Tag Archives: design thinking

Innovation Imperatives in the Digital Age

Even a casual look into the history of insurance reveals its rapid evolution over the last decade – from a slow-paced and highly regulated industry to one consumed with technology transformation.

Until recently, insurers have grappled with challenges of engaging millennials, managing investments, simplifying systems, improving combined ratios and driving growth. Today, however, a slew of disruptive forces are changing the playing field. The availability of new user experiences for policy holders, coinciding with the sprouting of insurtech, has created asymmetric competition for established carriers. Legacy products designed decades ago are unable to support the deluge of new data, while millennials are ride-sharing and buying fewer cars. Technologies such as connected health, homes and autonomous vehicles are forcing traditional insurers to re-invent offerings at an unprecedented pace.

See also: 10 Essential Actions for Digital Success  

Market reports reveal that over the past few years technology spending for insurers is higher than the market growth rates, signaling a shift to technology-led-models. The UK FinTech sector alone hopes to create 100,000 jobs and seed $8 billion in investments by 2020. In view of these developments, speed-to-launch will become a real differentiator. Carriers strive to launch products in three to four months to stay abreast of customer demand. They also need to accelerate the integration of enterprise risk management into decision-making for these emerging products. Data monetization and customer-centricity will become key imperatives while lights-on cost continues to be sucked out of legacy platforms.

Using technology to re-invent insurance

In the face of myriad transformation alternatives and confusing consultant-speak, choosing the right path can be tedious. To address this challenge, I suggest a three-dimensional approach that maps outcomes to technologies. I strongly believe that this framework will empower insurance organizations in making informed decisions on how technology can drive future growth.

A2C: Artificial intelligence (AI), Automation and Cloud — This category comprises new and emerging technologies that help insurers improve efficiency, reduce cost and scale easily. For instance, the adoption of cloud platforms and agile infrastructure continues to be a hot trend among insurance providers given the radical performance advantages. Automation is helping organizations achieve huge cost benefits and efficiency improvements by automating repetitive processes and eliminating the risk of human error. I find that robotic process automation (RPA) or software robots are best-suited for back-office insurance processes such as claims processing, billing reconciliation and subrogation. While adoption of machine learning is still nascent in the industry, companies are beginning to deploy chatbots for front-end processes. For instance, ICICI Lombard has developed a chatbot, MyRA, that engages with customers to sell policies and execute transactions without human intervention.

D3C: Design, Digitization, Data and Consulting — This category comprises mature technologies that help insurance companies accelerate revenue growth. In my opinion, as demand for intuitive policies rises, product innovation will become a key differentiator for insurers. Carriers must listen closely to what their customers are saying and develop products that meet their needs. Here, Design thinking can be a vital tool for product rethink that meets the key criteria of desirability, feasibility and viability. When design thinking is coupled with digitization, companies can access advanced ways of improving efficiency and tracking customer sentiment. Analyzing such customer feedback provides valuable insights into how insurers should revamp user interfaces to deliver delightful customer and user experiences. Digitization also supports insurers in providing self-service dashboards and omni-channel capabilities for customers to interact with their providers, thereby increasing customer stickiness. However, any initiative involving digital or design thinking must be reinforced with a strong data strategy. This is why I highlight the importance of investing in intelligent systems that collate unstructured and structured data to gain a holistic customer view. Such solutions enable extreme product and service personalization such as usage-based policies, customized pricing and claims validation across auto, life and home insurance. Consider how Ford is partnering with IVOX to develop a technology that gives insurers insights into driver performance, to lower premiums. Finally, such innovation requires robust partner ecosystems, underscoring the need for strong consulting services. Seamless collaboration across partners is critical if design, digital, data and consulting are to generate tangible value.

CoLT: Core systems, Legacy systems and Total outsourcing — Over the years, while some insurers have built robust albeit monolithic enterprise applications, others have grown through mergers and acquisitions. Both now have an intricate web of IT infrastructure and legacy systems. Managing these inherited systems is a cost that insurers are forced to bear. McKinsey estimates that handling this complexity accounts for 75% of the operational and IT costs when it comes to servicing policies. Not surprisingly, many insurers choose outsourcing as a solution because it makes the bloat appear low. Third-party service providers are better equipped with the skills and infrastructure as well as the agility to adopt innovative technologies. Further, insurers will need to reinvent existing systems to meet increasing customer demand for better services and products. This can be a heavy burden on organizational budgets, particularly when dealing with legacy core systems. This is a key concern as stricter data security laws increase the liability for penalties. I strongly feel this is where leading technology service providers can demonstrate their expertise. Best-in-class technology solutions can help insurers modernize their legacy systems at lower cost to improve efficiency and performance. Additionally, intuitive solutions allow insurers to on-board new technologies and enjoy sophisticated digital capabilities while reducing total cost of ownership (TCO).

See also: Seeing Through Digital Glasses  

Thus, technology service providers seeking to provide real business value to insurance organizations must design solutions that deliver innovation in the above three categories. Application modernization, cloud computing, automation and other new technologies will help insurers optimize their core systems, develop customer-centric insurance products and streamline underwriting and risk management. Such capabilities will empower insurance companies to build and sustain competitive edge in the digital age.

Improving Your Potential for Innovation

Let me summarize where we are today in design thinking. Design thinking has raised a lot of expectations as well as its fair share of controversy. Why are organizations so caught up by DT? Often, it became the promise of having creative ways to solve solutions and work in harmony with all the rational thinking that dominates much of business thinking today. DT sounded so appealing, it quickly became, “oh, we need some of that.”

So, the marketing of DT kicks in, looking to capitalize and add momentum. DT got heavily promoted. It quickly became sold as a process, just like Six Sigma; it became limited by those jumping on the latest concept not being true design thinkers, apart from attending a short course or two. Then this new process became a little uncomfortable; living alongside more established, rational ones, it was difficult to integrate. So as this new kid on the block struggled, questions were raised on how it complements all the efficiency and effectiveness that is expected around an organization’s dominating mindset? Most people lost the plot that design thinking was different. It was so different, it was human-centered.

The extra fuzziness of design thinking can sit uncomfortably in highly organized and rational structures. Design thinking was looking for those leaps of faith and lots of creativity, but it needed to be separated and contained.

See also: Key Considerations for Managing Innovation  

Organizations are recognition that design thinking is not “plug and play”

When you are asked to be flexible, agile, willing to experiment and often fail, sometimes publicly, this can take you into some very uncomfortable territory. You might like the idea, but will the boss? When you do not have a clear definition of design thinking, of where and how it can actually fit, it continuously suffers from a lack of clear assignment and makes it feel a little bit of an odd-ball. You can be left wondering who executes this and how it might be applied and implemented at scale. Yet it feels useful and needs to be more embraced for its creative value. So, the short answer is: Give everyone a short exposure and let everyone embrace design thinking as the creative avenue for all to explore. It suddenly gets broken down, so it can be repeatable, a step-by-step process. Then, easily enough, we all become design thinkers… or do we?

Image: https://www.interaction-design.org/literature/article/design-thinking-a-quick-overview

See also: Case Study on Risk and Innovation  

Organizations suddenly turned design thinking into a linear, often-gated, by-the-book methodology, and suddenly it is not true design thinking anymore; it becomes just another too linear, too slow and not as bright way to be creative. The dominating thinking about process starts to screw up the freedom within true design thinking. It quickly became boiled down to aiding and supporting the incremental innovation. It loses its real powerful edge of harnessing creativity to solve problems in highly imaginative and insightful ways; it becomes just the encouragement to help thinking along. Leaders start to ask questions about all this design thinking “hype” and begin demanding far more from a design thinking process to tackle their complex problems. Then it is suddenly, “Houston, we have a problem.”

Continue reading and learn more here.

Thought Experiment on Life Insurance

As 21st-century consumers, we are fully aware of the trends that shape and change the way we interact with the world. Although there are stark differences in the way, say, a millennial interacts with the world from that of a baby boomer, the themes are the same. Digitalization, business model disruption, mobile technology and process automation are some of the trends we have all become conditioned to. Advances in artificial intelligence, sensor technology, robotics and genomics are some of the forces that are likely to shape our future environment.

Perhaps due to regulatory hurdles, perhaps due to complexity in the sales and new business processing transaction or perhaps due to the long-term nature of the policyholder-insurer relationship, the life insurance industry has remained somewhat insulated from these forces of change. Whereas other industries have been disrupted head-on by startups, much of the insurtech traction has been gained by new entrants modernizing aspects of the value chain, rather than overhauling the product or business model, as a whole.

Recently, venture funding has begun to find its way to the types of companies that can now threaten life insurance as we know it. Lemonade, Policy Genius, Fabric and Ladder are a few examples of companies attempting to reshape the entire industry. Common among these startups is the fact that none are anchored down by legacy systems or held to strict ROI hurdles on new investments. They have the freedom and flexibility to redesign the policyholder-insurer relationship to fit the needs of the policyholder, rather than the needs of a distribution channel or administrative system. Even if large insurers want to be the change catalysts, internal efforts to disrupt, or cannibalize, entrenched business models are not likely to pass through the risk management controls that these insurers have in place.

So, what is the large, entrenched incumbent to do? The controls that traditionally inhibit radical innovation from occurring in an organization are strong, but they can be circumvented. The cheapest and quickest way to reimagine life insurance from within the walls of a behemoth, is to do just that: reimagine. There is no risk, nor hard cost, to imagination, and the simple exercise of “Design Thinking applied to Life Insurance Risk” can uncover the likely traits that the inevitable disruptor is likely to possess. Here, we’ll take you through a simplified example of how to conduct such an exercise by examining the framework (Design Thinking) and the customer need (Life Insurance Risk), then layering in relevant Consumer Trends to make a prediction of what The Future of life insurance might be.

Design Thinking

Innovation has grown to become a highly technical discipline, which has spawned rigorous post-graduate programs. The underlying mechanisms of innovation, however, are simple and unchanging, despite countless volumes published on the “proper” or “best” way to innovate. The emergent discipline of Design Thinking does an excellent job of keeping tried-and-tested innovation mechanisms at its core, without over-emphasis on process or creativity.

Design Thinking maintains the principles that smart solution design is human-centric and ambiguous. Restated, it says that by understanding changes in the consumer’s point of view, we can employ limitless creativity to reimagine any product. Innovation should begin with empathy for the consumer (and in the case of life insurance, the distributor), then seek to match expertly-designed solutions to the problems or needs that the consumers are facing.

See also: This Is Not Your Father’s Life Insurance  

A great starting point for our thought experiment is to empathize with the end consumer. Market research companies will charge tens of thousands of dollars to help you do this, but it may be just as effective to simply remove oneself from the paradigm that an insurance professional lives in, and to imagine oneself as the 21st-century consumer that you are. Then, answer a set of hypothetical questions to uncover their paradigm.

How do they see the world? What are their expectations when purchasing products or interacting with companies? How are these expectations changing? How do they view life insurance? How do they manage the risks associated with death?

Life Insurance Risk

In the empathy exercise described above, the line of questioning you would follow to get a rich understanding of the consumer’s point of view is likely to lead you to an exploration of how consumers think about, plan for, and deal with death.

It’s somewhat obvious that the average consumer’s relationship to risks associated with death has changed substantially over the past few generations. It wasn’t long ago that there was a very real risk of a factory worker, as primary wage earner, not coming home at the end of the day, having suffered a fatal accident at the workplace. Additionally, many chronic and critical illnesses that were once almost certainly fatal have become manageable with modern advances in medicine. This has led to a substantial improvement in life expectancy, which, for the consumer, means that the incidence of death risk has become very low in their lives.

Further, with the reduction in the incidence of death in early life, the impact of death on families has changed. Consumers do not live as much with the acute fear of the death of a wage earner as they do with the fear of accumulating insurmountable medical expenses associated with accidents or chronic conditions. Coinciding with that is a notable shift in the complexity associated with dealing with accidents or chronic conditions. Family members caring for loved ones are often left to negotiate through treatment options, financial obligations, and legal matters all on their own. The empathy exercise shows that the risks associated with death, despite how an insurance professional may be conditioned to behave, are not wholly financial. While we all know this to be true, it is easy to for the insurer to lose this perspective, and thus lack empathy for its policyholders.

What’s particularly interesting, especially in the case of term life insurance providers, is that the insurers have a vested interest in helping these families extend the lives of their policyholders, but their products and processes do not reflect this. Traditional controls such as reducing liability risk exposure have probably prevented insurers from becoming the consumer advocate. Shouldn’t the life insurer play the role of the advocate for the consumer in negotiating these complex processes associated with life insurance risk? It is these types of insights that deep consumer empathy can yield.

Consumer Trends

Having explored the consumers point of view, it’s important next to understand the context that dictates consumer behavior, or the way they interact with the world. In relation to life insurance risk, consumers have experienced many, many years of continuous reinforcement that an insurance contract is a paper one, brokered by an employer or agent. This may have served to maintain the insurance industry status quo, but insurers must be aware that the gravestones are plentiful of companies who believed that their consumers would continue to behave the same way, despite changes in their environment.

Let’s define Consumer Trends as the patterns which impact the way that consumers interact with the world. These can be technologies, lifestyles, popular influences, scientific advances, and marketplace dynamics, among other things, which all define the environment in which consumers live, and those they are moving to. For each we identify, we should ask critical questions about the implications of such a trend to the life insurance business model.

While it would be exhausting to list all the trends impacting life insurance consumer context, it’s worth considering some notable ones:

  • Longevity – As explored above, advances in medicine and genomics are improving longevity to levels previously thought impossible. Can improvements in longevity be factored into product design?
  • Crowdsourcing – Social media and associated technologies now allow consumers to use “the crowd” to appeal for support such as funding for medical procedures or funerals. To what extent is this emerging trend offsetting the need for a fixed financial benefit from life insurance?
  • Sensor Technology – mobile apps, wearables, and the “Internet of Things” (IOT) are allowing consumers to gain immediate feedback on their health and wellbeing. This may lead to situations where consumers know more about their health than their doctors, and subsequently, life insurance underwriters. What is the implication of sensor technology on product design?

It may be worthwhile to bring in experts with varying perspectives into this step, such as experts in new technology, or to simply observe consumers in their natural environment and note how their habits might be affected by trends.

The Future

Once the above steps are complete, the final step is to assemble the consumer insights and trend analyses into a hypothesis, or set of hypotheses, for how the solution of life insurance risk management might change. We will leave it up to the reader’s creativity to imagine the ways in which particular traits of the business model are likely to change. Given the pace of change in the world today, conducting this type of design exercise regularly, or with a varying mix of perspectives, will yield new and different insights each time.

What we can learn from this exercise is that there certainly is opportunity for insurers to rethink the value proposition of a life insurance contract. The data assembled above points to a need for insurers to reimagine the fundamental relationship between the policyholder and the company.

See also: What’s Next for Life Insurance Industry?  

What we can’t know is the exact nature of the eventual disruptor, or if the disruptor gains any sort of first-mover advantage. Large insurance companies, however, can make a reasonable prediction as to what the disruptor might look like, and can begin to prepare themselves for the eventualities.

The boldest insurance companies may attempt to become the disruptor, while the slightly less bold may seek to acquire companies that align with their predictions.

More cautious companies can still participate in the change, maybe by investing in startups through venture funds, or partnering with accelerators or universities.

Of course, many will decide to keep their heads in the sand and ignore all the signs. They may cite risk aversion as a reason to not invest in innovation or disruption, but will ignore the question “What is the risk of not innovating?”