The Impact of Digitalization Index on Profitability of Insurance Companies’

Abstract

As of January 2024, the majority of financial firms now provide financial services through digital means. We constructed a framework called the digitalization index in which we could quantify the proportion of digital services to empirically analyze the impact of digitalization on the profitability of life and non-life insurers. The profitability of insurance companies is measured by net income before income taxes and net income and divided by total assets. The results show that for life insurance companies the adoption of AI chatbots increase their profitability. However, providing personal information-based product recommendations and WA authentication services negatively affects the profitability of life insurance companies. In the case of insurance companies that do not offer life insurance, the same variables of interest did not have an impact. Since non-life insurance companies are characterized by a diverse product structure compared to life insurance companies and require rapid response to accidents, each insurer needs to establish a strategy that takes this into account. Our results were formulated from the interpretation of services that were introduced in the second half of 2023. Although the small sample size impacts the validity of our findings we believe we have found clear insights to inspire future exploration in this field.