Why Insurance Back Office Automation Matters.

Written at Jul 31, 2023 1:55:01 PM by Julie Mesi

When talking about automation in the insurance industry, the focus is generally on the front-end functions such as claims, underwriting, and customer services. However, according to reports 60% of customer dissatisfaction actually originates from the back office. The lack of automation in the insurance back office has historically hindered growth and increased costs making it more difficult to achieve business goals. Admin expenses in the insurance industry normally average 20% of the net profit of GWP. Back offices consistently deal with tedious and repetitive tasks which rely on manual, slow, and inefficient methods. Streamlining these tasks could save time, cut costs and enable employees to focus on more critical tasks.

The core of the insurance business lies in the back office and that is why automating processes there would generate faster ROI and drive further transformation within the business. According to EY estimates, automation of back-office work can help companies save between 20% to 60%  of baseline full-time employee (FTE) costs. The use of new technologies like AI and RPA can have a lot of other benefits such as increased productivity and more rapid turnaround time. Furthermore, according to a report produced by McKinsey, large incumbents can more than double their profits over 5 years by digitizing both back and front office. If back offices are not automated, that could limit efforts to digitally transform customer-facing functions and front offices as well. Insurance companies have normally started with automating the front office, and thus largely ignored the back office. This can lead to disconnect between different company functions and ultimately impact internal communication and inhibit innovation.

Some of the factors that have slowed down the insurance industry in back office automation include its complexity and its highly regulated nature as well as third party involvement. The back office areas which are most ripe for automation include data entry, HR functions and  Despite the slow rate at which the insurance industry is digitising back offices, there are companies who have been catching the wave of automation. One of them on the forefront is Ohio-based State Auto Insurance. The company turned to robotic process automation (RPA) to automate functions like finance, accounting and HR which involve repetitive tasks which can be performed by a bot. As a result of using RPA, State Auto Insurance has managed to automate a task previously done 25,000 times a year in only a day. Furthermore, the move also enabled the company to grow with its current workforce and reduce other repetitive tasks.

New technologies will fundamentally change the way the insurance industry works including both the front and back office. The workforce will also have to completely change and there will be an increasing need for tech skills and less need for cognitive skills as algorithms and bots can do the work previously done by underwriters and actuaries. As the core of the insurance business is in the back office, implementing innovation there will generate the fastest return of investment and will also build the congruence between teams and functions. Research from Novarica has shown that more than half of all insurers deployed RPA in 2021, growing double from 2018 when less than a third have deployed it.

True scalability will demand that increased business generated through distribution automation will require automated back office to process it.

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Julie Mesi

Marketing Manager