Even before COVID-19 hit, the insurance industry had some major challenges to face. In fact, research from McKinsey highlighted the revenue of the world’s insurance companies declined by $300 billion between 2015 and 2018.
The pandemic has given the industry another headache, accelerating the shift towards a full digital economy, pushing even the most reluctant customers online and prompting unprecedented demand for digital services.
In response, insurance companies have spent billions digitalising their operations, but many are hampered because they’ve created their digital offerings with playbooks from the past. The pressure is on to accelerate their digital transformation programmes
in a post-digital world – a world where digital isn’t new to people and in itself is no longer a differentiator or competitive advantage for organisations. They need to take it even further.
Digital transformation 2.0
Insurance companies know this. According to a recent report from Accenture, 81% acknowledge that technology has become an inextricable part of the human experience. This is why they’re exploring the opportunities offered by embedded finance.
Having implemented remote working procedures to ensure business continuity during national lockdowns, leading insurers are looking beyond stabilising their businesses to strategic growth. They’re asking how they can scale the emergency digital programmes
they’ve implemented into sustainable transformation and are exploring how emerging technologies can meet people’s evolving needs.
Making a smooth transition to forward-looking digital business models and customer experiences isn’t possible without winning customers’, employees’ and intermediaries’ confidence that you’re using digital technology in a way that benefits them.
This is where embedded finance can be a real game changer for the insurance industry. Embedded finance is all about abstracting banking functionality into technology and enabling any brand or merchant to integrate financial services into their suite of product
and services via APIs. It allows any model or service provider to integrate revolutionary monetary companies into their customer experiences, quickly and at low price.
The main value of embedded finance in insurance is in prompting seamless, faster claims management and payment processes.
Claims management is the foundation of any insurance company, starting with claim registration and ending with a timely payment to the insured party. The right software reduces manual workflow, reducing costs via automation. It also benefits customers, taking
them less time to apply and smoothly proceed down the path of claim handling.
Embedded finance platforms can ensure that an insurer’s system accurately calculates coverage and payment for each claim according to set policies, processing that claim and sending them to a fraud detection module. Once the claims are approved, policy holders
can instantly receive their payments. It’s crucial that the policy management software is integrated in order to provide business users with instruments to manage reconciliations, customise business logic, and manage policy rights.
Ultimately, the end goal is to offer a better customer experience, deepening customer relationships and drive loyalty.
Leaders across the industry
There’s a number of industry players already harnessing this advanced technology. At Lemonade, for example, artificial intelligence (AI) is embedded and present in nearly every workflow. The company’s claims payment process was designed to play to the strengths
of AI and humans working together. Allianz and Microsoft, meanwhile, are working together not only to move Allianz’s global insurance platform to the Azure cloud, but also to develop Insurance-as-a-Service (IaaS) offerings for other insurance carriers.
We’re also seeing players from outside of insurance using embedded finance to get in on the game. Tesla, for example, now allows people to purchase insurance almost instantly at the point of purchasing a car. They are also trying to offer it at a better
price than from a third-party insurer.
With challenger brands using embedded finance to enter the market, and visionary incumbents using it to improve products and service the wider insurance industry now needs to follow suit.
Anyone unsure about the possibilities would do well to look at what’s happening in banking between older, incumbent banks and the neobanks. Younger and more tech-savvy people have naturally moved towards one of the more digital neobanks in recent years,
abandoning the old-school players.
All insurers, regardless of their shape or size, now need to start thinking carefully about their digital evolution or risk falling behind the first-movers.