The digital reckoning within the insurance industry was already well underway before COVID-19 began spreading around the world. The billions invested in insurtech, as well as their success with first-time insurance customers, were solid indications of the direction the industry was heading, as was the significant insurance gap within the US market.
It was well known and understood that many insurers had lost touch with many of their potential consumers, and were decades behind the digital capabilities of similar financial services industries, like banking. However, it wasn’t until COVID-19 forced the global workforce into home offices and daily Zoom meetings that the true shortcomings of the insurance industry began to make themselves glaringly obvious.
Hello, it’s legacy systems, again
It’s never been more urgent for insurers to find ways to modernize the systems they rely on. One needs to look no further than the alarming performance of different state unemployment systems (some of which are built on tech dating back to the 50’s) to understand the danger and challenges of not improving outdated systems. Relying on these systems means that when the worst happens, like millions flooding your unemployment system at once, you are unable to provide the support and response that’s required in an emergency.
The remote working environment we currently find ourselves in means those insurers that depend on slow technologies, particularly those that aren’t cloud-based, are struggling to perform optimally in these new conditions.
Legacy tech also means insurance teams must operate unwieldy and manual systems in a situation that demands fast responses and solutions to new problems that are emerging every day. While customers are flocking to insurers for financial support and stability in a time of increasing uncertainty, many of those insurers don’t even offer online platforms through which to apply.
How COVID-19 exasperated existing problems within the insurance industry
While many insurers were already on the path towards at least partial digitalization, COVID-19 illustrated just how far behind they were in that process. Slow adoption of insurtech solutions and de-prioritized internal innovation have left many incumbent insurers struggling to play catch up while many industries begin accelerating their digital capabilities at a breakneck speed.
The disconnect between customers and insurers has been increasing for years, but the spread of COVID-19 brings the value and importance of insurance products into sharp relief. In fact, the pandemic has ushered in a dramatic increase in first time insurance purchasers for the first time in a long time - but they’re not all heading for incumbents.
Demonstrating the enormous demand for digital products and accessible platforms, many insurtechs around the world are experiencing a higher demand than they’ve ever seen before. Whether it’s life, health, or home, insurtechs are well positioned and prepared to deliver the digital insurance products and policies that new customers are hungry for - and many incumbent insurers are not.
This isn’t to say that incumbents aren’t experiencing application upticks of their own, because they are in some sectors. It’s also not to say that incumbent insurers aren’t providing valuable products and services for their customers during this time, because many are. But the enormous appeal of digital insurance products that many insurtechs were banking on has certainly been realized, and incumbents should be taking notes.
What change can we expect after COVID-19?
The number of unknowns in the global market and community right now make it difficult for anyone to realistically predict what will happen when the pandemic subsides. McKinsey reported that, one European survey, roughly 70 percent of executives from Austria, Germany, and Switzerland said the pandemic is likely to accelerate the pace of their digital transformation. Will this apply to insurers? One would assume so, but the rate of digital adoption and innovation in the insurance industry has been slow to catch on.
One thing we can confidently expect is the insurtechs that make it through to the other side of this pandemic are here to stay, and those technologies should be high on the list when incumbent insurers are considering their next innovation steps.
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