Becoming a digital insurer is an essential requirement for being competitive in insurance today – but even more so for the future. Your digital strategy becomes the framework from which to leverage all other transformational initiatives, not only for the customer experience but for the employee and operational experiences, as well. This process requires clarity on priorities, focus and mindset to determine the path, the sequence and the right investments to reach the ultimate goal – going beyond a digital experience to transformation.

See also: Seeing Through Digital Glasses  

Our research shows us that while no single insurer is doing everything, every insurer is doing something, and some are doing more than others. So, how do you ensure you are doing the right things at the right times and in the right sequence? The following is a list the 10 essential actions required for success as you develop and execute your digital strategy:

1. Understand Digital as a New Lens: Digital strategy touches aspects of all strategies – business, technology and operational plans, as well – consider it a new lens for clarity about the possibilities and linkage to strategies and plans.
2. Obtain Executive Sponsorship: Given the transformational potential, digital requires buy-in from the top – the CEO/board level – to set the tone, priority, urgency and funding to create a new value proposition.
3. Assign a Champion: Create a position for one executive with the vision, the power and the resources to champion your company’s digital transformation strategy. This role cuts across the enterprise, not just business or IT.
4. Be Clear on the Definition: Define a consistent and comprehensive definition of “digital” across the company and recognize that there is a difference between digital and the customer experience. It’s essential to establish clarity on “what it is” and “what it is not.”
5. Solicit Input: Ignite the synergy by gaining input and insights from the customers – policyholders, agents, brokers – and employees, as well. Set new experience standards and guidelines, leverage journey mapping, develop personas and create service blueprints.
6. Understand Gaps and Opportunities: Conduct an assessment to identify the current gaps and future opportunities. Understand what the market leaders are investing in today, the lessons learned and implications for the future.
7. Balance Customer and Operational: Remember to move up the SMA Digital Maturity Model diagonally – investing in both the external and internal experiences to create a seamless end-to-end experience.
8. Leverage Emerging Technologies, Data and Advanced Analytics: Move beyond core modernization activities, and innovate with emerging technologies like artificial intelligence, Internet of Things (IoT), interactive voice response (IVR), microservices and open APIs that are available. Expand the application of external data, advanced analytics and big data. Explore the world of insurtech – partner, pilot and learn from their lessons-learned pivots.
9. Create the Strategy and Road Map: Define the strategy, plan and begin to execute. Understand that this a journey. Plan five years out, but be prepared to adjust annually – because things are changing, maturing and pivoting around insurance.
10. Rethink the Business of Insurance: Last but not least, take the opportunity to reimagine every aspect of your company. It’s not about implementing more and more projects, or just investing in technology. It’s about creating the new fabric of your company’s culture and business model.

These 10 actions are a significant effort for any company, but they are required. Just be mindful that all of them are not required on day one. This list can also serve as a reminder that digital transformation is a journey that will morph into something we cannot even define today. Over the next several years, each step and each accomplishment will be foundational to becoming a Next-Gen Insurer. Extraordinary change is taking place throughout our insurance industry and the world around us. Digital transformation is the one strategic initiative that will set the foundation, set the context and set the direction for the next-generation insurance company you need to become – so let’s go and make it happen! See also: Digital Innovation in Life Insurance   For more insights on digital transformation – read our latest SMA report, Digital Transformation in Insurance: Discovering the Pathway to Digital Maturity.

For those of us who have a front row seat to the digital transformation of the customer experience in life insurance, there is a sense that our world is being, or about to be, rocked. In a way, it is; however, when you understand the customer experience cycle and all its component phases, you realize that the job of attracting new customers is, at its heart, fundamentally the same, but now there are more options for doing so. The experience cycle, a model developed by Dubberly & Evenson, 2008, is a great framework for understanding the phases that turn a prospect into a customer and a customer into a raving fan of your brand. While life insurance customers are seldom characterized as raving fans, there’s no reason the industry shouldn’t continue to strive for ways to achieve enthusiasm. If we are to create raving fans, we must consider all the phases of the customer experience deeply. Then we must do our jobs right at each phase, understanding what drives satisfaction and behavior, what turns people off and what touchpoints are most important or provide missed opportunities. Prior to the digital age, it was hard to do this in any setting other than in person or face to face with an agent. Now, if we are to recognize omnichannel expectations, we need to ensure we are covering all of these bases in whatever channel we are using. And if we are using multiple channels, we had better be saying and conveying the same thing, because gaps or inconsistencies create mistrust. For example, if your website offers a needs assessment or a wellness scoring system, your agent channel should be well versed in it, too. Imagine someone engaging with your online tools, getting a result and then switching to your agent channel for advice about it. Then imagine the agent doesn’t know about the tool, doesn’t understand it or, worse, chooses to dismiss it. How would it make that potential customer feel about your company? Yikes. See also: Digital Innovation in Life Insurance   So a good starting point to avoiding that nightmare and others is to understand the phases of the customer experience cycle and make sure all channels are aligned similarly around the experience you want to create. Here are the phases and what we should seek to achieve at each phase: 1) Connect and Attract: We must find the people who are best suited for what we offer and engage them in a way that’s meaningful to them, leading to openness to learning about what we can deliver. Best suited means many things. With life insurance, in particular, it can mean health classification, financial status, need or even geography, as residents of certain states can’t get access to all products available. To figure out how to sort people, we need the most sophisticated tools at our disposal. In addition, we must communicate in an authentic way, especially in scenarios where there is no human being talking with customers. If they are engaging in an online environment, the communication needs to “feel” human and real. 2) Orient: Here is where we help people understand what they should expect in the process, how long it takes and why we do things the way we do (e.g., asking personal questions). This helps set the expectation for what comes next so that they feel empowered and not “in the dark.” 3) Transact: Here is where we actually exchange a person’s time, data and money for a product. In life insurance, this is where the application lives and the way in which we take payment. There has been a great deal of industry focus and technology development around this phase to help life carriers improve the customer experience, work smarter (not harder) and attract new business by leveraging data and advanced analytics to use a more streamlined approach to assessing risk. 4) Extend and Retain: This is fancy talk for how we make sure we are delighting our new customers in unexpected ways and keeping them. For the life insurance industry, this phase will be particularly challenging, as it has been focused mostly on the process of how bills are received, preventing lapses and, ultimately, how claims are handled. These, however, are table stakes. Raving fans don’t come from meeting expectations; they come from exceeding them. 5) Advocate: Here is where a raving fan gets to tell others about his/her experience and presumably get others involved. While life insurance is generally a low-involvement product category, and one that is challenged by negativity associated with death, there are indirect ways to find positives within the experience. We have an opportunity to create positive experiences through services, information exchange and learning and creating awareness of others’ experiences. The Ice Bucket Challenge for ALS is an example of where negative feelings of fear and helplessness were turned into people feeling empowered to help. The challenge went viral, creating much greater awareness and research funding for a disease that many knew little about. In what ways might the life insurance industry take a lesson from that? The key to all of this is a deep understanding of your customers and potential customers coming from unrelenting curiosity, leading to compassion and empathy. Learning and embodying the tenets of the customer experience cycle is a good first step to understanding. See also: Making Life Insurance Personal   If you’d like to learn more, click here to register to join us for a complimentary 45-minute webinar with 15-minute Q&A on Thursday, May 24, 2018, at 2:00 p.m. ET in partnership with LexisNexis Risk Solutions. During this first webinar, our speakers will explore the first phase of the customer experience cycle — Connect and Attract — and share key insights and findings that life carriers can use to transform the customer experience in life insurance, starting at the point of marketing.

Don't just play with any dolls; play with a Russian nesting doll! Imagine you are observing a speaker standing at a podium with the five nesting dolls displayed on the podium. She picks up the smallest doll and begins: “This is you – who you are and as you are – your values, personality type, gifts, challenges, your flexibility (willingness and openness to change).” Now she takes the second smallest doll and inserts “you” in this doll. She begins again, “This is you inside of your job – what you do on a daily basis.” Quickly, she places you inside of your “job” and then sticks both of you into the middle doll. She states, “This is you, in your job, inside of the organization you work with and for. That may be your family, your employer, your church, civic club or school, etc.” She rambles on with all the possibilities, but you stop listening – because you are starting to get it and are a little overwhelmed with what you hear. Then she picks up the second to last doll on the podium and inserts the three other dolls into it. She says, “This is you, your job, your organization inside of the marketplace, community, industry, niche, etc. - where you live, work and compete,” your “life” on a daily basis. Finally, she takes the largest doll, places the other four inside and says, “This is the world today and tomorrow, the global economy, cyberspace as it is and as it will be.” You get the picture. It is simple and obvious – a great analogy. You feel enlightened and also a little stressed – you’re not sure why you’re anxious about where she’s going with the dolls in this story, but you are. The “teacher” now becomes more animated. “Each of you are inside of your own ‘set’ of dolls and whether you are ecstatic, hopeful, unsure or miserable – you now understand where you fit. You are in your COMFORT ZONE!” See also: How to Lead Change in an Organization   She then reads the following from a 4” X 6” book, titled "The Portable Do It!" by John-Roger and Peter McWilliams: “In the heating and air conditioning trade, the point on the thermostat in which neither heating nor cooling must operate – around 72 degrees – is called ‘the comfort zone.’ It’s also known as the dead zone.” Her words are now echoing off the walls as she says – “in the next few years, to have any chance of surviving, each of the five individuals/entities represented by these dolls will have to change or die.” You hear and feel the sting of her words – you have a friend who talks about the folks who are dumb, fat and happy and who will not survive in the world of tomorrow that is undergoing transformational change. You remember you and your contemporaries lamenting the loss of the good old days. Your mind flashes back to the organizational chart hanging in the hall of your office – you recently received a promotion placing you high up on the pyramid. It makes you feel good, but you, in your heart of hearts, know that what y’all have done in the past cannot be sustained in the future. Your bureaucracy is a mechanical process that stands in today and reflects positively on yesterday. It is not the living system that is a requirement to compete in the world of tomorrow. You remember your brother complaining about chest pains right before his demise. You ask yourself – is the tightness you are feeling in your chest right now coming for your head or your heart? Suddenly the speaker’s words reengage you. You wonder if she’s speaking to you or to everyone. What she said is true for you. She says, I’ll close with two quotes for your consideration:

1. From the article "Change or Die" in the May 2005 Fast Company magazine, she reads: “What if a doctor said you had to make tough changes in the way you think and act or your time would end soon? Could you change? Here are the scientifically studied odds: nine to one. That’s nine to one against you…” That is the reality and wisdom of the future.
2. The wisdom of the past goes back more than 500 years — ``And let it be noted that there is no more delicate matter to take in hand, nor more dangerous to conduct, nor more doubtful in its success, than to set up as the leader in the introduction of changes. For he who innovates will have for his enemies all those who are well off under the existing order of things, and only lukewarm supporters in those who might be better off under the new.'' (Niccolò Machiavelli, "The Prince")

See also: Don’t Lie to Yourself About the Future   What say you? You can change. Will you choose to do so? You now find your mind and spirit in a 1990 management class with Dr. Ed Timmons at LSU. He’s drawn a Rube Goldberg-type graphic on the board and explains that eventually organizations evolve into totally dysfunctional bureaucracies that must be “bulldozed” and cleared away to allow a new seed, a new idea to be planted and grow organically to the world, not as it was but as it will be! Class dismissed! Carpe mañana!

It is still early in the evolution of collecting and using mobile data from drivers and their vehicles, but many large industries with huge stakes in the outcome are participating and paying close attention. The Current Conundrum: Many Contestants, Few Prizes Formed in 1995 as a collaboration between GM, Electronic Data Systems and Hughes Electronics, OnStar was almost certainly the grandfather of the connected car. In 2002, Progressive insurance and General Motors Acceptance Co. partnered to introduce the first usage-based insurance (UBI) program in the U.S. Using GPS and cellular phone tracking capabilities, the Snapshot program offered discounts to low-mileage drivers on the program. What followed – and continues to evolve exponentially – was an explosion of business models, technologies and programs for use in the insurance and commercial fleet industries, with applications ranging from underwriting, claims and fraud to accident management, driver safety and behavioral modification. While the earlier and still prevalent telematics programs rely on a small communications device connected to the vehicle on-board diagnostic (OBD) port, the proliferation of smartphones has enabled the elimination of these device costs and provided more convenient mobile solutions. In addition, car makers have begun installing software and communications in new-model vehicles, which further simplifies the user experience and expands program capabilities, integrating them into dashboard screen interfaces. By 2020, more than 90% of new cars will transmit telematics data, according to the Auto Care Association. More recently, intermediary technology providers known as telematics service providers (TSPs) have emerged to offer consumers and insurance carriers turnkey connected car programs, and several industry information providers have introduced telematics data exchanges (TDEs), which consolidate drive and vehicle data from a variety of car makers and provide insurers with uniform, normalized data. This connected car evolution from OBD to embedded to mobile to hybrid is enabling more than just new insurance products; it is transforming the business of auto insurance. Automotive original equipment manufacturers (OEMs), insurers, TSPs, telcos and information providers all seek to monetize the exploding streams of connected car data – but no universal or dominant models have emerged as yet. Secret to Success: Partnerships The emergence of insurtechs, with their innovative application of new technologies to solve age-old insurance challenges, along with the implied threat of those solutions to traditional insurers has dramatically changed the way insurance executives think about partnerships. Today, strategic technology-centered partnerships are enabling insurers to transform their core processes and expand into more markets than ever before. In fact, many of the largest carriers have formed or joined dedicated insurtech venture capital funds and accelerators, whose portfolios potentially represent a double win, financially and in process improvement. In the area of the Internet of Things, of which connected car is a major subset, inter-industry partnerships and alliances are critical – indeed mandatory – for success. Even one-time competitors are seen to collaborate where both parties do better together than separately. Partnerships between ecosystem participants are inevitable, and desirable – with each segment leveraging its core strengths and expertise in support of mutual business objectives and their common customers. In the case of connected cars, those are the owners, drivers and passengers as well as the policyholders. See also: 5 Steps to a Connected Car Strategy   Aligning Interests by Focus on the Common Customer By focusing on the common customer, each participating segment partner can “win,” defined as achieving their primary strategic objectives. In the case of auto insurers, winning means improving and strengthening the customer experience and relationship while improving underwriting and operating results. For car makers, winning means lowering the total cost of ownership for car buyers – a fundamental strategic objective that has recently emerged – and reinforcing brand loyalty with car buyers and owners. Furthermore, lowering total cost of ownership is a strategic objective that auto insurers embrace, as well. For intermediaries such as TSPs and TDEs, winning means adding significant value to existing relationships with insurance company clients and adding new customer segments and product revenue streams to their businesses while lifting and reinforcing brand recognition across all segments. And let’s not forget one more important reality – every connected car program, regardless of the participants, requires acceptance by the same common customer. Solving the "Many to Many" Challenge With the increase of advanced driver-assistance systems (ADAS), connected cars and the emergence of autonomous vehicles, data experts, along with OEMs, insurers, brokers and agents, are joining forces to bundle whole-life vehicle costs together to offer new mobility solutions such as car subscriptions, car sharing and other short-term vehicle use models to appeal to changing consumer needs. The challenge presented by this proliferation lies in the wide range of devices and the variations in hardware and software technologies that are broadcasting data in non-standard structures. This lack of uniformity presents what LexisNexis Risk Solutions calls the "many-to-many" challenge. The torrent of inconsistent data from disparate data sources presents numerous serious impediments to consumer program portability and driver scoring calculations and will eventually impede market confidence and growth of these programs. How this data is managed and converted from raw driving data into reliable rateable factors for use by auto insurers is crucial in determining how OEMs and insurers will collaborate to support the future of connected car programs for consumers within both insurance and auto industries. The solution that presents itself is a central hub that is capable of ingesting, cleansing and contextualizing driving data regardless of data source to resolve the many-to-many problem. With access to the entire insurance market for both insurers and OEMs, the potential exists to ultimately transform the mobility-insurance market into one connected ecosystem to the benefit of all participants – including consumers. Telematics Data Exchanges to the Rescue As connected car programs continue to evolve, the challenge insurers will increasingly face is that the number of sources and collection methods for telematics data will continue to grow as programs evolve and all of the resulting data will need to be standardized. Telematics data exchanges, such as the LexisNexis Telematics Exchange, are able to help insurers and OEMs navigate evolving technology by providing them with normalized data and advanced insights that are most relevant in growing their business. To succeed, these telematics data exchanges will have to be developed and managed by trusted, well-established information providers that already do business with a majority of insurers, that have a deep understanding of the automotive industry, that have sophisticated and powerful data processing assets and that have a culture of innovation as well as a corporate commitment to data privacy and security. When you consider all of these qualifications, there are really only small handful of companies that qualify. See also: Advanced Telematics and AI   Telematics data exchange providers enable insurers, auto manufacturers and drivers to benefit from the evolution of UBI programs. These platforms provide insurers with driver scores through a single point of entry and leverage existing system integrations, regardless of each customer’s data collection preference. They also enable OEMs to collect and seamlessly integrate vehicle data into insurers’ existing UBI programs. In addition, auto manufacturers can gain valuable insights, improve return on investment (ROI) and access data analytics expertise that provides them speed to market to provide value-added products and services to their customers. OEMs will also have a practical opportunity to encourage safe driving and enhance customer ownership experiences. Everyone Wins In summary, professional management of connected car data and the wide variety of telematics solutions will enable consumers to confidently share their driving scores across a range of carriers and maximize the benefits of participation in current and future programs. In addition, it will allow the claims process to evolve from its current state to instant crash notification, touchless claims and eventually to claims mitigation. Telematics data exchanges will help to build customers' loyalty to their chosen carrier and OEM brands. Additionally, a telematics exchange will enable participants to innovate and quickly execute by providing the vital ingredients and processes required to fast-track transformation at scale and deliver real value to customers. Successful telematics exchanges will bring together OEMs and insurers for the benefit of consumers in their seamless digital lives. The authors wrote this article in the run-up to the Connected Claims USA Summit in Chicago, where both spoke this week. 

At the 11th Annual Novarica Insurance Technology Research Council meeting, two keynotes laid out some fundamental issues for the industry to address. Novarica Keynote: Key Insurance and Technology Trends for 2018 and Beyond If I had to pick out a single dominant theme of my presentation on Novarica’s recent research and guidance to clients, it would be realignment. Rapid changes in technology capabilities are opening the door to realignment of the insurance value chain and product itself, as well as insurers' technology stacks, and the management of technology organizations within insurers. Realignment of the Value Chain and Product. We’ve been talking for the past few years about how advances in information technology make it easier than ever to analyze, package and transfer risk. Each of the traditional participants in the value chain between individuals or companies and the capital markets (i.e., distributors, primaries and reinsurers) is under immense pressure to prove added value and avoid disintermediation. We’re also seeing insurers start to leverage their risk management knowledge into products beyond loss reimbursement, with companies like Allstate commercializing their telematics capabilities and even selling their roadside assistance capabilities on a fee basis through partnerships. See also: 9 Key Questions for Insurer IT Leaders   Realignment of the Technology Stack. While insurers continue to strive for advantage in data and digital, and to build a solid foundation for agility and evolution by replacing legacy core systems, we’re starting to see two major changes. The first, which is more pronounced, is the incredible growth of cloud computing. Our research has shown a major shift in acceptance and embrace of cloud, and several meeting participants told us they plan to be 100% cloud-based within two years. The second, which is still at an earlier stage, is the embrace of microservices architectures, and the adoption of a capabilities-level architecture rather than an application-level architecture. This is something we’ll be watching closely in the next few years. Realignment of the Technology Organization. All business units are more dependent on technology than ever before, and the widespread adoption of agile is helping to improve communications, relationships and collaboration between IT and other business units in many ways. But there’s still a fundamental disconnect in many companies between the way that IT evaluates its own performance and the way that other business units evaluate IT’s contribution to achieving the company’s goals. We published research this year on the benefits of using business KPIs and IT value metrics, to ensure shared understanding and the feeling of shared values between IT and other business units. I closed with our nine questions for insurer IT leaders, all of which encourage re-evaluation of current practices and attitudes from an outside perspective. For example, instead of asking how to manage the threat of insurtech, ask what can be learned from these new entrants that are approaching the industry with a fresh point of view. Instead of asking how to win the war for talent, ask what is the value of working at your company? And instead of asking how to justify an IT investment, ask, how does the IT capability drive business results? Guest Keynote: Scaling and Growing High-Performance Organizations Chris Yeh has founded, invested in or advised more than 50 high-tech startups. He is the co-author, with LinkedIn founder Reid Hoffman, of The Alliance: Managing Talent in the Networked Age and the forthcoming Blitzscaling, based on a class he team-taught with Hoffman and others at Stanford. His presentation covered material from both works. If I had to pick out a single theme from his keynote, it would be clarity. Blitzscaling, the ability to grow an enterprise quickly, requires a clear understanding of the goals and risks. It’s defined as: “The pursuit of rapid growth by prioritizing speed over efficiency in the face of uncertainty.” This is a conscious choice to do things in a particular way that might be viewed as “wrong” by other frameworks but makes perfect sense when viewed against the Blitzscaling opportunity. The clarity of the strategic decision cuts through the noise of demands for efficiency. While insurers may not have many opportunities to Blitzscale, having this same level of clarity around goals to insulate them from traditional operational demands is critical to the ability to drive innovation. See also: How Technology Drives a ‘New Normal’   The Alliance framework for talent acquisition and management has a similar level of clarity to it. Companies and the people they need each have diverse objectives, some of which align and some of which do not. However, most talent strategies don’t acknowledge this, and are built on a level of disingenuity on both sides. By starting from a clear-eyed assumption that the employee is building a career that may involve leaving the company at some point, both parties can focus on creating mutual value and growth during the period of their alliance. As one CIO commented to me later, “Chris talking about looking at your employees as having ‘tours of duty’ and how we as leaders need to look at how we help them ‘level up’ was very relevant to some actual personnel situations I’m dealing with.”

At its core, the industry is plagued by an inherent conflict of interest. Our customers don’t have an industry expert advocating solely on their behalf; the experts have financial incentives coming from the insurance industry. As I say kiddingly, the first page of your insurance policy tells you, “We cover you for everything.” It’s the next 40 pages that take all that coverage away. I firmly believe that there is strong opportunity to shift the traditional brokerage model away from one that is purely transactional and toward the strategic advisory role that companies around the world need, one that is built on trust. But before we talk about the future, let’s explore the existing environment. See also: Ready for Fourth Industrial Revolution?   Insurance brokers' incentive is purely about the sale of a policy. They receive a commission when the policy is bound, not for providing strategic advice before, during or after the sale. Brokers wear three hats representing themselves, the insurance company and then the client. How can the client obtain the most comprehensive coverage at the market’s most competitive pricing when the broker wears three hats? How can someone negotiate solely on my behalf if he has financial incentives and contractual relationships that potentially conflict with my best interests?

1. If you are making 10% commission on a policy, are you going to be more inclined to sell a policy with a premium of $80,000 or $100,000 (assuming no differences in coverage)?
2. Consider a smaller, regional brokerage, which may have three or four carriers that it primarily writes business with on a direct basis. If Travelers is the primary carrier, I hate to say it, but that relationship means just as much, if not more, to the brokerage than many of the clients do. If the brokerage upsets Travelers, perhaps by moving risk to another carrier or pushing too hard against the company in a claims negotiation, the brokerage is in a bad way. Travelers needs to be kept happy if a brokerage wants to maintain leverage to effectively price and win new business and of course retain existing business… not to mention the contingency commissions received for writing a certain amount of business with a carrier.
3. Many brokers/agents, particularly the smaller, regional practices, are generalists, yet, in this era of emerging technology and data proliferation, insurance products are continuously refined and are often difficult to interpret without a deep understanding of both the particular client industry and new, relevant insurance contract language. Consider cyber insurance. There is no standardization in the industry, and almost every carrier has its own underwriting application and insurance policy language and structure. This leads many retail brokers to use a wholesale broker (specialist) to place the risk, as they do not understand how to properly explain the risk or terms of coverage (I can't say that I blame them).

The insurance broker needs to move toward being a true client adviser, going beyond just the placement of insurance and including continuous engagement throughout the year on items such as the insurance and indemnity language in your lease/supplier/vendor/etc. contracts, letters of credit and collateral agreements/negotiations, claims analysis and negotiations and so on. See also: How Tech Created a New Industrial Model   True risk management is an in-depth analysis of both risk mitigation and risk transfer. To transfer risk most effectively, an extensive understanding of your client’s entire operations and, at the minimum, its contractual obligations, is a must. Simply reviewing a contract to see if your client meets the insurance requirements that the landlord stipulates in a contract is not strategic advice. Reviewing the contract and advising your client that she should not be responsible for “any and all liability” but rather “damages, expenses, etc. resulting from or in connection with the execution of the work provided for in the contract” is what I would call strategic advice. That’s just the tip of the iceberg. As we consider new models of distribution and leveraging the rise of technology as we shift toward the “Insurance-as-a-Service” model with a focus on the customer experience, I firmly believe we must create solutions that provide insurance brokers (i.e. the industry distribution force) with the tools that they need to shift toward the strategic advisory role. We can diminish the current industry inefficiencies and yield more effective results on a consistent basis and with absolute clarity. The question now is, how do we effectively integrate “technology of tomorrow” with “business models of today” and interpret the “culture of yesterday”?

This post concludes our exploration of Insurance/Insurtech trends in North America as part of our progression through our seven dedicated Regional Profiles. In Part I and Part II of our North America Profile, we reviewed our general statistics for the region (gathered in the course of our Global Trend Map) and identified five qualitative themes, of which we have so far explored 4.

1. Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending Insurtech disruption
2. The rise of the ‘new consumer’ and how this is changing the insurer-customer relationship
3. Customer-centricity as the prime mover of distribution and product
4. The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
5. How insurers are to unlock new sources of growth in a mature market

Here we present Part III of our Profile on North America, focusing on Themes 5and featuring commentary from our two local influencers:

• Chicago-based Stephen Applebaum, Managing Partner at Insurance Solutions Group
• Boston-based Matthew Josefowicz, CEO at Novarica

You can access the full North America Profile whenever you like, with Themes 1-5 explored in order, by downloading the full Trend Map report here (which is totally free of charge)! We hope you enjoy reading ... 5. Mature Growth: Where are the Opportunities? If the current renovation underway at many insurers – complex, expensive and ultimately aimed at creating a lower-price model – is perceived as a cloud, then the silver lining is the greater scale that it will enable. In absolute terms, even ‘saturated’ insurance markets are under-penetrated ... In Part I of our Regional Profile, we characterised the North American market as being middle-class and relatively saturated, lacking the low-end market opportunities on offer in many parts of the world, like Asia-Pacific, LatAm and Africa to name a few (see our forthcoming dedicated profiles on these regions). While this is a useful designation for understanding how dynamics vary from market to market, it can be misleading: the truth is that, in absolute terms, even ‘saturated’ markets are under-penetrated. It's time to densify the pie! See also: Global Trend Map No. 16: Regions   Simply by rendering the coverage they offer more fit-for-purpose and intuitive, North American insurance players can bring more customers into play in existing segments and product lines – without having to completely reinvent the wheel. This way, even if it does sometimes appear a race to the bottom, the current convulsion in the industry will ultimately result in a denser pie.

"Advanced analytics, combined with digital and social tools, can provide a much more cost-effective way of reaching clients, and educating them about risk and prevention. We know that clients understand the concept of life insurance but still aren’t familiar with the products themselves. Through analytics tools and possibly AI we can deliver more information to the market, customised to clients, in a proactive way." — Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance

Obviously, some products and segments are riper for growth than others, and it is by identifying these early on – as well as the particular customer pain points to be overcome – that insurers can bring much-needed focus to their transformation efforts, which otherwise threaten to become too thinly spread and to do no more than reduplicate the flaws of the legacy business, just in a shinier form. ‘Insurers need to shift their orientation and look at the needs of individual market segments. Instead of starting with the risk, they need to start with the market,’explains Novarica's Matthew Josefowicz. ‘They need to be asking: what kind of coverage does the market need, how much detail do they want in it and how comprehensive does it need to be in terms of what they need to buy?’ Josefowicz points to several innovative new entrants who are successfully taking this bottom-up approach to insurance. ‘There are innovative companies like Slice that are doing insurance for the gig economy, and there are folks like Trōv who are doing single-item insurance in a scalable way – so there are many ways to approach the different kinds of risk that buyers need insuring,’ he expands. In many cases – particularly in mature markets like North America – the factor inhibiting growth is not the price or extent of coverage per se but rather insurers’ failure to distribute the product in an appropriate way. ‘I think that for some insurance lines, for example in life insurance, the reliance on traditional distribution and traditional sales processes is actually boxing the industry out of some market segments, who just won’t tolerate that buying process,’comments Josefowicz. ‘Life insurance is very under-penetrated in North America, and I think the opportunity is to use technology to make the buying exercise easier for those under-served segments that have been put off by inefficient and unpleasant buying processes.’ The injunction to double down on the customer – rather than simply redoubling sales efforts on fundamentally outdated products – applies not just to personal lines but also to commercial ones. The reality of doing business, whatever industry you are in, is changing rapidly, and the palette of risks businesses need protection against would be unrecognisable to the insurers of yesteryear, one conspicuous addition being cyber risk. Josefowicz believes that it’s still early days but that insurers are now moving towards effective product offerings in this challenging area.

"The most progress will likely be made by partnerships between innovative nimble start-ups and incumbents who are skilled at navigating a highly regulated and complicated ecosystem. Insurtech is not a zero-sum game." — Nick Martin, Fund Manager at Polar Capital Global Insurance Fund

We have touched on the endeavours of Insurtechs Trōv and Slice in creating more fit-for-purpose insurance products, but it is important to bear in mind that the confrontation between insurers and Insurtechs is not a zero-sum game, given that it is happening in the context of an expanding addressable market. We asked our local commentators to go into a bit more detail on how they see this ‘confrontation’ playing out. As we see in our other regions, there is a trend towards collaboration between incumbent insurers and Insurtechs. While the disruptive intent of some players is clear, many of them, strongly backed by none other than insurers themselves, will end up as components of the overall technology stack. In some cases, the Insurtech start-up is in fact just an incumbent appearing in a nimbler guise. Insurance Solutions Group's Stephen Applebaum gives the example of Canadian insurer Economical, which last year created brand-new start-up Sonnet as a way of innovating more quickly than they would be able to in-house. ‘Economical traditionally was an agency distribution model, so all of their insurance was sold through agents,’ clarifies Applebaum. ‘Sonnet is a direct-to-consumer business, so that’s the way Economical is going to walk both sides of the street.’

"There will be an evolution of customer experience. Economical is the first to launch as a coast-to-coast, fully digital service and there is education required in the marketplace, but my expectation is that others may well follow our path and this will be the customer’s expectation." — Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance

Josefowicz stresses the role of Insurtechs as trailblazers over and above their much-hyped role as predators. ‘A lot of the new entrants are pointing the way. I don’t know how many of them will become significant competitors in and of themselves, but they are clearly demonstrating to insurers that there is an opportunity to engage differently with customers and that customers are hungry for a different type of engagement,’Josefowicz explains. ‘To put it in a capsule, I don’t think Lemonade is going to become the biggest personal insurer in the world, but I do think a lot of personal insurance is going to look like Lemonade in the near future.’ See also: Global Trend Map No. 7: Internet of Things   Following Insurtechs down this route, be it through imitation, partnership or outright buying, will allow insurers to open up and serve those market segments that have hitherto been cut out of traditional forms of distribution and service – much like prospectors returning to bypassed reserves in mature oilfields – and this is where they should set their sights. ‘I think the most successful Insurtechs will be purchased by insurers, similar to the Allstate purchase of Esurance from the previous generation of e-insurance start-ups,’Josefowicz concludes. That concludes our Regional Profile on North America. Next week we move on to our Regional Profile on Asia-Pacific, with insights from Steve Tunstall, CEO at Singapore-based Insurtech start-up Inzsure, João Neiva, Head of Innovation, IT and Business Change at Zurich Topas Life in Indonesia, and HK-based David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS). Key discussion points include:

• The high-growth, high-competition dynamic inherent in the Asia-Pacific insurance market
• The new calling for customer-centricity and the related question of disruption
• Using data and analytics to create more customer-centric products, such as personalised, on-demand insurance
• APAC distribution landscape and what insurers are doing to ensure scale for their products
• How to successfully manage back-office digital transformation

 

According to its generally accepted definition, operational risk is “the risk of loss resulting from inadequate and failed internal processes, people, and systems or from external events” and it covers also legal risk exposure. However, according to the risk management literature, strategic and reputational risks are excluded from operational risk definition. With its qualitative background, operational risk is found as one of the most treated components in business processes. Because its features, operational risk exposure of an entity is not easy to measure and risk appetite is not easy to determine. Like other qualitative risks, top down and bottom up assessments are performed for operational risk exposures. However, yearly analyses change frequently and finding a trend for exposures is really struggling. See also: Cognitive Biases and Risk Management   Risk management can add value to companies only because markets are imperfect and today, insurtech is the main driver which makes markets imperfect. As a revolution in insurance business, it is changing every dynamic in our business. Inevitably, it converts traditional risk management functions of insurance companies totally. After two very busy years with solid development, insurtech is more than an emerging risk now. And as risk management professionals, we need brand new approaches for manage its effects. Needless to say, insurtech affect all risk types of an insurance company, but because of above mentioned features, it is more difficult projecting how will change ORM (Operational Risk Management) after insurtech. My predictions on this grey point are as below. With digitalization, operational risk exposure of an entity will be based more on digital process based risks (not systematic or systemic risks!) than man-made risks. After insurtech implementations, many manual controls will die, and system-based ones fill these gaps. Enterprise risk manager will need to construct its risk management framework mainly on automated controls and this brings different testing processes as well. Insurtech implementations do not mean just digitalization, but also using disruptive technologies; as AI, IoT, machine learning, blockchain, AR, VR; in every step of insurance business. As a second line of defense of insurance companies, risk managers should be one step further from their colleagues and need to define control framework of these activities. See also: How to Improve ‘Model Risk Management’   Last but not least, one of the crucial side effects of insurtech in operational risk management is cyber risk. Today, cyber risk is assessed as third or fourth most threated risk in insurance professionals ‘expectations. However, more automated systems will put insurance companies into target of cyber-attacks and cyber risk will become most threated and costly risk in very short time.

One of the most pressing questions that has arisen from the insurtech movement is this: Will insurtech startups have a need to utilize the incumbent tech market’s capabilities? In the past three years, startups have been actively partnering with other startups, insurers and tech incumbents. Partnerships, of course, come in many different flavors. The latest SMA research has revealed that startup MGAs and greenfield insurers are increasingly partnering with existing core systems providers – as clients.

The first wave of insurtech startups – most of which were focused on personal lines – tended to go it alone, developing their own core systems. Many of today’s innovative new insurers and new MGAs have focused on commercial lines and see value in the core systems that incumbent insurers and MGAs already use. Their new core systems are increasingly coming from established core systems providers.

For the insurtechs, this means that they have access to expertise and content. Both are especially helpful for insurtechs pursuing opportunities in commercial lines – which account for the vast majority of the startups that purchased new core systems last year. The earlier insurtech startups targeted personal lines and life/health ventures. Today, more startups pursue the significant opportunities in commercial business.

See also: How to Collaborate With Insurtechs  

To compete in commercial lines, these startups need to have the robust capabilities that support the various new products being brought to market. Time to value is critical, and the content (rates, rules, and forms) provided by tech incumbents’ agile core systems can increase their speed to market. In addition, the expertise of their new vendor partners can be a valuable resource to help them navigate the complexity of the commercial market.

As SMA detailed in our recent report, Core Systems Purchasing to Thrive in the Digital World: What’s Hot – And What’s Not, 12% of all new P&C core systems sold in 2017 were bought by startup MGAs and greenfield insurers. We expect them to be a stronger presence in 2018 and onward, creating substantial benefits for startup and incumbent tech providers alike and opportunities in new spaces for all forms of partnerships. As this new market wave continues, the creativity and capabilities of all will be needed to support the insurance business moving forward.

The business of insurance has undergone drastic changes globally. In my recent article The Vote Against The Establishment, I noted that new entrant Lemonade paid a claim in three seconds. The growth of chatbots and claimbots is another attestation of the smart digital age, which is growing in the use of sophisticated technologies, including natural language processing, machine learning and augmented reality for all types of insurance from workplace safety to the general insurance life cycle. A recent interesting Bloomberg post indicated how WeChat influenced spikes in insurance sales in Hong Kong and the reaction by regulators. Yes, one can argue that the U.S. in general has strict regulations and gobs of historical insurance policies on siloed legacy systems. With globalization, consumer expectations worldwide have become very similar – no matter the age, geography or industry. Consumers care little about the technologies and processes an insurer or an agent uses to provide the information – all they care about is getting it immediately and via a device of their choice. Thankfully, there are metrics that insurers can use to measure how successful they are at doing this. The Net Promoter Score (NPR) is an age-old indicator of growth, and the Net Easy Score (NES) aka Customer Experience Index, is a metric for the contact center or service center. Simply put, a successful customer experience requires an understanding of the customer at a personal level and triangulating technology, information and human touch points, at the right time, in the right context and via the right device. The customer’s expectations are not the only trigger that is changing the insurance landscape. Insurers are leveraging technology advances to not only reach a wider market at a lower operating cost, and to improve their loss ratios, but also for economies of scale. Insurers will still need to balance technology with workforce behaviors and business priorities to allow for sustainable growth. It's not the millennial age group that positively disrupts — it's the millennial mindset! The customer is the common denominator across all industries. The customer demands immediacy, transparency and personalization of service at any time and on any device. Customers also demand to be able to connect with a human when they feel it is necessary, and to be left alone otherwise. Customers of all age groups and walks of life are usually heads down on their mobile devices during downtime, researching and comparing products, catching up on social sites, news, tech trends and more. While millennials like the convenience of shopping and researching online, they also crave unique experiences and instant gratification. The brand experience delivered to a customer is the sum total of personalized experiences across all the touch points – through advisers, service representatives, claims representatives and online channels. The retail industry offers an example in integrating offline and online channels. Yelp and Groupon, for instance, allow local businesses to reach potential customers with online, location-based technology. Millennial or otherwise, customers of every generation are familiar with the newest tech products. The Boomers are aging gracefully and have picked up on digital trends to make life simpler. Gen Xers on the other hand were always walking the fence and could adapt either way. Whether the consumer is 25 or 65, everyone is looking for hassle-free, seamless self-service and active customer care. See also: How Millennials Are Misunderstood   Take a simple example in insurance: Real-time alerts, offers and notifications and certain transactional capabilities on any device and at any time can avoid redundant or low-value calls into the service center or the agent’s office. This improves the productivity of the agents and service representatives and allows them to focus on more complex tasks for business success. This is just one of many reasons that a mobile-first approach to insurance products should be given top priority, even over the desktop experience. The tripod of customers, service representatives and agents According to Marketing Metrics, the probability of selling to a new prospect is 5–20% whereas the probability of selling to an existing customer is 60-70%. Service excellence is one of the drivers to customer retention and increased referral business. Insurers have undertaken initiatives to better understand their customers' insurance journeys (digital, emotional, physical) in alignment with those of the service representatives and agents. In addition, insurers are mining their historical customer data to assess the lifetime value (LTV) of the customer and the reasons for drop rates and spikes in purchase patterns. This not only provides up-sell insights but additional insights into the product uptake and service-level impact on business economics. Insurers are beginning to analyze information from social sites and literally billions of connected devices that consumers engage with every day to provide targeted, personalized and proactive service. Mobile Future projected that by 2020 there will be 5.5 billion mobile users globally. They also projected that by 2020 there would be 947 million mobile-connected devices and 163.2 million wearable devices in the U.S. alone. The service representatives and agents themselves need simplification of process and technology and require their daily journeys to be better understood by insurer management. As the face of the company, they provide the critical touch points that can make or break a relationship. More clients are becoming tech-savvy and will require a mix of digital empowerment and human engagement. Service representatives and agents/advisers need to have the ability to adapt to newer technologies, thus catering to customers in ways they choose to do business. Face-to-face guidance by advisers will still exist for those individuals planning for and nearing retirement, high-net-worth clientele and more sophisticated financial products. According to the U.S. census, there are almost 80 million Baby Boomers living in the U.S. Another article by CNBC indicated that only 27% of Baby Boomers were confident they had enough for retirement. Moving the Titanic from the Neolithic age to the fintech age Taking a specific example, the average life insurance application process takes 30 days or more with extensive and intrusive underwriting processes. Given the amount of information available through IoT, social sites, paid and unpaid data sources, plus historical insurer data, the underwriting processes can be minimized and personalized. Newer medical technologies that are FDA-approved exist wherein less intrusive and more immediate results can be obtained to drastically reduce underwriting and policy issue cycles. Simpler products with lower face values are already being issued online within minutes, including processing of the initial premium payment in the same session. Newer technologies provide powerful insights into personal and commercial risk information allowing various sales and service personnel the insights for pre-qualifying leads, providing targeted products and ensuring the highest quality of engagement. Another area is field service and productivity technologies that include augmented reality to drive productivity and reduce loss ratios. For instance, field staff and adjusters can use smart glasses to augment their inspections with additional safety and construction code information to help accelerate the underwriting process and assess claims losses. Furthermore, the vast expanse of information available today, and the AI capabilities to triangulate the information contextually have been proven to reduce loss ratios and identify high-risk entities. A handful of insurers and reinsurers are dabbling in advanced technologies, deriving contextual risk information from IoT, social sites and augmented reality and mining sentiments and financial trends for predictive and preventative claims analytics. Minimizing recruitment problems while maximizing productivity through technology Insurers are well aware of the recruitment issues they will face should they decide to not advance technologically in their business. This pertains more to the fact that a service representative’s turnover rate is very high and the average age of the agent is 56 (according to LIMRA). Attracting and retaining the younger generations (millennial, Gen Z and beyond), will require a realignment of the insurer business models, change in compensation models (especially for service representatives) and behavioral changes in the mindset of the workforce to realize the business metrics they need to stay relevant and gain competitive traction in the marketplace. See also: How to Attract the Next Generation   In summary, I see four major changes occurring in the industry: one where insurers are beginning to realize the benefits of their digital transformation efforts; second where the role of the agents, service representatives and underwriters is becoming more specialized; third where consumers are becoming more educated and empowered; and lastly where risk assessments are shifting from historical models to individualized and predictive projections.