07 billion in 2021, confirming that the pandemic-driven digital transformation of the insurance industry is here to stay. In addition, insurance companies are in a race to stay relevant and reduce operating costs as supply chain disruptions, geopolitical crises, labor shortages and changing consumer habits drive up the cost of doing business.

As a result, insurers are accelerating their investments in digital technologies by applying artificial intelligence (AI) and automation strategies across all business functions. These technologies help insurers to work cheaper and much more efficiently.

But as this digital transformation continues at an accelerating pace, it can be difficult to keep track of which technologies to adopt. Let’s take a look at the key technology trends that will shape the insurance industry in 2023.

Climate change is having a major impact on the insurance industry and only 8% of insurers are adequately preparing, according to Capgemini and Efma’s World Property and Casualty Insurance Report. “Insured damage from natural disasters has increased by 250% over the last 30 years, with hazards such as wildfires and storms, which are particularly impacted by climate change, driving insured damage up even faster,” the report highlights.

The key to climate resilience is balancing risk prevention with risk management. The demand for technology solutions that can help companies leverage and embed climate risk data into their models will continue to grow. About 53% of companies are already using new data sources, such as satellite data, remote sensors, geodata, ESG models and water levels, to evaluate the most accurate and detailed risk information in real time. Machine Learning (ML) can then be used to interpret this data and generate insights into the likelihood of a climate event or its potential impact.

Advances in data analytics are also enabling insurers to more accurately measure the magnitude of climate-related events such as flooding. Parametric insurance coverage is becoming a popular solution to deal with these risks. Instead of making payouts based on the value and actual loss related to an asset, parametric insurance uses all data about the potential of a specific climate event to calculate coverage costs. This approach can be a more affordable alternative to risk transfer, as long as the thresholds are calculated as close as possible to potential losses.

Telematics and usage-based insurance can no longer be ignored

Telematics technology involves tracking data about a vehicle’s movements. For example, it can immediately detect accidents and even start the claim process with the vehicle owner’s insurance company. Various providers, such as repair shops, can also access telematics data to make estimates or order parts. This can drastically shorten damage repair lead times and increase customer satisfaction.

Telematics data can also inform insurers about the driving behavior of their policyholders. This is fundamental to usage-based insurance (UBI), a type of insurance that charges policyholders based on their actual usage rather than estimates. According to Forrester Research, UBI policies may be responsible 20% of all car policies in 2024.

A typical example of UBI is pay-as-you-drive, which allows drivers to pay based on the number of kilometers they drive. Not only is it a more affordable option for low-mileage drivers, but it can also be used to encourage customers to change their driving habits. For example, to reduce their impact on the environment or the risk of accidents.

Shift of customer expectations towards self-service

The pandemic forced insurers to embrace technology and find ways to deliver a truly digital customer experience. Policyholders now expect to communicate with insurance companies remotely, and often, without interacting with a live representative.

Mobile applications, chatbots and online portals all help customers navigate in one place, from price comparisons and online quotes to claims processing and after-sales service requests.

Providing these self-service options has been shown to greatly boost customer experience and satisfaction. It can also provide major savings for insurers, especially in processes that require a lot of time and manual work. Self-service platforms that leverage visual intelligence, a type of AI, can help insurers make estimates, process claims, and even procure needed parts or materials much faster, minimizing manual intervention. McKinsey predicts that AI will cut claims overheads by 70 to 90% by 2030 compared to 2018.

Survive and thrive in unpredictable times

The insurance industry is undergoing a profound transformation as unprecedented economic and environmental challenges arise. From inflation and the ongoing economic fallout from the pandemic to mounting climate risks, insurers must find ways to reduce costs and future-proof their business. In the coming year, we will continue to see insurers move towards more flexible, customer-centric and affordable digital solutions.

Julio Pernía Aznar is CEO of Bdeo.