Three significant drivers of insurance innovation in Australia and international markets

A new report shows the industry’s future hinges on its ability to adopt and scale new technologies and build ecosystems to deliver better outcomes for customers.

In brief:

• Digital transformation is accelerating, with the move to cloud-native platforms and AI being widely adopted.
• The relationship between insurers and insurtechs has shifted from competition to collaboration and partnership through alliances and marketplaces.
• Products and processes are increasingly being designed around evolving customer expectations for seamless, digital, and personalised experiences.

The global insurance industry is on the verge of a new era of innovation. This was the conclusion of a new report by Ernst & Young, Australia ("EY Australia") and Insurtech Australia, exploring the evolving extent and nature of innovation in the insurance sector in key international markets. Interviews with insurers, technology companies, insurtechs and industry bodies across Australia, the UK, the US and Canada assessed the focal points for the next wave of innovation, including which technologies are being deployed and what outcomes the industry’s top innovators are seeking.

From point solutions to true transformation

A major force driving the sector’s innovation is digital transformation focused on the move away from legacy systems to cloud platforms, and the adoption of AI to drive automation and digital engagement.

Migrating from old systems is risky and time-consuming, but necessary for adopting new technologies and achieving measurable ROI. A tipping point seems to have been reached with most insurers on the journey, either from decades old mainframe-based systems or on-premise to cloud upgrades.

While investment volume in insurtech is down overall from the dizzying heights of 2021, it’s still material, with more than 25% going to AI.¹

However, capitalising on the promises of cloud and AI is proving elusive for many insurers, resulting in a “two-speed” market with an ever-widening gulf between those succeeding at digital transformation and those just keeping the lights on. What makes the difference is whether the foundations are in place. Successful cloud and AI transformation at scale requires a single, trusted data foundation, modern flexible technology architecture, digital-first governance and new workforce skills.

Part of the problem with AI deployment is that many insurers are starting with a bottom-up, efficiency-focused, use case-based approach – which initially looks promising. But for those without all the foundations in place, achieving scale is close to impossible. Some insurers find themselves automating one part of the process only to create a bottleneck in another, eroding the business case. Even when data quality is good, insurers often overlook or underestimate the difficulty of automating the risk and control component of AI governance.

One of these challenges is highlighted by the experience of HAAST, an Australian Insurtech using AI to innovate in Marketing Compliance. As Chief of Staff, Jack Tizzard, explains, “A systems thinking approach is required. We map out the workflow end to end with an understanding of all the various different teams, who interfaces with whom, and where the dependencies lie. We then deploy our platform into that workflow across the system in a way that solves the bottlenecks.”

In contrast, leading insurers are getting transformative results from taking a top-down, domain-focused approach to realising benefits from AI. For example:

1. Taking an agentic AI approach to the large pools of human resources still used by insurers. For example, contact centres for personal insurance that greatly rely on human-to-human conversation.
2. Prioritising high-value applications of AI in underwriting and claims, including ingesting, augmenting, summarising and prioritising submission data. The focus here is three-fold: enhanced service by cutting time to quote from days to hours; productivity improvements of up to 200%; and the ability to prioritise the right risks and claims to get the best outcomes. 

In the US, Ascot Group Chief Information Officer, Owen Williams, sees huge potential in the use of generative and predictive AI in underwriting and claims: “Broader adoption of explainable and auditable AI frameworks is required, as models increasingly influence underwriting and claims, regulators and boards expect transparency. Vendors who combine performance with strong governance will lead the next phase of market development.”

Partnering is king, ecosystems have arrived

Successful innovation in the sector also increasingly relies on joint ventures, alliances, and ecosystem approaches, leveraging each party’s strengths (e.g., regulatory expertise, digital agility, specific advanced capabilities) and connections that create new abilities to respond to specific customer needs.

Perhaps one of the most successful innovations in the sector in recent times is embedded insurance. Four types of partners prove most effective at embedding insurance, each succeeding for distinct reasons. First, partners selling valuable, insurable products naturally align with customer protection mindsets - automotive companies like Stellantis and BMW Financial Services manage over 4 million policies with 25% growth since 2015. Second, partners where NOT offering insurance could hurt their core business, like gig economy platforms where coverage inclusion protects operational capability. Third, partners catching customers when they're psychologically most open to protection, such as UK mortgage brokers reaching 1 million home buyers annually. Finally, ecosystem builders like Qonto are pursuing complete solutions for SMEs.²

It's all about the customer

In Australia, improving customer experience through digitising workflows has been a key focus for insurers. Out-of-the-box products and configurable workflows are helping to reduce time-to-market. Broker and direct channel integrations are enhancing distribution efficiency, while automation and improved data visibility are lowering operational risk and improving customer outcomes.

Recent research by Entsia, a Sydney-based insurance platform provider, shows the value of focusing on the customer. Its customers “have seen up to 90% increase in automation, after implementing our platform, significantly improving operational efficiency,” says CEO and Founder, Alistair McElligott. “The research also reported higher quote volumes, reduced unmatched cash, and faster time to market for new offerings after customers started using our platform.”

Overcoming barriers to innovation

The insurance industry is entering a new phase defined by reinvention rather than incremental change, powered by cloud platforms and AI. But innovation is still being held back by the difficulty in moving off legacy systems, and the challenges in scaling AI to deliver value. Insurers must tackle both cloud modernisation and AI adoption at the same time. Each is complex in its own right, with no clear and obvious boundaries between the two, and each requiring a concerted effort to bring people along on the change journey.

Operating in an increasingly tight regulatory market, insurers must also manage risk while tackling modernisation this will require an innovation plan linked to business strategy, care in choosing who to partner with and what outcomes to deliver – and investment in workforce enablement with a focus on change capability.