Digital transformation in insurance: are insurers coping?

Over the last couple of years, stuck-in-the-past insurance businesses have clamoured to transform the way they operate. But this is a complex process that starts with securing buy-in from corporate leadership, involves changing a few mindsets along the way, and inevitably requires an innovative approach without simply wondering how you can replatform everything you do as a business without changing your approach just the once.

So how are insurers handling transformation? Rory Yates, SVP Corporate Strategy Global at EIS Group, argues that by prioritising efficiency over adaptability insurers have put their businesses in a precarious position.

Has digital transformation helped insurers to move forward?

While embracing new technologies may have helped save time and money, their multi-million-pound transformations haven’t empowered them to respond to the industry's myriad headwinds. The result is often stagnating growth, plunging profits, and declining retention rates.

In some cases, premiumisation is the only lever left, leading to costly renewals, a widening coverage gap, and the removal of products in commercially unsustainable areas. In others, we see only moderate innovation to compete, mostly coming from underwriters than from CX or real proposition changes.

Similarly, simply pulling products is far from a sound business model and a damning indictment of the insurance market’s failure to build greater levels of adaptivity. In doing so, the sector is reneging on its original promise of helping to offset risk so that society can drive forward.

But here’s the real kicker. Adapting to the vagaries of climate change, the needs of tech-driven consumers, and the demands of new regulation offers enormous value. And where there's value, there's money.

The opportunity for emergent customer-centric insurers has always been to make sure they increase the knowledge of the customer (not just the knowledge of the risk) and simultaneously achieve the ability to act on this knowledge. This is the primary motivation for all ecosystem business models.

So what has gone wrong with the way insurers have handled this?

Transformation is typically a tug of war between doing what you've always done, only more efficiently, and reinventing yourself for how your business must operate today.

We've seen what happens when disruptors like Netflix, Airbnb, and Amazon enter the market and perform in the latter way. They end up owning the industry, principally by owning the relationship with the customer and the supply. These businesses are distinctly different business models to value chain businesses that merely seek to maximise distribution and minimise cost.

In insurance, incumbents have mostly opted for the former way, and who can blame them? It feels safer and easier (even though it often isn’t), requires fewer shifts in culture and mindset, and appears cheaper in the short term. But even this outcome is often unrealised.

The truth is, it's easier to continue to build yourself around a policy or a product-centric business model than to ask the business to shift both their technology and enterprise design in a transformation. Especially when few know what this looks like. An unknown destination is always hard to travel towards.

It's the turning tanker analogy. In this case, the tanker is a mindset and business model issue. However, the market paradigm has already changed. Agility is now the leading competitive requirement of insurers today. Simply operating theoretical economies of scale and driving the negative business case predicated on a reduced cost of running a business as-is must give way to higher ambition.

What does business transformation success look like?

It's transformed businesses and customer and employee experiences that count, not technologies. The transformation end-point isn’t just to drive economies of scale or operational efficiencies, but also to drive speed in change and, in doing so, to improve adaptability dramatically.

When achieved, it allows you to respond to the continued proliferation of new distribution, adapt products, fast, launch new ones, and explore embedded, risk-removing and more human-centric strategies. However, transformation isn’t just the ability to increase customer knowledge. You also have to be able to act on it.

For example, our customers often ask, “can you show me how I upload data via a spreadsheet?” – a perfectly reasonable request but indicative of a ‘faster horses’ mentality. The answer is, of course, yes. But that isn't how modern technologies should work. Data should be integrated at the source. Enabling the team to spend time optimizing customer engagement based on the insights received would replace the upload task. This is the point of difference between a “systems replacement” and a business transformation.

When this approach is embraced, there are thousands of transformational changes that, when brought together, add up to a far more adaptive business. This is because these minor changes are often interconnected into a bigger picture. Creating an exponential effect. The common thread connecting each is data fluidity built on a customer core.

Is speed the be-all and end-all of insurance transformation?

In some ways, I think speed is the misguiding factor when treated in isolation from any specific aspect of an insurance business.

Fast at what? A faster horse isn’t as quick as a car, nor anywhere near as comfortable. The single tasks getting more efficient create a butterfly effect of ‘speed’, but even more than this, you can focus on the high-value tasks while avoiding many of the pain points that ruin an insurer’s day. It's speed. It's certainty. It's every customer moment made to count. It's better jobs. More time spent on valuable things leading to more resilient and profitable businesses.

For example, moving a ‘spreadsheet’ task to an ‘insight-based action’ is the real shift. Speed through technology is just the enabler. If technology is sold as the transformation outcome‌, it's likely to be met with resistance.. Instead, there needs to be clarity and agreement on the new value being created and clear communication to all employees on what’s in it for them.

They’ll say, "I understand how to do claims, and it works like this, so you just need to tell me how to feed the machine." When I’ve conducted in-depth interviews in transformation in the past, people have often told me they see the transformation helping "other roles" and rarely envisage it changing them and their roles.

That's because it was often about the technology and not about them, the business or the customer.

Here are some truths to live by:

• Being policy-focused doesn’t serve anyone very well, and the serious competitive edge comes when your operations prioritise customer-centricity over product-centricity.
• Successful, ambitious insurers are already harnessing emerging digital capabilities to seize market share and grow in a rapidly-evolving industry.
• Innovation can be easy, with no need for painful integrations or custom code.
• You CAN manage everything on one system, and it’s so much easier for everyone when you do.

******

For more insights from InsurTech Digital, you can see our latest edition of InsurTech Digital here, or you can follow us on LinkedIn and Twitter.

You may also be interested in our sister site, FinTech Magazine, which you can also follow on LinkedIn and Twitter.

Please also take a look at our upcoming virtual event, InsurTech LIVE, coming on 18-19 October 2023.

******

BizClik is a global provider of B2B digital media platforms that provides executive communities for CEOs, CFOs, CMOs, Sustainability Leaders, Procurement & Supply Chain Leaders, Technology & AI Leaders, Cyber Leaders, FinTech & InsurTech Leaders as well as covering industries such as Manufacturing, Mining, Energy, EV, Construction, Healthcare, and Food & Drink.

BizClik – based in London, Dubai, and New York – offers services such as Content Creation, Advertising & Sponsorship Solutions, Webinars & Events.