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Automate Everything! A Guide to Insurance Industry Automation

By: Ronny Reppe, 17. July 2021

Insurers are notorious for their outdated work processes. Where other industries have improved and refined their processes to the point of extreme efficiency, the insurance industry is lagging behind with inadequate operations. To overcome this, several insurers are turning to automation to reduce costs and improve efficiency. But are they doing it right?

I recently went to London to observe how insurance firms in the London insurance market work. What I learned, stunned me. At one larger insurance broker firm, for instance, the tools the employees rely on in their day-to-day work processes are outright ancient. For one, they do not work in a proper IT system – at best, they use Excel and Word – and most still use pen, paper and pistons. Furthermore, after the broker has performed his or her tasks, the information the customer provided and the broker initially registered, is punched over and over again in various systems throughout the value chain by other employees.

This is extremely inefficient, as the process of executing and finishing the process may take up to one or two months. In an era where tech-savvy start-ups are utilising technology to reduce the time to get insured down to 90 seconds – as the InsurTech Lemonade has done – this is a significant challenge.

To combat this, several insurers are turning to robotics to automate their work processes and improve their efficiency. However, when it comes to improving complex core processes and system architecture robotics might introduce unnecessary additional complexity and risks in a fragile system. Although robotics undoubtedly has come to stay, there are indeed more efficient measures you can perform when automating your core processes.

INSURANCE AUTOMATION: IMPROVING BACK-OFFICE OPERATIONS

The example mentioned above is not unique. Most insurance agents and brokers regularly spend time on repetitive business practices that prevent them from creating value. For instance, it is estimated that underwriters spend as much as 70 percent of their time performing low-value tasks and only 30 percent in risk selection. Ideally, insurers and brokers should spend their time and business knowledge on work that produces value, not punching numbers into a spreadsheet, select the right data or manually set up reports.

With automation, a technology that allows processes to be performed without or with limited human assistance, such work processes can be abandoned, and insurers can instead shift their focus to value-producing work.

ROBOTICS AND AI: THE ONLY PATH TO AUTOMATION AND IMPROVED EFFICIENCY?

Robotic automation is a significant trend within the insurance industry, as advances within the fields of robotic process automation (RPA) – software that can be configured to capture and interpret the actions of specific business process applications – and artificial intelligence (AI) bears the promise of cutting costs and improving efficiency.

The Future of General Insurance Report 2016”, for instance, notes that 20 percent of insurers expect to make significant investments in RPA within the next two years, while 37 percent plan to do the same within five years. And the benefits are seemingly enormous. The same report mentions that investments in RPA can lead to 25-30 percent cost savings and a return within six months to two years. According to Accenture robotics may reduce costs by 80 percent in some financial service areas and reduce the time to perform tasks with as much as 90 percent.

Let me go out on a limb here and say that these numbers may be somewhat misleading. Yes, it is true that robotics will play a significant role in the future. And, yes, it is true that robotics will simplify certain processes and initially deliver a few quick wins. In the long haul, however, they might do more harm than good for your core processes and effectivity. Everyone looking to implement robotics into their existing systems should take into consideration that it adds unstable complexity to already complex work processes. The legacy IT systems and the ineffective work processes will still be the same, but the architecture will become more complex and require more maintenance.

HOW TO AUTOMATE YOUR WORK PROCESSES: A BEGINNER’S GUIDE

My scepticism towards robotics and AI is not a symptom of technology aversion. My point is that insurance firms should be careful not to introduce complexity into a fragile IT system. Furthermore, I believe insurers should be informed of other, more straightforward approaches to automate their work processes. Instead of introducing a technological “silver bullet” that will magically resolve any efficiency problems, insurers should start from the bottom-up, identify pain points and find solutions to how they may improve efficiency within their existing systems.

If you are to begin automating your work processes, then, you should first start examining your work processes and look for routine tasks that add little value and are prone to error. Do you have paper-based processes? Do you need to rework various tasks because of human error? Do you have bottlenecks, such as verification steps that lie unhandled for days? Or are your employees, like the London insurance firms mentioned earlier, required to punch the same numbers and the same information into various systems throughout the value chain? These are processes likely to benefit from automation.

Then, to improve data quality and efficiency, you should use one data source to avoid entering the same data several times into disparate systems. This data source can then be used to maintain your customers’ policies, claims and reinsurance, which, besides significant efficiency gains, will significantly improve customer history analytics and simplify government reporting and management reporting.

AUTOMATION AND ITS IMPACT ON THE WORKFORCE

Although the benefits of automation are considerable, it is important to acknowledge the potential impact it has on the insurance workforce. Forrester predicts automation will displace 24.7 million jobs by 2027 and 14.9 million by the same year. McKinsey, on the other hand, predicts that up to 25 percent of full-time positions in the insurance industry may be consolidated or replaced over the next ten years.

It is important to note, however, that automation ultimately isn’t about replacement, it’s about improvement. It’s about freeing time for your employees to focus their efforts on decision-making and work that produces value. Automating your work processes the right way – from the bottom-up, not through quick wins – may help you get there. Will you be among the first, reaping the benefits of automation in the insurance industry?

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