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INNOVATION | 06.27.2024

European insurance companies facing the challenge of digital transformation

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The digital transformation has become one of the essential priorities for the European Union, especially in the insurance industry. In a world that is increasingly interconnected and dependent on technology, digitalization promises to redefine how insurance companies manage their operations and relate to their customers. This trend is driven by artificial intelligence, the Internet of Things (IoT) and the digital economy, and is rapidly reshaping the insurance landscape.

The digital economy and the Internet of Things (IoT) are having a profound impact on the European insurance industry. These advances are transforming traditional processes and creating new opportunities for both companies and consumers.

Digitalization allows insurance companies to collect and analyze large volumes of data in real time. This facilitates the personalization of products and services, and improves fraud detection and risk management optimization. In addition, insurance companies can offer innovative solutions, such as claims management via a mobile application, on/off insurance and many others.

This digital environment also fosters the creation of new business models and collaboration with technology companies, resulting in a more diversified and competitive offer. However, the rapid adoption of technology does pose challenges. These include the need to update regulatory frameworks and safeguard personal data protection, along with the training of employees and customers, among others.

European insurance companies are currently in various stages of digitalization. Some are fully immersed in the digital transformation, while others are still in the early stages. This variability reflects the differences in the resources and adaptability of each company.

In the case of MAPFRE, the degree of digitalization is high. To give just one figure, we have worked to improve the experience of our policyholders and increase accessibility and agility, thus expanding our customers’ self-service capabilities. In 2023, customer contacts through self-service portals increased by 40%, thus confirming the growing trend of recent years.

Consumer preferences

What is the position of the consumer in the midst of this paradigm shift? Many customers value the convenience and speed offered by digital channels, although in the case of complex policies – such as life insurance – they still prefer personal contact. These types of policies often require personalized advice, which consumers perceive as more reliable and friendly through face-to-face interactions. Including a person in the process – which is called human-in-the-loop – is fundamental in industries such as insurance, an industry of people for people.

The most commonly used forms of contact used by customers today are telephone calls, emails and in-person appointments. However, the use of innovation such as chatbots or other artificial intelligence solutions, especially generative artificial intelligence, will increase significantly in the coming years, providing new forms of interaction and customer support, a trend that we are already seeing. For example, in MAPFRE, there was a 35% increase in customer contact through virtual assistants in 2023.

Accordingly, insurance companies must balance the use of such innovation against their customers’ expectations and needs. They have to ensure that the digital transformation improves both the user experience and the quality of the service, while leaving no one behind (whether customers or employees).

A current and future analysis of the digitalization of European insurance companies

Where does the digital transformation of the industry stand? The report Digitalization of the European Insurance Sector by EIOPA analyzes the current situation and future trends of digital transformation in the insurance industry in Europe. The most notable conclusions include:

  • Artificial intelligence (AI) is consolidating itself as a valuable tool in the European insurance industry. Nearly half of insurance companies now use AI in non-life policies, while about 24% use it in life insurance. These numbers are expected to increase significantly over the next three years, with projections pointing to an increase in the use of AI to around 30% in non-life insurance and 39% in life policies.
  • Sustained growth of cyber-insurance. The report also highlights the sustained growth in demand for cyber-insurance over the last two years. With the increase in cyber-threats and growing dependence on the Internet, organizations are increasingly aware of the importance of protecting themselves against cyberattacks.
  • Impact of the IoT and the digital economy. These enable insurance companies to collect and analyze large amounts of data in real time, which facilitates the personalization of products and services, fraud detection and risk management optimization.

The incorporation of technological innovations in the insurance sector presents countless opportunities, starting with improved operational efficiency, better personalization of products and services and, consequently, optimization in risk management.

The EU’s “push” in the insurance industry and regulatory strategies

The European Union has been a key player in driving technological innovation in the insurance industry through various financing initiatives and programs.

The Recovery Plan for Europe, with its digital component, seeks to accelerate digitalization in all member States by driving investment in digital infrastructure, technological skills and R&D projects specific to the insurance industry. Programs such as Horizon Europe support research and development that can lead to significant advances in the insurance industry by promoting competitiveness and establishing a framework for transnational collaboration in the creation of advanced technological solutions.

In this setting, it is crucial that regulatory frameworks are suitably adapted in order for innovation to thrive in the insurance industry.

The implementation of specific regulations for insurtechs can help create a more dynamic and competitive environment. It is also essential that regulations are clear and consistent so as to facilitate the functioning of the insurance system and to promote transparency and trust. The creation of regulatory sandboxes, where companies can test new solutions under controlled supervision, is an effective strategy that has proven to be beneficial in several markets by allowing innovation to advance without requiring the acceptance of unnecessary risks.

In short, the future of digitalization in the European insurance industry is promising and full of possibilities. The adoption of artificial intelligence, blockchain or the IoT, among others, together with the regulatory and financial support of the European Union, are rapidly transforming the industry. The process is optimizing operational efficiency, enhancing the personalization of services and posing considerable challenges with respect to cybersecurity and data management. However, if properly managed, these challenges can be turned into opportunities to strengthen the industry.

The key lies in maintaining a balance between innovation and consumer protection, while ensuring that all actors can benefit equally from technological advances.