Tag Archives: digital strategy

Insurance Technology Trends in ’17, Beyond

Bill Gates famously said that we always overestimate the amount of change that will occur in the next two years and underestimate the change that will occur in the next 10. Looking back 10 years, we find a world devoid of iPads, iPhones, mobile apps, big data technologies, the Internet of Things, viable driverless cars or even social media beyond a niche early adopter group. We also find a world without direct online sales of commercial insurance, without persistent low interest rates, without widespread use of catastrophe bonds and without VCs who could spell “insurance.”

But while most insurers believe that massive changes may occur in the next decade, few believe that the next two years will be substantially different from the last two when it comes to the need for significant product changes, the impact of predictive analytics or the threats of new digital distributors. Insurers devote less than one cent of each premium dollar today to transforming their technology capabilities to thrive in the next decade.

Insurers Making Technological Progress

Although technology spending is essentially flat, and less than a quarter of it is spent on transformational initiatives, on average, insurers are making progress. Use of predictive analytics is growing, and 18% of insurers believe it will have a materially positive effect on their business this year. Big data technology is expanding, as well, even though it continues to be directed not at big data sets but at solving enterprise data problems. And 10% to 20% are already embracing machine learning to improve their rating algorithms. Other AI usage is still in the potential stage, with insurers exploring the possibilities of leveraging machine vision for property underwriting and claims, and natural language processing for customer service.

Digital investments continue, even if there is still little agreement about what constitutes a “digital strategy” for insurers. Portals are enhanced, and mobile is deployed as carriers seek to better engage their customers, distributors and other stakeholders.

See also: 10 Trends at Heart of Insurtech Revolution  

Core system replacements are still painful and expensive but necessary to enhance the speed of product launches, improve digital service and data accessibility and reduce technical risk. Insurers have a new willingness to consider cloud-based core systems, with 20% already having deployed some core capabilities in a cloud environment and the same number planning pilot programs this year. The maturity of cloud providers and the growing awareness of their own limitations are mitigating carriers’ security concerns.

Security, meanwhile, continues to consume 10% of IT budgets, with no end in sight, and additional regulatory requirements add compliance pressure to certify procedures and formalize CISO roles.

A boom in analytics and digital across multiple industries is making it harder for insurers to find and retain IT talent, which is driving new strategies, from partnering with colleges and universities to develop new sources of talent to improving ease of employee return, to reacquire experienced staff.

With flat resources and burgeoning needs, 40% of insurers are improving governance to make sure resources are allocated effectively and aligned with strategy.

Laying Bare the Underlying Structure of the Insurance Industry

Meanwhile, improved technology lays bare the underlying structure of the insurance industry. It’s not only distributors standing between insureds and primary insurers that are intermediaries facing the threat of disintermediation—it’s every link in the value chain between people or organizations with risk and pools of capital willing to take on that risk for a profit. This means primaries and reinsurers, as well. Alternative distribution, distributor-developed programs, reinsurer-funded insurtech startups and catastrophe bonds and other risk derivatives all threaten the traditional insurance value chain. All of these stem from the technology-enabled democratization of the ability to analyze, package and transfer risk.

At the same time, technology offers the opportunity to ask new questions about the structure of insurance offerings. Is there any reason why minimum required coverage should be sold in all cases bundled with additional coverages, advice, service and risk management? Insurers are finding that some market segments prefer only one or two of these, while there are additional opportunities to monetize some of these offerings separately.

Many insurers are unsettled by the emergence of well-funded insurtechs, whether they are new competitors or providing enhanced capabilities to existing competitors. Despite the billions invested, insurtechs will not put major insurers out of business or radically transform the market in the next two years. Many will not even be in business in two years.

The Imperative to Learn from Insurtech

However, insurtechs will raise the bar on customer experience and process efficiency, as well as on the use of analytics to drive product and processes. They will show insurers how to expand the market by profitably serving underserved segments, and demonstrate how to incorporate emerging technology into key business processes. Insurers that do not learn from insurtech will lose out to those that do.

In part driven by the example of insurtechs, insurers are expanding their own formal innovation programs. These may take the form of a small group of educators and evangelists within the company, a dedicated R&D organization with a fully equipped lab and a protected budget or direct investing in startups.

See also: Insurtech: Unstoppable Momentum  

Two Ingredients of Successful Innovation

Whatever innovation path insurers take, the primary determinant of success is the CEO’s and business unit leaders’ commitment to operationalize innovations, and their tolerance for the risk of failure. Without these two ingredients, insurers may perform “innovation theater” but are unlikely to benefit from any discoveries, and are unlikely to be prepared when the next decade of change sneaks up on them.

Do You Really Have a Digital Strategy?

Almost all insurers have started digital projects, many have digital teams, but only a few have a true digital insurance strategy.

To develop a coherent strategy for digital insurance, first an insurer must decide what the term means. There is a distinction between insurance digitalization and true digital business. Digitalization consists of taking existing processes, procedures and services and using technology to improve efficiency and effectiveness. Fundamentally, digitalization takes what an insurer is doing already, and applies digital. In this circumstance, there is no real transformation of the business. Digitalization is critical in a price-sensitive, highly competitive industry, but it is not enough to distinguish an insurer from the competition. In the context of insurance, true digital business requires the application of technology to offer new business value or move the insurer to a new position in the market. In many markets, the form this new digital business will assume has yet to be determined.

See also: Maturing Use of Mobile in Insurance  

Many different methods exist to evaluate digital business maturity. I prefer a five-level model, based on methodologies used by industry analysts and other experts.

  1. The first level is digitalization, taking existing processes and applying technology. Many insurers began this process in the late 1990s or early 2000s, and, unfortunately, many have stayed there. Insurers initially saw large efficiency benefits in moving internal processes away from paper over to digital, but those returns rapidly drop off after an insurer migrates the highest-priority processes. An example of this stage is offering PDF copies of insurance documents on a customer portal.
  2. The second level is to create new digital experiences, using the capabilities of digital platforms. An example is creating mobile applications for agents to improve interactions with the company, using geolocation to offer nearby preferred vendors and other options.
  3. Level three is offering new insurance programs that would not be possible without digital technologies. One example is a company creating a travel insurance product in partnershipl with a travel mobile application and offering that product at the time a customer purchases a flight.
  4. Level four is an evolution of stage three, and consists of embedding digital throughout the enterprise. An insurer thinks of all aspects of the business in terms of digital, even in departments such as compliance and daily operations. An insurer knows that it has progressed to this stage when even traditional analog functions such as the mailroom evaluate all processes with digital transformation in mind.
  5. At level five, an insurer has repositioned to a new competitive space inside the insurance market. We are only now beginning to see a few stage five insurers, and these insurers are often born digital. An example is new peer-to-peer insurance models that have begun to gain acceptance in recent years, like crop insurance in Africa. This insurance is paid for by a surcharge on farming inputs such as fertilizer and seeds. Claims are automatically initiated when weather stations recognize severe weather events. This is a form of protection that could only exist in a digital world.

See also: 5 Accelerating Trends in Digital Marketing  

The first step toward transforming into a digital insurer requires evaluating where your company is on this continuum, and where you need to be in the next three to five years. What amount of disruption can your business model sustain? What steps can you take now to build the skills and culture you need to compete in the face of this disruption?

Crop insurance in Africa may be a small part of the overall insurance market, but consider what could happen if a major agricultural market such as the U.S. began this same transition. All insurers today have digital processes and procedures, but relatively few have progressed past levels two or three on this digital continuum. Eventually all insurers will be digital insurers, but this transformation will move in fits and starts, with the leaders gradually pulling out ahead of the laggards and gaining a lasting competitive advantage.

Systematic Approach to Digital Strategy

There has been a new virus spotted in some insurance operations. digital myopia. It is often found in the presence of another related issue — transformation shock. Together, they often bring about framework chaos. Fortunately, there is a straightforward vaccine in use —systematic analysis.

The ever-rising digital bar for the insurance industry creates challenges and opportunities and a bit of chaos. The opportunities can help insurers build customer loyalty, compete, transform customer engagement and improve retention, which can lead to improved profitability. But how can insurers overcome the challenges of the digital transformation journey, and at the same time rid themselves of the feeling that they may be approaching digital transformation in the wrong way?

See also: Why ‘Digital’ Is So Important

To gain a new perspective, insurers can look at their key issues from a systematic approach. They can start with a few simple, but pertinent, questions.

  1. Where does our organization sit on the spectrum of digital need?

In working with a broad array of insurers, from the largest to the smallest, from the traditional to the new start-ups, Majesco sees and helps many customers battle a variety of challenges on their paths to digital leadership. Often, they are confronted with pressure to “go digital.” We hear statements like this: “My board is pushing me to go digital, but I don’t know where to start, what to prioritize and what the ultimate goal is.”

If this is you, welcome to the club. So many organizations try to think about their digital efforts before they ever consult their core business strategy. This throws off the ability to make wise digital decisions. It’s important to remember that digital strategy begins with the most basic, non-digital question — “Who are we?”

So you start with your business strategy. Do you have one? If so, do you then focus on the gaps between your current digital capabilities and your target operational model — the one that fits your business strategy? Does your organization want to be a quick follower to current market leaders? Or, alternatively, does it want to be a market leader and disruptor? Finding the right model and approach that aligns with your business strategy instantly empowers your business priorities and aligns your organization’s DNA to the digital strategy it will adopt. Once this happens, a sense of relief will often flow throughout the organization —even before the digital work has commenced. Organizations need to know where they fit before they can grasp where they sit on the spectrum of digital need.

2: Do we need to create a coherent, comprehensive digital strategy?

If your organization has its core business strategy defined, then you are ready for the next level of systematic analysis. Your organization (and often a technology partner) will assess the current environment and the array of digital initiatives underway. It is at this phase that we often hear, “We seem to have too many digital projects and initiatives going with no real plan or strategy behind them.”

Many organizations started their digital initiatives before the digital strategy came into play. They are now realizing that the sum of the initiatives (parts) is less than it should be, sub-optimizing the business strategy and customer experience. This is often where most companies find themselves requiring urgent action to avoid a scattering of digital islands that do not connect to each other. Evaluating and consolidating these initiatives against your business strategy is crucial to digital transformation. Decide which initiatives are critical to your business success and kill those that do not align, creating clarity and focus for resources. There is nothing like the feeling that comes at this stage of the digital strategy. The organization and projects are aligned, the moon and the stars have moved into place and order is emerging from the chaos. The vaccine (systematic analysis) is working!

See also: Waves of Change in Digital Expectations

3: Is our digital road map clear, but legacy issues stand in our way?

If you find yourself in the position where you have a clear digital strategy and road map, but you can’t do as much as you wish because of legacy core insurance systems, then there are innovative approaches to address this obstacle.

We advise insurers to adopt a digital platform that can provide a multi-speed digital transformation approach. This digital platform provides two critical components: First, it holds an enterprise service bus platform that can easily orchestrate transactions and data flows between multiple systems (including legacy) easily and efficiently. When the organization replaces the legacy systems, the new systems can be easily plugged into to this platform. This provides a quick win, using an underlying business and technology architecture that provides the foundation for your digital road map. And the best part is … it requires no change to your legacy systems, and it can be completed quickly.

Second, the organization should look at key functional areas, like service areas, that need a digital mobile or portal to meet customer engagement expectations. Identify the few processes that are discrete and can be revamped, digitized, automated and integrated into the digital platform without major changes to your legacy systems. Digitize them and expose them to a federated or a self-serviced model. This digital transformation approach helps you meet the most immediate needs of your customers by turning obstacles into opportunities. It also gives you time to address the most pressing strategic obstacle, your legacy core system transformation.

These two steps, once completed, will help build confidence and momentum in your organization’s business strategy. They will accomplish most of your digital transformation goals with your customers and staff and help make your total business transformation more viable, and more agile.

A cohesive IT strategy and a successful business strategy nearly always go hand in hand. Your reward in pursuing a systematic digital transformation will be a clearer road map, a sense of direction and a group of people unified behind a common path.

Why ‘Digital’ Is So Important

We all know that digital technology has changed, and continues to change, how people shop for, buy and use goods and services. Power has shifted from the company to the customer. All companies must adopt the digital technologies that create the interaction that consumers now demand and expect. But is digital readiness more of an imperative for some industries than others?

What if you are in an industry that sells a product that most people don’t really even want to buy, own or use…that people probably wouldn’t even buy if they didn’t have to…a product that was confusing and mysterious? Heck, one that isn’t even a “product” at all? If you were a company that fit this description and you lagged behind in digital readiness, how long do you think you’d last if a new competitor came along and used digital technology to actually make the experience of buying, owning and using the product you sell more appealing to customers?

Well, this is the position the insurance industry finds itself in. Satisfaction ratings with the industry vary – they’re so-so in the U.S. and pretty poor in the U.K., based on research commissioned by Majesco in a report titled “Assessing the Quality of the Customer Experience ,” for example – and few customers actually switch each year, but loyalty, if you can call it that, is driven more by inertia than a true feeling of satisfaction and emotional connection to one’s insurance company. Quite frankly, it’s a royal pain to shop for and switch insurance, and most people are willing to put up with minor annoyances – until they get pushed too far.

The company that can best remove or reduce the pain of buying and owning insurance stands to reap a huge market of consumers who are tired of being treated poorly by the insurance industry, compared with the new benchmarks set by Amazon and Apple.

This is not new news. But the good news is that most leaders in the insurance industry get it. They know they need to act, and they are. Three-quarters of respondents in a cross-industry survey by MIT-Sloan on digital strategy said that digital technologies are important to their companies today, and 93% said they would be important in the next three years.

The issues are easy to talk about, but it’s hard to actually make the digital transformation in any industry or company, not just insurance. It’s not just implementing new technology. It also requires strategy, leadership, culture, resources and technical capabilities. The MIT-Sloan survey found that most companies are in the early or developing stages of digital maturity. Even those that were in the most advanced “maturing” phase could not be truly considered as fully mature.

Majesco surveyed its insurance customers in the third quarter of 2014 to get a better understanding of the insurance-specific promises and challenges that digital capabilities are presenting them, which are profiled in the report “Digital Readiness in Insurance.” The customers overwhelmingly agreed that digital capabilities are the foundation for the future and that this was the biggest driver of their digital strategy work. While their current priorities for digital transformation are focused on specific internal business operations like billing and payments and e-service for customers and agents, they at least are aiming at improving the experience of their two most important stakeholder groups: customers and agents.

Despite these good intentions, most of these insurers reported that these operations are currently only weakly supported by digital technologies. Most said there was little concern in their companies about the strategic priority of implementing their digital strategies, but they are encountering barriers when it comes to integration of systems and the capacity and capabilities of their organizations and technology.

It’s great that Majesco’s customers recognize the expectation to improve the experience of shopping for, buying, owning and using insurance. The mandate for a compelling digital experience, and the necessity to compare themselves with companies like Amazon, are the first steps on the digital journey. Where are you?

Maturing Use of Mobile in Insurance

“Can you hear me now?” The use of mobile technology is indeed maturing in the insurance industry!

Recent SMA research shows that, over the last year, insurers have increasingly invested in developing digital strategies. Most intend to migrate, over time, to a comprehensive digital insurer approach. Some others pick a specific area to work on, such as mobile agent/broker support or self-servicing capabilities for policyholders. Although both approaches are perfectly justifiable, we strongly recommend to tie all digital and mobile initiatives together under a “digital insurer” strategy. This approach will ensure consistency between business functions, market segments and customer experiences – and it is the approach that will help prioritize investments.

A big part of a digital strategy is a plan for implementing mobile technology. Most phones are not being used primarily to make calls anymore. (When I was overseas last week, and my phone didn’t work, I experienced first-handed how much we all rely on our smart phones for information and transactions, restaurant and hotel bookings, travel info, weather, banking and shopping.) Today, people expect to be able to transact on their mobile device as if it is a desktop or laptop. So how is our industry responding to these expectations?

Especially in the direct writing, personal lines space, mobile has become a mature and widely implemented technology. Direct writers support pretty much all informational and transactional interactions with their policyholders via mobile devices. In the last year or two, we have also seen carriers with agent/broker distribution channels invest heavily in mobile services. This investment tends to be triggered by one or more of three drivers: cost savings because of self-servicing; distribution channel experience (ease of doing business) and expectations; or competitive pressure. Almost all of these carriers start their mobile implementations with purely informational capabilities, followed by enabling transactions. In addition, some of the multi-channel carriers are now starting to expand their mobile capabilities beyond the distribution channels into the policyholder relations, carefully balancing what to communicate directly to policyholders and how to continue to fully engage the agent/broker.

On the commercial side of the business, we have seen a slightly different approach to mobile enablement. Carriers first built mobile capabilities around loss or risk management functions, including information on replacements materials and costs, uploading pictures of damaged assets, providing tools for risk assessments or location-specific information. In most cases, these capabilities were first rolled out to distributors; now we see some carriers that also offer them to their policyholders. Especially in the commercial segment, however, insurers are very cautious about reaching out directly to policyholders, and almost all communication is a three-way process among carrier, agent/broker and policyholder.

As both our research and our interactions with specific insurers have shown, mobile strategy and implementation have matured rapidly. Our industry is definitely past the “can you hear me now” days. The next focus area will be how to integrate mobile into a true digital strategy and how to capitalize on the information we are starting to gather on our policyholders and partners. That is the point where all investments made will truly start paying off.