In a 2009 interview with Insurance Journal, Juan Andrade of The Hartford ranked “improving operational efficiency” third on a list of essential priorities for P&C insurers, below both customer retention and a systematic sales approach.
This ranking made sense 10 years ago. At that time, Andrade’s top two priorities were customer connections and insurance sales, but digital means of providing either one had not fully developed.
Today, however, all three of these top priorities can be addressed through a digital platform — and placing operational efficiency first on the list has the power to boost the other two.
Digital operations management “is not only about technology,” says Eddy Lek at Schneider Electric. “It requires a holistic approach to transform operations; implementing changes to the existing business and operations models and training employees to effectively operate with new tools – [e]mpowering the workforce to leverage technology for greater efficiency.”
Here, we look at how a digital platform improves operational efficiencies for P&C insurers. We also discuss how insurers can identify the top challenges they face and ask the right questions to ensure they implement digital tools that address those challenges effectively.
The Digital Future and Its Challenges for Insurers
Property and casualty insurers have seen stormy weather in the past few years, literally and figuratively. The need to respond to claims from the 2017 hurricane season, decreasing auto coverage purchases combined with rising claim costs and other factors have resulted in losses across the board, according to a Deloitte report.
Customer needs and demands are changing, as well, as Insurance Journal’s Michael Kasdin notes. For instance, younger adults drive less, reducing demand for auto insurance policies and increasing interest in newer, more adaptable tools like pay-per-mile auto insurance. Gig economy work like driving for Uber or Lyft or listing rentals with AirBnB has changed needs in auto and home insurance, as well.
See also: Digital Playbooks for Insurers (Part 4)
According to Kasdin, insurtech is poised to address many of these problems. Yet concerns about cybersecurity and anticipating the “right” place to invest in digital platforms and similar tools continue to stall many insurers, as Nate Anderson, Pascal Roth and Pierre-Henri Boutot described in a Bain & Co. brief.
To address sinking premiums, rising claims and the retention of a customer base shifting rapidly away from old standards of expectation in insurance, insurtech stands out. Improving operational efficiency via digital platforms can improve P&C insurers’ ability to address all three threats simultaneously.
Digital Tools for Operational Efficiency
A recent Audit and Risk Committee Forum survey by PwC found that 44% of insurance leaders surveyed believe that “most existing insurers will not survive, at least in their current form.” And one of the biggest causes of their demise will be operational inefficiency.
Currently, operational inefficiencies in P&C insurance are commonly found in “repetitive, business rule-driven work,” according to a February 2018 PwC white paper. While other inefficiencies exist, the sheer volume of repetitive, rule-driven work sets insurers apart from many other industries.
For decades, such work has demanded human intervention because no machinery existed to ensure that the rules were followed and that the task was done correctly each time. Today, however, machine learning, AI and similar tools make it possible for insurance companies to automate much of this work for increased efficiency.
“It’s always important to realize that 55% to 60% of all the cost within any given agency is going to be personnel cost,” Andrade told Insurance Journal in 2009. “The key here is making sure that your people, your employees are being as productive as they can.”
Digital platforms offer new ways to ensure employee productivity. In an automated world, insurance companies can reevaluate the contributions each agent and employee makes based on the value added to the process, providing a powerful new way to determine and eliminate inefficiencies.
How Efficiency and Customer Retention Meet on a Digital Platform
The February 2018 PwC report noted that when it comes to insurtech, most P&C insurers are still thinking in an “outward”-facing mode. They’re embracing digital platforms primarily for the platforms’ ability to connect them with customers who increasingly demand easy digital communication, online purchasing and consistent points of contact.
Meanwhile, Ben Kerschberg at Forbes identifies three “pillars of change” for digital platforms: customer service, operational processes and business processes. In other words, digital platforms do have the power to improve operational efficiencies in customer service — but customer service is only one of three pillars of opportunity. Insurers who focus here miss the two opportunities to greatly improve operational and business efficiency, as well.
Five years ago, big data was big news. Today, it’s a given in most businesses. The ability to analyze vast amounts of data to spot meaningful trends and changes can revolutionize risk analysis and operational efficiency in insurance, but insurers must first have the digital platform necessary to capture and analyze data.
Customers are willing to provide more data to get seamless digital service. They’re also willing to pay more for service on a strong, integrated digital platform — up to 21% more to get, it, according to Ameyo’s Shaista Haque.
A digital platform also makes it easier for insurers to streamline service, not only to customers but also within the organization itself. For instance, when products are developed in a streamlined digital environment, much of the inefficiency caused by in-person meetings, incompatible or un-editable digital documents, checking details or numbers by hand and other prolongations of the product development cycle can be minimized or defeated. This increased internal efficiency improves the ability to provide customers with products that meet their changing needs on a timetable that encourages customers to adopt them.
See also: Digital Insurance 2.0: Benefits
Questions to Ask When Seeking the Right Digital Tools
Insurtech developments appear almost daily, which can leave insurance leadership feeling overwhelmed. What are the best tools for the particular challenges you face? How can you identify top inefficiencies, and how will you know you’re choosing the right digital platform capabilities to optimize them?
Deb Miller, director of market development for business process solutions at OpenText, identifies four operational efficiency optimization strategies that are being employed by an increasing number of insurance companies:
- Improving operational efficiency by driving for leverage across silos
- Scaling to address demand for specific products and across a broader geographical range
- Expanding distribution channels while improving or maintaining excellent customer service
- Automating case management tasks to reduce time to resolve in claims, as well as reducing paper and other resource waste
Knowing which strategies to prioritize, however, means knowing where your particular organization’s inefficiency pain points lie. A McKinsey & Co. white paper recommends that managers seeking to improve operational efficiency ask questions like:
- How are we delivering value to the customer? How do we do so efficiently?
- How do we work? What are some better ways to perform that work?
- How do we connect goals, strategy and meaningful purpose? How do we communicate these to our teams and to our customers?
- How are we enabling people to lead at their fullest potential?
Questions like these can help insurers find inefficiencies. The answers can also help digital platform providers identify which tools will be most effective for a particular insurer.