Insurance Industry Challenges: What You Need to Know

Insurance Industry Challenges: What You Need to Know

Insurance Industry Challenges: What You Need to Know
Nick Gallo
Oct 25, 2022
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The pandemic, rapid advancements in insurance technology, and increasingly turbulent economic conditions are putting significant pressure on the insurance industry.

Insurance carriers and agencies now wrestle with high client expectations, the race to embrace digitization, and increasing competition for top talent.

Let’s explore how technology can help with the current insurance industry challenges and dive deeper into five of the most significant ones insurers face today.

Solving Insurance Industry Challenges With Technology

COVID-19 shifted fundamental aspects of our global society. Mandated social distancing, travel restrictions, and the rise of remote work forced many businesses to pivot or shut down, altering entire industries overnight. 

Because insurers share the burden of their clients’ risks, the disruption has affected them to varying degrees depending on the products they offer. However, all feel the pressure for increased digitization to keep up with client and talent expectations.

Similarly, the turbulent economic conditions since the pandemic have spared no one. For example, inflation is driving up claim costs, often faster than insurers can raise premiums, making insurance less affordable for clients and eroding carrier profitability.

Fortunately, though the insurance industry's major challenges are numerous and varied, technological advancements have the potential to address many of them at once.

Insurers that adopt digital tools strategically can reduce costs, improve the customer experience, and gain competitive advantages. They’ll gain success despite the ongoing issues.

5 Insurance Industry Challenges

Insurers need to solve several problems due to the current insurance business landscape. Having a technology strategy is a potential solution for some of them, but adopting new tools is a challenge.

1. High Client Expectations

Customer satisfaction is critical in the insurance industry. Unfortunately, meeting customer expectations isn’t easy.

Thanks to the proliferation of digital technology, clients now demand access to immediate communication with service providers through multiple channels. They want to be able to call, chat, or email insurers and receive rapid responses to their questions.

Clients are increasingly looking for an Amazon-like customer experience. They expect mobile apps and websites that let them instantly shop for coverage, manage their policies, and receive responses about the claims process.

Insurers with more traditional systems must adapt and compete to retain their market share as customers start refusing to settle for less. For example, carriers can partner with digital wholesalers like Pathpoint to quote and bind more efficiently. Clients are more satisfied when they can get quotes faster.

2. Attracting and Retaining Talent

Clients aren’t the only ones demanding more from insurers these days. Employee expectations are also rising, and while the insurance industry has always experienced high turnover rates, it’s becoming increasingly difficult to attract and retain top talent.

Employees are no longer tolerating the old-fashioned preferences prevalent among insurers. For example, traditional companies will struggle to recruit those reluctant to return to full-time office work.

Employees are also becoming more discerning. Digital technology facilitates information sharing, and sites like Glassdoor help individuals gain deeper insight into company policies and culture.

Not only does that make attracting new hires more competitive, but it also affects talent retention, as your team can tell when the grass is greener elsewhere.

Adapting to this shift is critical for insurers. Competitive compensation and benefits are no longer enough to attract top insurance leaders. Employees now demand clear career paths, corporate social responsibility, and hybrid work models.

3. Operational Inefficiency

Inflation skyrocketed past the Federal Reserve’s 2% target during 2022, seemingly peaking at a whopping 9.1% in June. As a result, carriers face higher claim payouts and increasing operating expenses in the current business model.

Insurers can mitigate this issue by raising premiums, but not indefinitely. Increasing premiums too quickly or significantly will cause clients to drop their coverage, especially if they can get a lower rate from a competitor.

Therefore, insurers must prioritize operational efficiency to mitigate the level of financial strain that they and their clients experience. Otherwise, they may erode their profitability faster than their reserves can support and risk insolvency.

That's another area where technology can help, as insurers can reduce expenses by automating functions. For example, using chatbots to handle simple questions and requests can free up or reduce the need for human customer service representatives.

4. Cybersecurity Flaws

Adopting digital technology is essential for meeting client expectations, competing for top talent, and increasing operational efficiency. However, it also makes your business more vulnerable to cyberattacks.

Insurance companies retain a significant amount of sensitive personal information on their clients, which makes them a prime target for cybercriminals.

In fact, the cyber risk to insurers has increased significantly over the last few years during the digital transformation in insurance. Between 2016 and 2019, the cost of cyberattacks on insurance entities nearly doubled.

As a result, insurers must be careful to guard themselves against cyberattacks as they incorporate digital technology into more of their systems. In addition to enhancing their cybersecurity, they should consider cyber coverage.

5. Technology Adoption

Digital technology can provide many significant benefits to insurers, but adopting it is a challenge. Some of the primary issues you’ll face when incorporating new tools into your tech stack include:

  • Limited capital: Insurers might not have the funds to digitize all their systems overnight. So, they must prioritize the most impactful functions.
  • Training staff: Your employees will need time to adjust to new technologies, even if they’re superior to the ones already in place.
  • Legacy systems: Since you can’t digitize your entire operation overnight, you’ll need to integrate your new technology with older systems as you transition.

Ultimately, digital technology is too powerful not to adopt. However, you must be strategic about which aspects of your operation you upgrade. Consider your budget, avoid overwhelming your staff, and integrate new tools within a designated period.

Leverage Technology Against Insurance Industry Challenges

Adopting digital technology can help combat the most significant insurance business challenges. For example, with Pathpoint, you can get instant, bindable E&S quotes from A-rated carriers to meet your client's expectations.

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