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White Paper Digital Disruption of the Insurance Industry1
Digital Disruption of the Insurance Industry New technologies have the potential to destroy some companies — and propel others to new levels of success
WHITE PAPER
White Paper Digital Disruption of the Insurance Industry2
Digital Disruption of the Insurance IndustryEyes on the Horizon: Insurers Prepare for Disruption
With modest premium growth predicted for the near term,
insurance companies have every reason to keep their costs as
low as possible — yet Celent estimates that, globally, insurance
IT spending will grow to US$184.9 billion in 2016, with continued
growth to US$208.1 in 2018 — a CAGR of 6.1%.”.1 Why are
insurance companies spending more money on IT infrastructure
when they could be increasing their profitability instead?
Deep in the DNA of every insurance company is the habit of
keeping an eye on the horizon, preparing for coming storms. The
digitizing of the industry is well underway and promises to bring
fresh waves of disruption. Already, digitization has transformed
customer expectations. It’s lowering the bar for new players to enter
the market and undercutting pricing models of more established
businesses that carry bricks-and-mortar overhead. And more change
is coming: competitors are launching new products and services,
and InsurTech could upend traditional business models.
Insurers recognize that in order to turn disruption into
transformation, they must invest in technology to digitize
processes, meet consumer-centric demands, and manage
and understand data. The investment is simply overdue: many
insurance entities are running on 40-year old technology,
according to a recent TrustMarque report.2
These legacy systems can’t support the 24/7 service, user-
friendly mobile experiences, electronic bill-pay, and seamless
and efficient claims processing that today’s customers expect.
Instead, these siloed systems and disconnected processes
frustrate clients and agents, who are trying to keep customers
happy, win a larger share of customers’ business, and bring in
new customers.
Disruption brings a huge potential upside for insurers: an
opportunity to use new technologies to modernize, innovate,
differentiate, and become more competitive. According to Harvard
Business Review (HBR), “a thoughtful digitization program can
deliver up to 65 percent in cost reduction, a 90 percent reduction
in turnaround time on key insurance processes, and improve
conversion rates by more than 20 percent.”3
Deloitte is equally enthusiastic. In a recent report, it cites
“opportunities for nimble companies to develop products for
such emerging markets as usage-based insurance for vehicles,
homes, and business coverages while expanding cyber
insurance sales and cyber risk management services….insurers
can leverage telematics and IoT technology to make their life
products more relevant to buyers with healthy living incentives,
investment tips, and dynamic pricing.”4
“ Carriers will need to constantly innovate and experiment as they adapt to the accelerating evolution of technology and consumer expectations, reinventing their products, systems, and business models accordingly…. insurers may not have much time in many cases to transform their operations, policies, and personnel in response to an emerging strategic threat or opportunity.”1
White Paper Digital Disruption of the Insurance Industry3
The HBR article goes on to explain that these benefits come
from three types of initiatives:
• Mining the digital data consumers leave behind on the
internet and on driving apps and wearables, which helps
carriers target customers and price policies more accurately
• Boosting efficiency and margins by digitizing existing
insurance processes (allowing straight through processing,
for example, and rapid product configuration)
• Increasing digital marketing to better connect with and
retain existing customers, as well as to upsell and cross sell
to bring in new revenue.5
To achieve these results carriers must embrace digitization/
omni-channel support, real-time analytics and Big Data, and the
Internet of Things. They’ve got to ensure security every step of
the way. And, they also need cost-effective IT solutions so they
can respond rapidly to the market. For all these reasons, they’re
considering hybrid IT for its cost-effectiveness and flexibility.
Boost Efficiency with Digitization and Omni-Channel Support
Digitization and support of multiple channels drives productivity gains and creates new opportunities to improve sales and service.
EfficiencyMany insurers are still using processes that require several
paper-based steps, which cost more and take longer than digital
processing. However, the industry as a whole recognizes the
value of “straight through processing” (STP), in which companies
capture data and documents electronically at the start and then
use those same electronic files throughout the process, as the
policy passes from broker to insurer, insurer to reinsurance
broker, then from reinsurance broker to reinsurer.
According to Celent, STP continues to be a significant driver of IT
spending, especially for new business. “Automated underwriting
tools along with electronic applications, electronic signatures,
and electronic policy delivery are seeing upticks in adoption in
both property/casualty and life,” says the report. “Concerns over
risk and business model changes that kept many carriers on the
sidelines are not gone, but the understanding is that STP, when
used appropriately, has benefits that more than offset the risks.”6
Sales and ServiceCompanies that have launched direct online sales models have
found them to be more cost effective than more conventional
sales efforts. Even when companies offer a discount for policies
that originate online, they can undercut the cost of traditional
agent-based sales. But to make online sales possible, insurers
need a seamless service model across multiple technologies,
including web, mobile, point-of-sale devices, social media, chat,
agent portals, and call centers.
Once the sale is made, customers expect round-the-clock service
and a seamless view across all their policies. Most backend
systems don’t support a client-centered view; they were designed
just to help insurers manage policies. Digitization can support
increased levels of service by providing integration of backend
systems into a single user-friendly view of customer information.
“ Celent sees many insurers tackling their problems by investing in technology solutions that improve front end sales, distribution and customer service, and increased back end operational efficiency and expense management.”1
White Paper Digital Disruption of the Insurance Industry4
Mobile Channels and Multiple DevicesWith the lines blurring between phones, tablets, and computers,
customers and agents require access to insurance policies and
applications across their devices. This is particularly important for
sales and service: consumers use tablets and computers to research
their insurance options and also want to be able to file claims or
update policies from whatever device they’re using at the moment.
Mobile capabilities are convenient for customers and deliver
back-end productivity gains, too. The HBR report gives the
example of “apps that allow people who’ve been in an accident
to file claims via their phones directly from the scene of the
accident, often eliminating the need for an appraiser.”7
Gain Insight with Big Data and Analytics
According to Celent, North American insurers are increasingly
undertaking Big Data and analytics projects, such as predictive
analytics and fraud detection systems. Insurers now have
access to a wealth of data from the marketplace and from their
own systems, and with analytics tools, this can disrupt the way
insurers have worked in the past, changing everything from the
segmentation and targeting of sales efforts, to the risk evaluation
and pricing of policies, and the way insurers evaluate claims.
At the leading edge of digitization, insurers are already using data
from their customers’ interactions to gain insights into providing a
better customer experience. Some have also started mining data
from consumers’ social media and online searches to learn about
life events — job changes, moves, marriage, or babies — that might
create opportunities to sell new policies to existing policyholders.
For existing and new customers, digital data is helping insurers
to decide whom to target and how to price a policy more
accurately.8 Analytics capabilities are supporting a shift from
products based on actuarial tables to ones that use behavioral
models to segment customers' categories, price policies, and
manage risks. Insurers can parse real-time data from sensors
and telematic streams to analyze behavior and calculate driving
scores, so they can better predict risks and therefore enter
new markets and offer more price competitive policies without
increasing their risk. For example, with usage-based insurance
(UBI), insurers no longer price auto policies based on the number
of miles a driver logs per year, but instead use continuous driver
monitoring and analysis to price coverage based on how safely
they drive. Driving sensors can also embed loss prevention
incentives, education and early warning support — and can
provide data that flags fraudulent claims9. Other examples of
using behavior to price policies include reducing life insurance
premiums based on lifestyle and health monitors.
Sophisticated risk assessments enable insurers to offer policies
that are customized to the individual, so they can profitably serve
more markets and manage a more complex set of policy sales
and liabilities. But before investing in analytics capabilities, firms
must establish a strong underlying data structure, with excellent
data governance to ensure the quality and accessibility of their
data assets. In addition, insurers need the computing power to
manipulate the data in real time. Once they’ve built a foundation
for data capture, storage and processing, firms can focus on
creating the analytical abilities — software tools and machine
learning algorithms — that they need to turn those vast amounts
of data into useful information.
White Paper Digital Disruption of the Insurance Industry5
Tap in to New Sources of Information with the Internet of Things (IoT)
The vast amount of data flowing from the Internet of Things (IoT)
is augmenting internet data to create even greater data sets that
fuel insurers’ analytics, support their decision-making, and enable
entirely new, behavior-based policy types and even “self-healing”
claims filing.
Real-time sensors, for example, offer granular data that can be
transformed into highly accurate risk assessments. For example,
a few insurers are already using data from fitness monitors
to offer favorable rates to customers who exercise regularly10.
Insurers could also gain insight into risks and damage from
sensors that measure water levels, detect contents spoilage in
cargo transport, and identify building foundation cracks.
Soon insurers might be able to offer “self-healing” claims — for
example, the first notice of loss could be from a sensor in the car
bumper, followed by an auto-generated repair estimate and a digital
payout. Drones, robots, and autonomous vehicles could reduce
the need for on-site adjusters and investigators, while improving
underwriting and pricing accuracy and lowering claims frequency.
While data from the IoT has a lot of promise, it also brings
significant challenges. In order to analyze the data accurately,
securely, and rapidly, companies need a comprehensive IT
solution to collect, aggregate, normalize, integrate, store,
manipulate, and analyze these huge and ever-growing data sets.
But it’s not going to be easy to build a global scalable network
along with a big data architecture, large amounts of storage, and
compute resources. According to IDC, with 21 billion devices
gathering and sending data, carriers will need IT partners to
manage their portion of the estimated 50 trillion gigabytes that
will be produced by IoT in 2020 (IDC Research Firm).
Dare to Connect: First, Ensure Excellent Security
New levels of connectedness are possible, but while greater
connectedness brings new capabilities, it also creates new
vulnerabilities.
This isn’t just a problem due to vulnerabilities of some IOT
devices. The challenge is bigger than that: mobile devices and
third-party points of access have expanded the overall threat
surface. Every point of connectivity to agents, the internet,
distribution partners, and the firm’s global backbone may be
vulnerable. And many firms have several network providers,
which makes it harder to manage security and quality of service.
In this heavily regulated industry, insurers are rightly concerned
about the security of their data and processes. They must protect
the customer, credit rating, transactional history, and policy
details. Insurers can’t afford to be hacked and lose crucial policy,
pricing, or private client data. When integrating new technologies
with legacy environments, insurers need to safeguard PCI
compliance and use certified resources, which can be hard to
find. Many companies don’t have in-house the highly specialized
skills they now need.
Transform your Entire Organization with Help from Hybrid IT
To leverage the Big Data and machine learning technologies that
enable dramatic improvements in risk analysis, fraud detection,
client segmentation, and behavior-based product innovation,
insurers will need to increase their compute, storage, network,
and specialist resources. Most can’t afford to build a huge and
expensive IT infrastructure inhouse.
A hybrid IT infrastructure is a cost-effective option, a model
that supports the new capabilities insurers want, while still
supporting their existing systems and investments to “keep the
lights on.” Insurers need to make sure that these sometimes-
fragile older systems continue to run efficiently, to deliver
maximum value over the life of the investment and avoid the
disruption of a complete cut-over to new systems. A hybrid IT
solution should encompass:
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1 Celent, IT Spending in Insurance: a Global Perspective, 20162 Insly, 2 Technology Trends for the Insurance Industry in 2017, www.insly.com/en/blog/3-technology-trends-for-the-insurance-industry-in-2017/3 Harvard Business Review, Insurance Companies’ Untapped Digital Opportunity, 2014, https://hbr.org/2014/03/insurance-companies-untapped-digital-opportunity4 Deloitte, Insurance Outlook 2017, https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-industry-outlook.html5 HBR6 Celent7 HBR8 HBR9 HBR10 Celent
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About CenturyLink Business
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of America’s largest corporations. CenturyLink Business delivers
innovative private and public networking and managed services for
global businesses on virtual, dedicated and colocation platforms. It
is a global leader in data and voice networks, cloud infrastructure
and hosted IT solutions for enterprise business customers.
• Access to cloud-based resources to support the compute-
intensive variable loads involved in Big Data analysis
• A strong underlying data structure, with data governance
processes and real-time access to big data sets
• An agile and secure enterprise network fabric that spans
both physical and virtual instances
• A flexible, scalable IT platform across the organization
• Both in-house and outsourced staff: the first for managing
legacy systems and strategizing; the second for supporting
cloud-based applications, storage, and processes, as well
as offering specialist expertise in areas such as the IoT,
analytics, and security.
Profit from Disruption — with Help from CenturyLink
To take full advantage of the digital disruption that is sweeping through the insurance industry, companies need to align their IT
resources to support their transformation into highly automated, data science-driven businesses. This is new territory for many, and
insurance companies will benefit from engaging with experienced IT partners to use a hybrid IT approach, combining virtual and physical
resources to support the legacy business, run day-to-day operations, and evolve toward a modern data science-driven infrastructure.
CenturyLink’s broad portfolio of IT services make it easier for insurers to transform their businesses, helping to shift resources
toward emerging areas while optimizing cost efficiencies with legacy and day-to-day operations. CenturyLink helps insurers to create
their own unique hybrid IT solution with deep expertise across data, networks, infrastructure, and security, including:
• Deep data science and big data expertise with Cognilytics
• Day-to-day cost efficiencies with the automation of IT
services, ‘government grade’ cyber-security programs and a
broad global network
• Infrastructure-as-a-Service platform to move seamlessly
across co-located, hosted, and cloud environments
• Enterprise-dedicated professional services group.
“ Insurance organizations that are flexible, agile and
can offer advanced technology to create the kind
of business processes that today’s clients demand
are the ones that pose a threat to the traditional,
perhaps even larger insurance organizations.”1
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