Tag Archives: deb smallwood

Bridging From Today to Tomorrow, Part 1

Change is constant; we all know that. External forces are conjoining with emerging technologies and changing our whole world, including the business of insurance. And changes bring challenges. How insurers face these challenges and bridge their current world to the future is the key to success.

Our perceptions of change vary. For some, it feels like the pace is accelerating beyond comprehension, and keeping up may feel like an insurmountable challenge. Sometimes, it may seem almost impossible to fathom. As you walk into work today or attend a meeting, the business itself may feel the same on the surface. They’re the same people and similar processes. It appears to be business as usual … but is it?

What we at SMA know is that, just below the surface, insurers are working hard to respond to external changes in a variety of ways and to transform their businesses in response to these external stimuli. We have observed patterns of change adoption in insurance that, at times, may seem very scattered, unstructured and, depending on the size of the insurer, very erratic. Insurance is embracing innovation; it is really happening. It’s still difficult to apply absolutes and see consistent patterns. But the data is there to gather.

See also: 100 Ideas That Changed Insurance

No one has a crystal ball to predict the pace or time frame for these developments. But one thing is clear: Even now, the insurance industry is starting to see the implications of emerging technologies, and there is likely to be significant change over the next several years.

Many insurers recognize this and are working to position their companies to be more agile and responsive. At the same time, insurers have complex operations, organizations and products that require intense focus every day. Managing operations and improving competitive position are challenging enough even before considering the ways that emerging technologies will transform insurance.

So, how are insurers responding? SMA has been tracking six major ways that insurers are gearing up to prepare for the challenges and bridge to tomorrow:

  • Establishing venture capital arms to actively invest in startups – focused on new technology solutions, new agent/broker firms and even insurance company startups. The focus is within the insurtech and fintech spaces.
  • Creating new partnerships with global companies such as Facebook and LinkedIn, and global technology companies like Google, Microsoft and even IBM. These partnerships are also expanding into auto and other industries as the digitally connected world matures.
  • Developing new roles to match the digitized world and capabilities – like digital officer, customer experience officer and chief data scientist. These new roles are attracting new talent and also motivating seasoned insurers to develop new skills.
  • Embarking on on new strategic initiatives like digital transformation, customer experience and even big data analytics. These initiatives are a result of the outside pressure from the digitally connected world, the changing customer experience and the advancement of analytics and data sources.
  • Creating innovation labs within their businesses and outside the operations, encouraging a culture of innovation. These innovation labs promote ideas from within and are transforming the way in which individuals work and are rewarded.
  • Transforming their core operations – underwriting, billing and claims with core systems, initiatives that establish a platform for modernization, optimization and innovation.

At SMA, we focus on what all of this means for insurance, when the impacts are likely to be felt and how insurers can become Next-Gen Insurers positioned for success in the future.

See also: The 4 Major Sources of Change for Insurance

Bridging the traditions of insurance with new technological innovations and transformations is essential for success, as well as being a major focus of the SMA Summit this September. Insurers large and small are all facing this transformative time in different ways, and some of them will be sharing their experiences and insights at the Summit.

Step one is identifying what insurers face and knowing that the time to act is now. Step two is determining “the hows.” How to build the bridge between today and the future. How to take action. How to ensure that you are competitive in today’s world. I’ll address those steps in the next blog: Bridging Today to Tomorrow, Part 2.

Pursue Innovation or Transformation?

People often use “innovation” and “transformation” synonymously. Both words evoke thoughts of change and modernization. Both words are important outcomes of the change management life cycle. We know innovation is occurring all around us, as people find ways to improve things. Alternately, transformation is the result of moving from one state to another.

So, should we innovate, or should we transform? Should we do both? What’s the difference?

See Also: Does Your Culture Embrace Innovation?

I think the best way to answer is to explore the differences between innovation and transformation in insurance and break each down into definitions and examples. Then, you can determine where your company is in the change management life cycle and decide what will work best for your organization.

What SMA has found, as we work with insurers, is that innovation and transformation are not only distinct, but are decidedly different, and their impact on organizations is different, too.

Innovation

Innovation is defined by SMA as rethinking, reimagining and reinventing the business of insurance. We have seen the results of innovation in business models, customer relationships, new products and new services and in how investments in technology are made. A perfect example of innovation is the focused improvements of customer experience.

Once, customers had to push paper and make phones calls back and forth with agents, but innovation has made these types of interactions a distant memory. Today, chat, apps, portals, mobile, etc. have started to create an innovated customer experience. It is different and (arguably) better. Similarly, in the data analytics arena, innovation in the ways we use and apply data has changed the way insurers operate, price policies, handle claims and compete in the market. Innovation makes something that once seemed impossible possible. It is rethinking the way of doing things, questioning the possibilities and turning them into action.

Transformation

Transformation is the evolution or journey from a current level to a different and better state. SMA describes it as modernizing and optimizing. Like innovation, transformations produce an improved state, but we can also measure the journey as an outcome of the process. The journey of transformation is the tangible process, structure or building block for future success, even if a project fails or takes a different shape. Transformation can be seen in core system replacements, during which existing and necessary underwriting, billing and claims capabilities are shifted and moved into a better state through improved technology and processes. Transformations are evolutionary and occur over time.

Our recent research reveals that approximately 13% of insurers self-identify as innovating, while 45% identify as transforming. That’s a pretty sizable difference. The data suggests that transforming existing systems and processes is a necessary effort in today’s world. SMA predicts the percentages of both innovating and transforming insurers will continue to grow.

Most insurers need both!

insight

What the Primaries Can Teach Us

Super Tuesday’s presidential primaries and all the associated media coverage made me reflect on how candidates interact with their constituencies and the lessons insurers can learn.

I have been a New Hampshire resident all my life, and one of the special privileges of living in this great state is being able to vote in the first-in-the-nation presidential primary every four years. Of course, with that privilege comes some pretty aggressive campaigning. Robocall after robocall, commercial after commercial, canvasser after canvasser; New Hampshire was inundated with candidates for several months until voting day came.

Now, our primary is over, and the rest of the country has its chance to weigh in and experience the campaigning. I can’t help but apply the insights I got as a potential voter to the insurance industry; more specifically, to customer demands and business practices.

First, it is clear 20th century campaign tactics won’t win elections in the 21st century. The rest of the nation saw how New Hampshire voted overwhelmingly for outsiders in both parties. Neither Sanders nor Trump has strong party affiliations with the Democrats or Republicans; they are considered outsiders. Voting along a party line is a thing of the past, and, in New Hampshire, where voters can register as independents and vote in either party’s primary, this is especially true. The same principle is true for insurance—20th century tactics won’t work in the 21st century, either. Customers have more information, more choices and higher expectations than ever. And, just like a New Hampshire voter, every potential insurance customer is an “independent” and can pick any P&C carrier that suits a consumer’s unique needs; the consumer can then leave the carrier just as quickly if a better opportunity comes along. What keeps a customer loyal is new ideas, innovative approaches and efficient and effective service.

Next, I experienced some interesting data and analytics gathering during the campaign. My landline rang off the hook for months, with robocallers asking my opinions on various policy issues or my thoughts on one candidate or another. However, I found it odd that many candidates did not ask basic demographic questions—how many phones I had, how many people lived in my house, how many people were of voting age—that would have been helpful targeting a message. The candidates who used alternative forms of campaigning tended to do better in New Hampshire., and the same is true for insurers: Gathering data is great, but it’s the savvy application of the collected data that differentiates an insurer from the rest of the pack. New technologies are making it easier for insurers to use data to their advantage. It’s time to embrace those technologies.

Finally, I learned a bit about campaign spending. Isn’t it interesting that the two candidates who won New Hampshire are funding their campaigns in non-traditional ways? Similarly, insurers need to look at their technology investments through a new lens.

Insurers should take a moment to imagine themselves as candidates in a race—an insurer’s goal is to be the best option to the greatest number of people. Then, they will win. This means using innovative approaches, gathering and using data for advantage and making sound strategic investments. As in this presidential election, anything seems to be on the table. And the sky is the limit in terms of new ways to reach today’s customer.

Google

What We Can Learn From Google Compare

“The Google Compare service itself hasn’t driven the success we hoped for.” Google Compare announced in an email to its partners that it would be shutting its insurance and financial products comparison service tools in the U.S. and U.K. as of March 23. The lack of traction in both usage and revenue generation were named as two key reasons. Those were the headlines across the industry this week. So Google Compare is done – for now.

This is big news for the insurance industry, which has spent the last year figuring out how to shield itself from the potential impact that the tech giant would make. It turns out Google didn’t make much of a splash after all. In addition to insurance, Google is backing out of credit cards, banking and mortgage products. Google said  it is shutting down for now and focusing on “improving the customer experience.” Maybe Google will be back in a year, maybe five years, but what can we learn from it now?

When Google Compare was launched in the U.S. last year, it took the industry by storm. The agent/broker ecosystem was skeptical of any success, but they were also fearful – given Google’s size, wealth and talent. Could Google disrupt personal auto quoting?

What the agent/broker ecosystems did was to keep their (potential) enemy close by understanding what they were doing. They watched and hoped for failure. Meanwhile, a handful of insurers signed up to be part of the California launch: those insurers who could easily connect to the Google platform and wanted to be part of a potential success. And these companies had to explain their actions to their agents – who were in the wings watching and waiting to see what would happen.

I have my own thoughts on why Google Compare failed this first go-around. First, consumers can get these quote comparisons elsewhere – insurers already do this. Next, maybe customers just aren’t quite ready for self-service compare engines – but by all accounts, they soon will be. I don’t think Google underestimated the complexity of insurance, nor do I think it underestimated the consumer. I think, probably, that the timing was off, and Google didn’t differentiate itself from existing solutions with comparative raters. Google probably lacked some of the innovation that would have been needed to differentiate itself from others in the market.

Google Compare, like many start-ups, has failed, at least for now. At SMA, we talk all the time about how there is an innovation journey and how even the best-laid plans will sometimes fail. Part of the journey is learning through failure and then coming back better than ever. This is especially true in insurance. The industry is complicated. It’s complex and heavily regulated. It experiences slow growth, a slow pace of change and relatively small profits. And it requires lots of resources, cash and expertise committed for a long time before it pays off. SMA research shows 88% of insurers understand that innovation projects may fail. Part of that acceptance indicates a growing ability to learn from failure.

So where do you place your bets moving forward? Will Google Compare opting out of insurance cause new disruption? Will new solutions move in to fill the void?

Many will place their bets on strong incumbents and today’s ecosystem. Insiders believe that, with Google Compare moving out, it will become unappealing for outsiders to move in and try to understand it, saying the barriers to success are too high. Others will say that something will come to disrupt and challenge the traditional ways of the comparative raters and that outsiders, with their naivete and innovative thinking, will find a pin hole in the ecosystems and exploit the market.

Either way, the wonderful thing about innovation is that it is the essence of change. The only constant is change. Things happen so quickly. Innovation can flip an industry on its side overnight. Google Compare isn’t going away forever; it is just shutting the blinds. While this may be a small win for the establishment insurers who viewed Google’s entry as a threat, it doesn’t mean these organizations should rest on their laurels. The time is now to innovate, fill a void and improve overall services. Finally, failures and what we learn from them serve to set the ground work for change and innovation. It is part of the innovation journey to improve and adapt. As we continue this year, I am confident there will be more changes to the industry … so stay tuned.

iceberg

Shift in Funding for Strategic Initiatives

Take a look at the financials of the insurance industry and industry projections, and it may seem like business as usual. But peek just under the surface at many insurers, and you’ll find a great deal of activity aimed at transformation. Typically, this activity takes the form of strategic initiatives—enterprise-wide programs that require sustained commitment and investment.

Our research reveals that the top strategic initiatives remain virtually the same as 2015: customer experience, analytics, new products and core replacement. This is an indication that the commitment to transformation aligned with these four initiatives is rock solid. However, the manner in which these initiatives are being funded is changing, with more funding coming from new sources outside the IT budget. In 2015, about a third of the funding for strategic initiatives came exclusively from capital investments. In 2016, funding from new sources will increase to more than 40%.

These are the questions to explore: Why change? Why all the investment and resources devoted to rethinking and reshaping the company? The answers are straightforward. Many recognize that we are entering a new digital era, one with technology rapidly advancing and increasingly in the hands of customers and competitors. Emerging trends such as the sharing economy and the rapid adoption of technologies such as cloud and mobile are creating opportunities (and risks) for insurers. In fact, SMA predicts that the introduction of new products, business models and business optimization will accelerate as insurers leverage maturing technologies and capitalize on emerging technologies such as wearables, the Internet of Things and drones. Technology really is driving a lot of the conversation and action at the senior levels these days.

Ultimately, many insurers have a vision of building a company that is agile and able to respond rapidly to market opportunities and threats. The common threads running through the strategic initiatives are the need to be digital and the key role of innovation. Although not the end games in and of themselves, digital and innovation are the enablers that form the foundation for future success. SMA has created the Next-Gen Insurer Model to describe what the future insurance company and what any future success will look like. The 12 initiatives that many insurers are pursuing are the mechanisms that insurers are using to become Next-Gen Insurers. There may be choppy waters under the visible tip of the iceberg, but the activity is very focused and taking individual companies and the industry as a whole in a new direction. In the not-too-distant future— within five years. by our estimate—the visible part of that iceberg will change, as well, and a new industry will emerge.

SMA has just released a new research report identifying strategic initiatives, “Insurers’ 2016 Strategic Initiatives: Advancing Industry Transformation.” The report covers the priorities of these initiatives, sources of funding and their role in helping insurers attain the future as a Next-Gen insurer.