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2022 in Review / 2023 Look Ahead for Insurance

Chaz Perera
May 12, 2023

Post-pandemic 2022 proved to be a challenging year for insurance companies as people started hitting the roads again, employees -- their own and their customers’ – returned to the office, and some employees decided that their employers were no longer a good fit for them.  

Add the increasing margin pressure that CATs (catastrophic weather events), inflation, and general hardening in the insurance market and it’s understandable why transformation underpinned by automation technology was so prevalent in 2022 and where we expect more change to come in 2023.

Following are details on three trends insurance businesses encountered this year and where they look to go in the year ahead:

1. The Ongoing Talent Crisis

Vacant job roles, loss of intellectual property, ongoing operational disruption, and the cost of recruiting and training new hires all take a financial toll on an organization. Insurers which relied heavily on people to transact work in middle- and back-offices now face a talent-crisis in which 69% of employers report they simply cannot find people to do the work.  

Additionally, salary increases are on the rise. Year-to-date increases in salary are 4% and climbing, up from the historical norm of 2%. This means companies are both paying more to find employees and more to retain employees than ever before.

Further, the cost to recruit has increased anywhere from 30-50%+, and worse, the turnover rate is somewhere between 20-30% annually for US insurers.

Looking forward to 2023

While the talent crisis likely won’t resolve itself anytime soon, business leaders are more open than ever to finding cost-efficient ways to keep their people happy and engaged. One way they are doing this is by investing in automation to relieve employees from the tedious parts of their job so they can focus on higher-level, more challenging aspects of their work.  

In addition, leaders increasingly recognize the value of automation end-to-end, particularly with insurance-specific AI models and methods. At Roots Automation, we have heavily invested in building Digital Coworkers that are deep domain experts that appreciate insurance-specific data, systems, documents, processes, language, and nuance.  

2. Rising Costs in the Industry

Inflation skyrocketed driving up vendor costs, particularly around replacement costs in auto and home product lines. Hurricane Ian alone is expected to cost $40bn+ in property damage and is estimated to be the costliest weather event to hit the US.

Further, premiums have increased 10%+ across all product lines from 2020-21, but so have operating costs. Rate increases have not been able to keep pace with the cost to administer the policy/claims creating a significant pinch-point – in essence operating income for all insurers has gone down from $63bn in 2019 to $54bn in2021. Further, cost erosion from inefficient claims management processes(claims leakage) represents roughly 6% of total claim payments, which equates to around $67bn for US insurers annually.

Looking forward to 2023

The combination of these forces has resulted in a dramatic increase in the overall cost of claims handling and processing, which we expect rate increases to continue into 2023and continued margin volatility surrounding catastrophic events.

We expect to see US insurers taking dramatic measures to address claims leakage by leveraging advanced automation and intelligent process management tools, to better improve operating margins and optimize business processes that drive leakage.

3. Innovation through Digitalization (major on Automation) is Slow

The interest among insurance leaders to digitalize has never been higher; however, adoption rates show that implementation continues to lag. P&C carriers are under constant pressure to augment claims processing with new technologies that increase accuracy, efficiency, productivity and cost.

A Forrester report suggests that approximately 90% of companies merely modernize instead of transform their digital operations, which could be one reason why interest is high, but adoption of technologies such as automation is slow.

Further, speaking about Robotic Process Automation (RPA) technology specifically, analyst firm Horses for Sources has suggested that only around 40% of RPA licenses purchased are actually being used.

Looking forward to 2023

At the heart of the digitalization and automation adoption challenge is the need for deep, insurance-specific (vertical) solutions, stepping away from the broad, catch-all (horizontal) toolkits on the market today.

We expect to see a surge in demand from insurance leaders for insurance-specific solutions that can dynamically understand, process and manage business critical insurance processes – such as claims management – alongside already stretched teams.

We expect the market narrative around automation to shift away from AI and automation for all(general models and methods), and start to focus on vertical-specific narratives, focused on augmenting people with trained, knowledgeable Digital Coworkers.

In Closing

2023 is poised to be a transformative year for the insurance industry, as businesses seek different, better ways to think about automation, AI and fundamentally how work is executed across their organizations.

Originally Published: Digital Insurance

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