2021 Canadian Insurance Industry Trends and Challenges

By and Daniel Shum | 4 minute read | August 31, 2021

The COVID-19 pandemic created a tremendous shift in how we work and live – and the insurance industry was no exception. Almost overnight, insurers were forced to find new ways to work and to virtualize their operations, which most navigated successfully. However, as we move forward, insurers must tackle emerging and ongoing industry challenges. These include:

  • Evolving customer preferences prompting the reinvention of the customer experience across the entire insurance value chain – from product design to claims fulfillment
  • Addressing the continued drive for operational efficiency with new and emerging technologies
  • Using AI capabilities to streamline and improve all aspects of the enterprise
  • Addressing climate change, fraud and cybercrime as they take on new urgency

Insurers are finding creative new ways to innovate and adapt in response to these challenges. Let’s take a closer look at five key trends shaping the Canadian insurance industry today, and the new approaches that can help insurers navigate today’s market realities.

1. Creating personalized customer experiences

As they seek guidance in selecting the right coverage for their unique insurance needs, customers expect digital insurance experiences and interactions that offer greater choice, more personalization, simplicity and value. With the emergence of the “digital insurer” several years ago, many insurers began creating digital channels to address this need, but opportunities exist today to provide the next generation of digital experience for consumers.

Insurers are beginning to move beyond the current transactional digital experiences toward a more interactive experience that addresses unique customer requirements. In fact, 40% of insurers expect to increase their investment in online channels as customers move away from face-to-face experiences. As they seek to deliver real choice and enhanced value to customers, insurers can leverage new opportunities to provide personalized, plain language, insurance advice and interaction.

2. Driving operational efficiency

As carriers expand and grow, they can become more operationally inefficient. That’s because inefficient processes make scaling difficult, which can eat into profitability.   When asked, Insurers have cited increased automation, especially in underwriting, as a top priority that could lead to greater efficiency.

Leveraging cloud technology, process automation and modern data platforms can help insurers scale their businesses more efficiently and cost-effectively. These technologies eliminate the need for costly infrastructure investments through improved system provision and team collaboration – and help insurers increase market responsiveness, streamline operations, and save money.

3. Capitalizing on emerging cognitive capabilities

AI, machine learning and intelligent automation have the potential to improve all aspects of the enterprise, but the challenge for insurers is to understand how cognitive capabilities can be integrated into systems and embedded into the value chain.

The pandemic has only increased the urgency for cognitive capabilities, as virtual processing of claims increased to 85-100% from a pre-pandemic of less than 15%.

Investing in cognitive capabilities can put insurers on a path towards an improved customer experience, happier employees, and cost savings that can be passed onto customers or reinvested into the company.

For example, Natural Language Processing can be used to improve accuracy during the claims process by summarizing the often-complex reports that come in from third parties such as accident benefits (AB) medical reports. Similarly, AI can speed up claims processing by quickly spotting false claims, thus reducing employee workload and fraud.

4. Preventing fraud and cybercrime

As more customer interactions move to digital channels, fraud and cyberattacks are increasing in frequency. Cybercriminals are using tactics such as identity fraud to submit false claims, or to change payee information to divert insurance funds to their own accounts. According to a study conducted in 2018, auto insurance fraud costs Canadians over $2 billion every year.

As insurers look for ways to protect their assets and customers, new tools have emerged to identify and mitigate insurance fraud. For example, artificial intelligence (AI) is being used effectively to detect fraud and prevent risk in real-time by helping help insurance companies spot abnormalities in claims data. By collaborating and pooling data to understand fraud patterns, the industry can work together to address this issue and improve the effectiveness of fraud reduction tools.

5. Weathering the impact of climate change

Climate-related risks are emerging as an urgent priority for consumers and insurers alike. As the effects of melting ice caps, flooding, wildfires and severe storms increases in Canada and around the world, the diversity and volume of claims is multiplying.

As insurers seek to understand the impact of climate-related risk on their products and operations, they are looking for a balance between ensuring affordability, availability and their own financial stability. Predictive analytics could help insurers significantly improve risk assessment considerations and pricing through in-depth data analysis of things like weather records, property data, and future climate change scenarios.

Accelerating the journey to digital transformation

The Canadian insurance industry is resilient and continues to evolve, adapt and innovate in response to mounting market pressures. Many insurers are accelerating their digital journey to address the business challenges that have been exacerbated by the pandemic. By bolstering core systems and adding cognitive capabilities, Canadian insurers are beginning to pivot away from “business as usual” and accelerating the journey toward the business model transformation that will enhance the customer experience and improve the bottom line.

Interested in learning more? Please take a look at the additional resources listed below, and feel free to reach out to me directly at daniel.shum@ibm.com.

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Daniel is a Senior Partner at IBM and the Insurance Practice Leader for IBM Canada. With 30 years of experience working in the North American Insurance industry, he provides advice and solutions to the Canadian Insurance industry. Connect with Daniel on LinkedIn.