Digitalisation of commercial insurance: the challenges and opportunities explored

28 February 2024

The fintech boom in recent years has been transformative for the banking industry. Traditional financial institutions dominate the landscape, but it’s clear that innovation by startups has helped speed up digital adoption among the bigger players.

A similar process is now happening in commercial insurance which, according to many commentators, has been slow to integrate modern data-driven technology and replace legacy systems.

According to RSA’s SME Director Rob Flynn, the change is being driven by a growing awareness within the sector of the need to reduce manual processes.

Rob adds that the commercial world is affected by what some are calling a "polycrisis" (when multiple crises come together to form one). This is spurring businesses to seek out real-time data solutions to better identify new risks.

But what are the challenges to adoption among commercial insurers, and how can businesses benefit? Before we address those questions, let’s take a look at the business case for digitalisation.

The case for change is overwhelming

Research has shown that insurers are finding it difficult to assess risk profiles, or source the data needed to meet new regulations.

A study by the Insurance Post and Crif found insurers were using third-party datasets from Companies House, credit agencies and the Financial Conduct Authority.

While this data is dependable and essential, it was interesting to see that few businesses (around 7%) were harnessing the power of open banking. Such technology provides access to alternative real-time information about existing and new clients.

It’s a practice that is now the norm in the lending industry, and is set to intensify when the EU’s PSD3 rules are adopted, with likely implications for the UK.

Indeed, open banking innovations are enabling providers to plug into accounting and ERP platforms. This enables businesses to build an up-to-the-minute picture of a client’s financial situation.

On this, RSA’s Rob Flynn cautioned: “Companies across many industries are on-boarding new technologies, driving a corporate mindset that expects suppliers and customers to do the same. Those that are behind the curve on digital adoption risk becoming an ecosystem point of friction.”

No one likes change - but change we must

Yet the barriers to change, according to Boston Consulting Group (BCG), remain significant and many. One of the main barriers is how insurance group managers tend to work within their own particular lines of business.

Many leaders continue to run siloed organisations, which are inherently inefficient. Managers believe that their departments are too different to adopt shared technologies. This is stalling digital transformation and leaving businesses to modernise incrementally.

BCG acknowledges that data intake has been a “major challenge” in commercial insurance. The problem stems from the fact that immense variation in formats and contracts has favoured manual processes.

However, in calling for a ‘front-to-back’ digitalisation strategy, BCG argues that the technology now exists to allow insurers to digitise information. In doing so, businesses can drive internal efficiencies and open up opportunities to utilise powerful data analytics tools.

The benefits of digitising commercial insurance

So, what can these tools deliver for commercial insurers and brokers?

Well, data analytics can be used in a whole host of ways. By being able to more accurately and quickly assess risk profiles, insurers can offer more suitable products. They can also more effectively tackle the problem of underinsured clients. 

Access to holistic datasets also allows insurers to gain a better view of the market and challenges faced by different industries. Thus paving the way for the creation of new products.

Crucially, when used in conjunction with machine learning, digitised data becomes an essential component in modern fraud rules engines.

Digitisation - for example, in the form of eTrading platforms like RSA Online - can help to eliminate the duplication of data collection, entry and verification across departments and between insurers and brokers. This is clearly good news for clients, as it minimises the risk of error and provides faster access to information.

Finally, the digital transformation of financial services has been driven, in the most part, by open API technology. These cloud-based tools are allowing innovators to think beyond their traditional offerings and deliver a truly enhanced proposition.

Possible opportunities include embedding trade credit insurance in lending platforms and SME insurance in SME banking sites.

It’s an approach that keeps commercial insurers front and centre in clients’ minds.