India’s insurance industry is characterized by a penetration rate of 3.69% of the total Gross Domestic Product (GDP). At 45% of total industrial output and 40% of the country’s total exports, SMBs are major drivers of India’s economic growth and constitute a large market for the insurance industry. Digitization in the insurance sector aims to spur enhanced penetration in an underserved SMBs market, through automation of processes for risk assessment, policy issuance, and claims processing. Such digitization facilitates transparency, increases customer engagement and helps manage costs for insurers.
Need for digitization
A typical insurance business model relies on multiple stakeholders. Insurance companies rely on agents or professional agent organizations to help engage SMBs and sell policies. Such agents work with multiple insurance providers to help determine the insurance needs specific to an SMB organization. The insurers work to assess the risk profile in the business with help from underwriters, using data that is generated by actuaries. They then provide quotes to the agents for the policy package offered, which the agent passes to the SMB organization.
The entire process of policy issuance goes through multiple channels of vetting and is, therefore, time and resource intensive. As such, it lacks efficiency and offers much scope for automation. Such automation as part of digitization efforts in the insurance workflow puts SMBs at the forefront of insurance processes. Digitization enables insurance companies to offer a combination of educational materials and policy packages to engage SMBs, help them meet government norms and ensure long-term financial protection from untoward events to their businesses.
Facets of digitization
Digitization in the insurance industry will ensure dynamic policy administration, customized policies specific to an SMB organization’s needs and end-to-end services by partnering with service providers. Some major facets of digitization in this context are outlined below.
- Digitization across distribution channels: In addition to building technology-enabled platforms for SMBs to leverage directly, insurance companies will benefit from tying up with alternate policy administration channels. For instance, insurers can leverage SMBs and its employee’s data from established digital channels of banking partners, in the bancassurance space. Further, the physical sales process driven by agent organizations can be replaced with the use of digitally enabled mobile platforms and applications, thereby allowing real-time demos and sales interactions with SMBs.
- Increased penetration: SMBs continue to be an underserved sector in terms of business insurance for the insurance industry. They have long looked at insurance as a bare minimum regulatory requirement. With increased digitization enabled improved distribution channels and integration with established ecosystems, SMBs can avail affordable and targeted insurance products driven by their specific business requirements. Digitization lends crucial transparency to a largely previously abstract process, allowing SMBs to invest in protecting their business in a cost-effective manner.
- Enabling a holistic ecosystem: Insurance providers need to develop their own equivalent of customer-specific needs related businesses. Such comprehensive ecosystems help meet different aspects of SMBs business needs and drive their engagement across policy terms. Digitization helps insurers design, build and deploy such ecosystems at SMBs. For instance, a health insurance ecosystem for SMB employees will involve services from wellness providers, onsite diagnostic and check-up centers, fitness centers, regular medical camps such as dental or yoga camps, and tie-ups with such ecosystem management companies. SMBs can enjoy a host of such benefits offered by insurer enabled ecosystems who also benefit from increased customer retention and high exit barriers.
- Process digitization: The first wave of insurance industry digitization involves automating established processes for policy sales, underwriting, claims processing and customer service. Such digitization helps standardize processes, thereby driving improved quality apart from enhanced productivity gains for SMBs and insurers alike. It also helps eliminate any errors from manual policy administration. The next phase of such process digitization involves adopting frameworks for digital document storage to eliminate paper intensive policy administration, enabling cashless payment infrastructure through digital wallet payments or UPI, and leveraging SMBs business specific data to recommend insurance products using AI enabled technology for tailored needs.
- Technology enabled transformation: Digitization in the insurance industry will be further spurred by Information Technology enabled technologies like Artificial Intelligence, Machine Learning, Big Data analytics to name a few. For instance, AI/ML based algorithms and engines can predict eligible insurance products from a range of clearly defined SMBs business use cases. This can greatly reduce the processing overhead of risk assessment (underwriting) and policy issuance. Such recommendations will be based on analytics from data and Big Data technologies can help identify valuable metadata or patterns to help make near accurate predictions which agents can consume for a final policy recommendation. SMBs data collection, semi-structured and unstructured, will form the basis of such systems.
- Ease of purchase: The government’s push towards a digital economy has ensured increased SMBs participation in the formal economy. Such increased participation leads to a greater role for bancassurance providers. Partnering with these providers, insurers can ensure ‘ease of purchase’ for their technology-enabled insurance products. Easy access to such insurance products ensures SMBs have simplified processes to deal with in availing insurance for their businesses.
- Characterized by always-on computing devices: The proliferation of always-on mobile devices has led to most SMBs conducting business on the go. As such, it becomes imperative for insurers to build applications for the mobile device and gain insights on SMBs business needs through consistent context-aware interaction. This helps insurers build models reflecting SMBs insurance buying behavior and sets up crucial data sets for leveraging AI/ML based technologies. Using such data, insurers can also build comprehensive digital ecosystems to create value-added services for enhanced SMBs experience and retention.
- Risk mitigation: Traditionally, insurance providers have focussed on assessing risks and financing them through calculated premiums. Digitization enables insurers to build platforms for monitoring factors and help reduce risks in the first place. Technology can help identify and collect real-time and always on data sets which can be used to identify macro trends to prevent or mitigate the impact of risks. For instance, SMBs employees health insurance products can also include larger wellness program benefits like monitoring real-time data using wearable technology and identifying risk factors.
Digitization in the insurance industry has helped usher in positive changes in policy administration and increased insurance penetration. The increasingly technology-enabled insurance industry is positioned to serve SMBs business needs in an efficient, nimble and cost-effective manner, thus increasing insurance footprint across businesses and ensuring long-term immunity to external non-controllable business disruption factors. SMBs too, stand to benefit from digitally enabled insurance providers by having increased ownership in the insurance administration process and greater transparency in underwriting and claims processing.
The formalization of the economy through government initiatives like demonetization and GST has also pushed digitization. Further, IRDA backed initiatives like dematerialization of policies augur well for further digitization of the insurance industry in the coming future.