Policy administration software: forecasting 5 powerful shifts in insurance tech

By Edward Halsey
20 February 2024
Bordereau

Barely a day goes by when you will not hear an insurance industry thought leader talking about the importance of digital transformation, and with initiatives such as Blueprint Two, it has rapidly moved from “nice-to-have” to a necessity for insurance businesses.

Digitisation, modernisation, innovation – this goes by many names, but this transformation, especially in the context of predicting the future of insurance policy administration software, is poised to redefine how insurers operate, engage with customers, and manage risks. Central to this revolution is the integration of advanced technologies—such as artificial intelligence, machine learning, and big data analytics—into the very fabric of policy administration systems.

These innovative technologies are not merely enhancing the operational efficiencies of insurance companies; they are also enabling a more predictive, personalised, and pro-active approach to policy administration. Insurers are now capable of harnessing vast amounts of data to forecast trends, predict customer needs, and tailor policies in real time, ensuring a level of service and precision that was previously unimaginable. Moreover, the advent of cloud computing and blockchain technology promises to further streamline policy administration processes, offering unparalleled security, transparency, and scalability.

The future of insurance policy administration software lies in its ability to adapt to the ever-changing market dynamics and regulatory environments. By prioritising adaptability, insurers can ensure not just compliance but also a competitive edge in an increasingly digital world. The end goal is clear: to leverage digital transformation not just for operational efficiency but as a strategic tool to predict and shape the future of insurance, offering customers innovative, dependable, and highly personalised insurance solutions.

But what technology is specifically driving this change?

Connectivity as a means of futureproofing your policy administration software

If there is any lesson we must learn from the last generation of monolithic, legacy technology, it is the need for better connectivity across our technology ecosystems. The idea that, today, data is not seamlessly traversing between platforms or, worse still, that double keying remains prevalent, is staggering and a dreadful hangover from the last generation. Worse still is how many operational processes have become engrained in companies based purely on the limitations of software-past.

We are looking at you, bordereaux…

However, with a paradigm shift towards a more integrated, efficient, and customer-centric industry, connectivity has become paramount. At its core, connectivity refers to the seamless interaction between different entities within the insurance ecosystem—ranging from insurers, customers, and third parties to IoT devices and online platforms. This interconnectedness is pivotal, as it enables the real-time exchange of data and insights, which in turn, enhances decision-making, risk assessment, and service delivery.

One of the key benefits of this enhanced connectivity is the ability to offer personalised services that meet individual customer needs. Using advanced analytics and customer data, insurers can tailor their products and services, thereby elevating the customer experience to new heights. Furthermore, connectivity drives operational efficiencies by automating processes and facilitating the smooth integration of data across various systems, significantly reducing manual errors and operational costs.

The applications of connectivity are vast and varied, including the use of IoT devices and APIs to gather real-time data on risks and customer behaviour. This data is instrumental in assessing risks more accurately and in crafting insurance policies that are both competitive and comprehensive. Additionally, leveraging connected devices enables insurers to engage with customers proactively, offering services such as preventive maintenance alerts or personalised wellness advice, thereby reinforcing the value proposition of insurance, and embedding it in everyday life.

Data as the linchpin of your digital transformation strategy

With insurers’ combined operating ratios (CORs) increasingly under pressure, exacerbated by claims inflation due to global supply chain disruptions and rising costs (Bloomberg), the strategic role of data and analytics has never been more critical. As insurers grapple with these challenges, the deployment of advanced analytics tools becomes pivotal, transforming risk assessment, pricing strategies, and the overall customer service paradigm.

Data analytics, by dissecting vast datasets, enables insurers to refine their risk assessment models and adjust pricing strategies with unprecedented precision. This analytical prowess is instrumental in navigating the complex landscape marked by claims inflation, allowing insurers to maintain profitability while offering competitively priced policies. By leveraging predictive analytics, insurers can forecast future trends and customer behaviours, thus anticipating market shifts before they occur. Of course, from the perspective of policy administration software, this either requires the levels of connectivity mentioned previously or a suite of analytical tools embedded into the platform.

Whether it is the user’s own data or the integration of third-party data into the software, this vastly magnifies the depth and breadth of insights available to insurers. The ability to ingest, structure and interpret this data will be vital, particularly when we consider the integration with large language models, dynamic risk pricing and machine learning algorithms.

Of course, this does not come without challenges around data privacy and security. With fines reaching up to 4% of a company’s global annual turnover, the necessity for advanced encryption protocols, or “bank-grade security” as I’ve often referred to it, coupled with strict data handling protocols and GDPR compliance is more vital than ever. The policy administration software of the future will need to not only manage the threats we currently face but also be both flexible and architecturally robust enough to react to the challenges of the future.

As a wider discussion, according to the ABI, 86% of consumers are concerned about organisations selling or sharing their information and more than half (53%) are uncomfortable with this. In fact, 41% would rather share less information and pay higher premiums! That is quite some statement in such a price sensitive market.

The policy administration software of the future will also need to disclose what information is held about each customer and then empower the customer with a personalised level of control over how that data is held and used.

Customer-centricity must be at the heart of your policy administration software

Here’s where things get interesting, as customer expectations are shifting at a monumental rate. Whether it’s expectations around environmental, social and governance (ESG), user experience, personalisation or risk mitigation, the buyers of today are more demanding than ever. More alarming though, according to Future Processing and Censuswide, one-third of UK consumers do not feel as though customer experience is improving. And what a missed opportunity that is, with those considered best-in-class for customer experience seeing 2-4x more growth and 30% higher profitability that their peers. If insurance businesses are still operating on dated legacy technology, however can they hope to be best-in-class?

But what is best-in-class? Simple: seamless omni-channel customer journeys. Yet according to McKinsey, as much as 30% of insurance customers remain dissatisfied with the digital channels available, leading to only 20% of customers considering it their top choice for interacting with insurers. Is this more a comment on a preference to human interaction, or more indicative of how unfit-for-purpose current digital channels are? The fact that 50% of insurance searches are performed on mobile (Invoca) and 62% are subsequently taken out online shows a clear disconnect between preference and reality.

But what of those in big-ticket, specialty lines? The same principles apply. Whether B2B or B2C, retail or wholesale, we continue to sell to human beings seeking frictionless, high-speed interactions. Processes must be slick and automated and data must flow smoothly across channels, in real-time, allowing optimum service to be delivered. We are pre-disposed to seek the path of least resistance and those insurers making themselves the easiest to trade with will undoubtedly lead the pack. And herein lies why the successful deployment of Blueprint Two across the London Market, remains such a hugely positive step forward for the industry.

Of course, if human interaction does in fact remain key, the insurance software of the future will need to reduce petty administration, automate mundane tasks and return humans to high-value customer interactions. After all, it’s no accident that phone calls convert 10-15x more revenue than web leads (BIA/Kelsey) and convert 30% faster (Forrester). Despite this, Talkdesk found that the average time on hold for insurance customers is 3 minutes 24 seconds. The insurer of the future will be leveraging automation, advanced data lakes and artificial intelligence seamlessly integrated with their core operating systems, to maximise these interactions.

How can we expect consumer duty and regulatory changes to affect technology?

The part we must never overlook is the changing regulatory landscape within the insurance industry, driven most recently by the introduction of consumer duty regulations. These adjustments aim to prioritise the interests of consumers, ensuring they are treated fairly and that the products offered truly meet their needs. As a result, insurance policy administration software of the future are expected to embody several key features to comply with these evolving standards.

The focus is on transparency and clarity, meaning that insurers will need to ensure that all communications, including policy details, terms, and conditions, are straightforward and understandable. This requirement will necessitate enhancements in policy administration software to facilitate clearer presentation of information, aiding consumers in making informed decisions.

Furthermore, the focus will shift towards improving customer outcomes. This will involve the implementation of sophisticated data analytics within policy administration software to actively monitor and enhance the value consumers derive from their insurance products, but also to accurately demonstrate equality of outcomes.

Again, adaptability will be key in ensuring insurance business can rapidly adjust their operations and offerings to remain compliant with new regulations, safeguarding consumer interests.

The inevitability of Artificial Intelligence’s impact upon software

In 2024, it seems almost unfathomable to talk about technology without waxing lyrical about artificial intelligence and the potential for disruption that it has upon the insurance industry.

Firstly, direct integration of AI into insurance software will dramatically enhance the efficiency of policy processing. By automating routine tasks such as data entry, verification, and policy issuance, AI will free up valuable time for insurance professionals to focus on more complex and strategic activities. This automation will not only speed up the policy administration process but also significantly reduce human errors, ensuring higher accuracy and reliability in policy documentation.

Secondly, AI will bring about unprecedented personalisation in policy administration. Leveraging predictive analytics and machine learning algorithms, AI can analyse vast amounts of data to find patterns and preferences unique to each customer. This deep insight allows insurers to tailor policies that meet individual needs precisely, offering a level of customisation that was previously unattainable. Such personalised policies not only enhance customer satisfaction but also improve risk assessment and pricing accuracy. Until now, the sheer breadth of possibilities here has made such advancements feel impossible. However, the rapid evolution of AI is suddenly making the impossible feel possible.

Similarly with fraud detection and prevention, AI will be a momentous change for policy administration. By analysing historical data and identifying discrepancies or anomalies in policy applications and claims, AI can flag potential frauds much earlier in the process. This initiative-taking approach to fraud management will save insurers substantial amounts in losses and contribute to a more secure insurance ecosystem.

Lastly, AI will facilitate better decision-making in policy administration software. With the ability to process and analyse data at an unprecedented scale, AI will provide insurers with actionable insights and forecasts. These insights will inform strategic decisions around policy offerings, risk management, and customer engagement, ensuring that insurers remain competitive in a rapidly evolving market.

Now the big question is, should AI be integrated or embedded/native within the policy administration software? My argument would be that you should hire experts to undertake such tasks and that the key here is the ability to integrate transformative tech, not to expect insurance software companies to suddenly begin building world class AI solutions.

The future is bright, the future is digital

The trajectory of policy administration software is undeniably geared towards a future where technology, particularly artificial intelligence (AI) and machine learning (ML), plays a vital role in reshaping operational efficiencies, customer engagement, and risk management. The narrative thus far underscores a pivotal shift from traditional, often cumbersome legacy systems to agile, interconnected platforms that not only streamline processes but also significantly enhance the value proposition offered to customers.

This transition towards digital excellence is not just about adopting modern technologies but about embedding a culture of innovation, customer-centricity, and foresight within the insurance sector. As AI and ML technologies become increasingly sophisticated, their integration into policy administration software promises a landscape where personalised customer experiences, predictive risk management, and operational agility are not merely aspirations but tangible realities.

The future of insurance policy administration software lies in creating ecosystems that are adaptable, secure, and designed to meet the evolving needs of both insurers and their customers. With the pressure of maintaining competitive operating ratios amidst rising claims and operational costs, insurers must leverage data analytics, embrace the potential of third-party data, and ensure robust data privacy and security measures. These strategies will not only safeguard against current challenges but also position insurers to proactively address future market dynamics.

The future is bright, but as insurers navigate this journey, the focus must remain on fostering connectivity, leveraging data analytics, ensuring data privacy and security, and placing the customer at the centre of their digital transformation strategies. The path forward is clear: Embrace the technological revolution, harness the power of AI and ML, and be ready for the tomorrow that you cannot yet see.

 

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