As the second half of 2024 unfolds, the insurance sector finds itself in the midst of a profound shift. How profound? According to at least one industry insider, the digital transformation of the insurance business is happening on the scale that swept through retail in the late 1990s and the video industry with the advent of Netflix.
This digital revolution is primarily driven by changing demographics and consumer expectations. As One Inc CEO Ian Drysdale told Karen Webster for the latest installment of the “What’s Next In Payments” series, while baby boomers retire and millennials become the largest segment of society, insurance companies are grappling with how to serve a new generation of customers who expect seamless digital experiences.
“We’re seeing the digitalization of insurance with a Gen Z and millennial focus. Everything being online — not only premiums, which might be a little bit more obvious, but also claims where we can close a claim completely over text message,” Drysdale said.
One Inc helps carriers transform their operations through reducing costs, increasing security and optimizing customer experience by digitizing their processes, payments and disbursements. The push toward digitization isn’t merely about meeting consumer preferences; it’s also a response to economic pressures. Drysdale said that the insurance industry is grappling with inflation rates far exceeding the general economy, with costs rising between 20% to 30% in some areas.
“A lot of insurers are losing a lot of money because they’re paying out more in claims than they’re getting in premiums,” Drysdale said. “As a result, they’re under huge economic pressure and are looking for efficiencies.”
These efficiencies are being found in the digitization of payments and claims processes. Drysdale cited examples of significant cost savings achieved through digital transformation.
“Working with one of the largest life insurers that we all know really well, they saw reduced administrative costs by 20%,” he said. “We’re talking to insurers who, with our ClaimsPay solution, are saving $5, $10, $20 million a year because they’re not killing trees, sending out envelopes with checks that get lost or can be defrauded.”
The scale of potential savings is immense. According to Drysdale, some in the industry believe there are between $250 and $500 billion in checks still being written in the insurance industry.
Instant Payments: The New Frontier
One of the most significant shifts in the industry is the move toward instant payments. Drysdale explained that insurers are embracing technologies like RTP, FedNow and push-to-debit to provide immediate payouts to policyholders.
“They are looking for anything that allows them to pay you at the moment of truth, which is when you’re on with a claims adjuster, you’re in trouble,” Drysdale said. “Maybe it’s after a storm or after an accident. They’re like, ‘Can we send you $5,000 right now?’ And your phone buzzes with the deposit before you’re even off the phone with that insurance company.”
This shift toward real-time, app-based interactions is not only improving customer satisfaction but also driving business results. Drysdale reported, “We’re seeing 25% increased retention rates from insurers that are digitally interacting with customers. We’re seeing Net Promoter Scores jump by 10 points, and customer satisfaction scores go up by 18% because of a fully-digital world.”
The Role of AI in Reshaping Insurance
Artificial intelligence, particularly generative AI, is set to play a crucial role in the future of insurance. Drysdale predicts that AI will be used to personalize premiums and assess risk at an individual level.
“You can bet any amount of money that over time the internet will be searched to see if you like to jump out of planes, or if you do what I did years ago and you go backcountry skiing or heli-skiing … anything that you do is ultimately going to get priced into your insurance policy,” Drysdale said.
However, he also sees potential benefits for policyholders: “There will be a lot of costs taken out of the insurance industry because the gen AI will be processing all of the different information. And it will be coming up with a fair rate without humans being involved.”
Looking Ahead
As the industry moves towards the halfway point of the decade, Drysdale sees a clear direction for the future of insurance. “We’re seeing a real shift toward app-based, real-time, less paperwork, kind of embracing a future of immediate results and immediate benefit in insurance and getting away from the olden days of waiting weeks and weeks and weeks for everything regarding insurance,” he said.
This shift is not just about technology, but about survival in a changing market. As Drysdale puts it, “The survivors are going to be with that up-to-date culture and get away from the insurance of old.”
As these technologies continue to evolve and mature, Drysdale expects them to deliver not only cost savings and efficiencies for insurers but also improved experiences and fairer pricing for policyholders. The challenge for industry players, he said, will be to navigate this digital revolution while maintaining the trust and security that are fundamental to the customer experience.
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