The UK insurance market needs to adopt digitization faster – or risk losing out to new, more automated players, according to a new study by LexisNexis Risk Solutions.
In a recent white paper, ‘Defining your digital strategy in a disruptive world‘, the data analytics, risk and insurance services arm of the company has released the findings of a survey of 107 insurance professionals who spend their time pricing and underwriting policies.
The study canvassed the views of individuals working across different lines of insurance (including personal motor and home), asking them whether they think digitizing processes will create better business opportunities and how prepared their organization is to deal with new technology.
The survey finds that just four percent of personal lines insurers claim to be completely or almost completely digitized. This number stands in stark contrast to the 92 percent of respondents who recognize that digitization has allowed new types of insurance to emerge and disrupt the market.
Stuck in manual mode
LexisNexis says in its report that, with the growth of UK insurtech start-ups, traditional insurers must integrate digitized and more efficient underwriting capabilities into their overall strategy or risk missing out on new customers.
Currently, 31 percent of motor insurers use mostly manual processes for quoting, applications and claims, which, LexisNexis suggests, means they are missing out on efficiency gains and the potential for improved pricing accuracy through automation. The home insurance market does marginally better, with just 25 percent of insurers using mostly manual processes, as opposed to a mix of manual and digital or all digital.
Across the various aspects of the underwriting process, the application process is the most digitized element, while quoting is the least digitized. For example, 73 percent of motor insurers and 81 percent of home insurers said their application process was digitized.
However, when asked which parts of the insurance process they were focusing on digitising further, applications were still the most commonly cited area at 65 percent, despite being the least manual aspect of the insurance process. Just over half (51 percent) plan to digitize quoting further, but only 44 percent are interested in improving digitization in underwriting, despite 28 percent claiming that their underwriting processes are mostly or all manual at present.
Opportunities versus challenges
Selim Cavanagh, vice president of insurance in the UK at LexisNexis Risk Solutions said: “While less than half of the insurers surveyed (44 percent) are currently interested in improving digitization in underwriting specifically, overall insurers see digitization as offering big advantages, with improved speed to market for new products the top benefit for 78 percent of respondents. Furthermore 66 percent see digitization leading to better customer retention rates, operational savings, an enhanced customer experience and access to new markets. Policy history data at point of quote is a good example of this with 64 percent of insurers seeing this as in important way to improve the customer journey.”
With the advent of smartphones, connected cars, and smart homes, there is a tremendous amount of opportunity for insurers, but also a significant element of risk. Nearly 43 percent of respondents feel data protection and security are a top concern, followed by ease of customers switching to other insurers, and dealing with social media complaints.
Cyber risk and payment fraud follow closely behind at 37 percent and 36 percent. Nevertheless, 91 percent of insurers have a moderate level of confidence that they have the ability to compete against new rivals in the insurtech space.
“The General Data Protection Regulation (GDPR) is going to be a key focus over the coming year and insurers are still encountering the switching behavior of customers in a digital world that makes competition even greater,” said Cavanagh.
“In the last few years alone, it’s clear just how much digitization is helping make life easier for insurance professionals: fewer time-consuming manual tasks, lower operational costs, less chance for human error and improved pricing accuracy, to name a few of its benefits. And the results of the study confirm the prevailing attitude, with most insurers agreeing that they feel increasingly positive about digitization. It will help them become slicker at making underwriting decisions leveraging data at point of quote, smarter at understanding their customers and easier to do business with,” Cavanagh concluded.