Digital Transformation – Risk in Insurance Sector

31-12-2019

Digital Technology made its way in middle of 20th century. It was based & developed on binary system of calculation. This gave rise to the high degree of computation capability & coupled with the latest technological advancement in chip making, it revolutionized the computing. Made it way in tele-communication domain in mid 80s & started disrupting the satellite & mobile communication in mid 90s. Today thanks to this digital technology,  world is well connected & communicating at ease. This higher computation & communication facility have transformed the way businesses are being conducted & have given rise to the era of digital transformation.

Digital Transformation in Insurance Sector

When we talk of digital environment , it is not about only the technology but in fact an intersection of the latest technology, the enhanced capabilities because of the technology  & also the inter-connectivity of the different stakeholders- more important the customers.  For example the high computation technology has given us the power of doing much better data crunching/analysis of the customer behaviour & then the same can be utilized to reach to the specific target audience using email & social media platforms.

Digital intervention has brought immense transformation in insurance sector. It is changing the way customers are being engaged. Social media, chatbot, direct interaction is now in-thing. The old/tested agency channel is at risk now. Dis-intermediation is a reality & customers have started getting the insurance policies directly through online platforms. The management & flow of data is also getting changed. Scanning, imaging & even blockchain set up is being use extensively now. The minor motor claims are getting settled on the basis of video footage shared by customer. The UW/Claim section is now experimenting with new findings & improving the process & TAT.

If we minutely see, digital intervention is working on two broad fronts. First as a growth drivers in front end sales/marketing activities & second in improving the operational efficiency.

So if all is well then where is the risk?

Perhaps, the biggest risk is coming from the strategic & management perspective. Like binary system, organizations have just two options – either to opt for digital intervention & survive or risk their survival. A delay in taking a call would make the life difficult. The changing work culture & adopting a new model is another risk which management across all geography are finding it difficult. Innovation, entrepreneurship & agility i.e. capacity of taking risk at quick succession is the need of the hour. It requires not only an investment in technology & manpower but persistent effort in bringing cultural change.

The technological changes are happening at exponential pace while we human can improve our skill set at arithmetic pace only. Technical complexity is outstripping the competency of the exiting manpower. Legacy IT system is also an issue with old insurance companies.

Protection of data & related regulatory compliance is posing a new threat to this well connected digital model. Compliance with GDPR & similar regulation across globe is not easy. It requires even setting up of hierarchy within the organization structure to take care of data security. The reputation – perhaps the biggest asset of the insurance companies is at stake should there be a case of data theft / leakage.  

Risk is also coming from the mal-functioning of the algorithms while attending the assigned task. The manual intervention & checks are getting reduced & this is indeed a challenge. 

The incidence of cyber break fraud is increasing at a rapid pace. There is a growing need of having strong & robust defensive system in place. It requires constant up gradation of the technology & skill set. In case of cyber disruption the capability of bringing the operation back on track is a must. The old & tested steps of prepare – detect – prevent – respond – recover cycle is still a reality but it has to be made more strong & effective. 

In summary, the digital environment is a reality & all the organizations have to change themselves to adopt it. It is indeed a rapidly evolving environment linked directly with technological changes. Associated risk is also a reality & the only solution is to be aware & active in terms of preparedness & response.

 

 

Prof. Manoj Kumar Pandey
Chairperson – Centre for Corporate Communication & Associate Professor – Insurance & Marketing, BIMTECH

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