Ever since the pandemic, insurers globally realized the need for change in their operating models. The sudden changes in economic activities and priorities also marked a shift in the demand for insurance products. For instance, healthcare insurance demand has consistently grown while several insurance products have declined. These market changes are echoing through to 2023 as well.
Similarly, many other factors have come into play, forcing insurers to evolve their technology, operating models, products, and financial structures to suit their needs. The changes mainly aim to increase operational efficiency by restructuring processes and spending. Other objectives include improving customer satisfaction and loyalty, expanding revenue streams, and developing adaptability to changing requirements.
Here are the most important challenges of 2023 insurers faced that affect their operating strategies.
Inflation, Increasing Interest Rates, and Rising Costs
With a global recession looming in and an increase in interest rates, operating costs for insurers are increasing consistently. This directly affects their spending on labor, technology, and other recurring expenses. An increase in borrowing costs brings challenges to financial and liquidity management.
The slower and cautious market also translates directly into lower demand for non-life insurance, where corporate customers form a significant source of revenue. Inflation has also increased risks for P&C insurance due to rising material and replacement costs. Insurance is also subject to extensive manual work for claims, settlements, and indemnity, another area of rising expenses.
Insurers need to look into efficiency-driven operational strategies and projects. SLK’s automation and Center of Excellence across distribution, underwriting, pricing, claims management, billing and accounts, and reinsurance can help insurers achieve much higher efficiency and predictable spend. AI/ML technologies used for intelligent automation can also aid in cost and labor optimization in multiple areas with data-driven strategies across life and annuities, health, property, and casualty. Overall, insurers must offset expenses with cost-saving technological and operational improvements for the long run.
Changes in Consumer Demands
The expectation for a robust online presence and seamless digital interactions has multiplied since the start of the pandemic. Consumers have also become more aware of the options and insurance products, with an increasing preference for customized offerings. The rise of InsureTech and financial services distributors has also changed the market dynamics.
Demand for better experiences, support, and services has also put pressure on insurers to mature digitally and quickly. Insurers also face similar challenges with changes in demand and fulfillment. All these obstacles inflate further for insurers operating globally.
Modern cloud technologies are unavoidable for insurers for seamless digital operations and enable greater speed by migrating legacy mainframe applications to the cloud. You can modernize for the future with SLK’s infrastructure upgrades, legacy integration and maintenance services for applications, QA, code for underwriting rules as well as deployment.
Low-code and no-code platforms have also become a lucrative tool for insurers to develop and deploy products quickly to the market. Open API connectivity is another area where insurers need to mature quickly and leverage financial services distributors. Insurers can also look into CPQ (configure, price, quote) tools and AI analytics to provide custom and personalized offerings.
Compliance and Cybersecurity Risks
Regulatory compliance requirements are changing around the globe and have become a challenge for insurers. With the increasing amount of data gathered by insurance businesses, the cost of security and risk mitigation increases too. ESG norms are also tightening, which only increases compliance risks for insurers.
Cybersecurity risks also come from corporate insurance, where the attacks translate to claims. Ransomware attacks have also increased on BFSI databases for their inherent value and legal disruptions to organizations.
While tight cybersecurity is essential for insurers, monitoring, and real-time alerting tools have become inseparable from SecOps. SLK also provides a transformation-led Center of Excellence for insurance providers, covering the entire business portfolio, including distribution, claims, and new business and policy administration. It can address database security, API security, monitoring and governance, and identity & access management (IAM) needs for compliance and security operations.
By allocating enough resources and using an objective-driven strategy, almost all of the problems mentioned above can be managed. However, one of the most critical resources, labor, has been falling short of the demand. Since most organizations still operate their legacy infrastructure, the skill requirements are much more broad and complex for most insurers today.
Many insurers are also leaning more and more toward managed services models. The labor shortage has slowed down digital transformation projects significantly for most insurers. Skill gaps also limit insurance businesses’ response to changing markets and demands.
The solution to skill problems is a multi-level approach to address key gaps in the workforce. Firstly, hiring managed services and technology providers can help accelerate projects and offset hasty hiring needs. We have dedicated teams of domain consultants with techno-functional expertise and a thorough understanding of global insurance markets. Our top-of-the-line skills in product integration offset your skill gaps without compromising standards and quality in operations and delivery.
Secondly, reducing skill dependencies in the long run through automation, codeless development, and skill development programs. Our AI/ML capabilities, Salesforce methodologies, and product evaluation and fitment analysis ensure custom automation solutions in testing, operations, and delivery for every business environment.
Insurance is facing various risks and challenges in 2023. Problems related to the economic environment and inflation are highly unpredictable and need long-term strategic solutions to mitigate. Skills shortage can be mitigated in the short run and even the long term through partners and vendors. All other challenges are also ongoing concerns but are manageable with proper solutions in place.
Technology may be at the heart of these solutions, but changes in people and management are essential to operate efficiently. Customer-centric solutions also need to be prioritized due to the changing demand and increasing competition. The insurance sector is already going through a digital transformation journey; insurers only need the right strategy!