Fit for the future: adapting to an evolving insurance landscape

When working with clients on strategy, it’s our job to help them plan for upcoming changes in the insurance landscape. Anyone following insurance news right now, however, may feel confused about what the future looks like. While there’s a lot of discussion about transformation and potential, there are also many challenges.

Five pressure areas for insurers

Although it feels like the insurance industry should be evolving faster, the reality is that most insurers are facing a shifting business and technology landscape, along with more fundamental near-term pressures from five core areas: costs, clients, competitiveness, capabilities, and compliance.

1. Costs: Margin pressures are hampering insurers’ cost base, particularly as claims inflation impacts the bottom line. At the same time, insurers are still dealing with the cost of modernizing and running legacy processes and systems. Improving operational efficiency continues to be difficult and expensive.
2. Clients: Insurance customer service expectations have risen in response to other industries leading the way in responding to customer needs. While some improvements have been made in insurance, many insurers continue to rely on overlaying legacy processes with digital veneers, which are often hampered by a lack of access to consistent data.
3. Competitiveness: Insurers seek competitive advantage through data to create personalized experiences and products. However, most insurers I speak with are facing data challenges. Data silos, islands, and swamps make it difficult to deliver even a basic single view of a customer and the opportunity of using external data from third parties or Internet of Things (IoT) solutions remains untapped. The complexity and volume of valuable data to be consumed is only going to increase.
4. Capabilities: Our Voice of Our Clients research reveals that improving business capabilities by attracting new talent is an ongoing priority for insurers. The return-to-office and hybrid work debate heightens the challenge of attracting and retaining skilled talent. Providing the right balance requires a modern working environment and flexible tools. Unwieldy systems and processes historically based on paper trails are a barrier to attracting and retaining new talent.
5. Compliance: Finally, compliance isn’t going away. Resilience is a concern for the regulators, especially as insurers increasingly rely on third-party services. There’s an opportunity to use intelligent processing to make compliance an invisible part of processes and reduce its impact on employees.

Value at the intersection: three disruptor technologies driving change

While these business change drivers are a focus, insurers planning their strategy can’t ignore the impact of three broad technologies on the pace of change, including data, artificial intelligence (AI), and platforms.

Data: While data has always been key to the insurance market, the sheer quantity and velocity of data available is greater than ever before. New sources of real-time data through connected assets and smart things (buildings, machines, vehicles, people) can feed insurers pricing and risk analysis. But these sources are valuable only if they can consume and process the data and turn it into actionable insights. The new capabilities that large language models (LLMs) offer enable unstructured data to become a more accessible source of insights.

AI: Although CGI has been leveraging AI in practical use cases for 20 years, it’s generative AI (GenAI) that has positioned AI as a tool with disruptive potential. The seemingly exponential increase in GenAI capabilities makes it a key consideration for any strategy, but it needs to be coupled with deep thinking on how to use it, along with good quality data to deliver on its promise. The ability to understand unstructured or visual data offers an opportunity for insurers to adapt their operating models and services. (For more on this topic, I invite you to check out my colleague Diane Gutiw’s blog, Guardrails for data protection in the age of GenAI.)

Platforms: The final disruptive technology force is access to cloud platforms and solutions. For business leaders, the key consideration is how this technology lowers the barrier to entry for smaller players or specialists. In the past, the high capital expenditure required to access a platform was a barrier to entering the market. Today, new entrants can compete on a more level technology playing field, which reduces the protection large established insurers had in the past. For established insurers, easier access to cloud technology means they can innovate and learn fast without digging deeply into pockets already stretched by supporting legacy systems.

Insurers that look across the intersection of these core technology trends can challenge traditional business models and processes. The diagram below shows some examples of the shifts possible if we strategically think beyond automating what we currently do.

The key to successful transformation: think beyond automation

Anyone following recent news can be forgiven for thinking that GenAI will single-handedly and completely change the insurance landscape. The capabilities of OpenAI’s ChatGPT and Microsoft’s Copilot are examples of potential game-changing intelligent automation applications that insurers can't ignore.

At CGI, our view is that GenAI on its own will not solve all challenges faced by the insurance industry. It’s a common failure of strategy to focus on a single technology solution, rather than extending your thinking to consider the intersection of different technologies. Uber succeeded, not by leveraging a new technology, but by bringing several existing technologies together in a smarter way to challenge an existing business model. Similarly, Henry Ford transformed car manufacturing, not through the application of a new technology, but by reorganizing the blocks of an inefficient process to radically improve efficiency.

To successfully evolve the insurance industry, we need to reduce the immediate burden of current operating models, while also thinking beyond using technology to simply automate what we do today. We need to think deeply about how to adapt current operating models and products to take advantage of the technology intersection.

In my next blog, I’ll discuss why digital transformation is challenging and why we need to keep our processes human. I’ll also introduce a framework that covers six key strategic focus areas that enable insurers to succeed in making the insurance industry “fit for the future.”

Contact me to discuss how we can help your organization successfully navigate the changing insurance landscape and your digital transformation.