It has been busy in insurance lately, as the industry continues to engage and consider the future — first at our customer conference, Convergence 2017, then at Insurtech Connect. Both conferences had record attendances, a sign that insurers are both grappling with change and committed to making it happen. It is a shifting future, one that is reinvigorating an industry that has decades of tradition. Players across the entire range of insurance industry segments are being confronted with permanent changes in consumer behavior, different employee expectations, rapidly evolving technology and a quickening renaissance of the business environment.
Increasingly, opportunities will need to be discovered because technology alone does not constitute a strategy. It is also not a plug-and-play in the sense that a new tech overlay cannot compensate for a fundamental legacy infrastructure — whether that means in the business model, products, culture, technology, market boundaries or customers. Change is being forced on insurers — whether they like it or not — as several of the orthodoxies traditionally underpinning the industry are challenged and disrupted.
Customer at the Center of the Renaissance
At the heart of this insurance renaissance is the customer. The customer’s expectations, driven by unrelated or adjacent industries, are reshaping insurance. The innovators, many coming from insurtech, are assembling new insurance products and services and are using customer-centricity as their value offering. Finally, the competition, which is heating up, is based on customers’ positive reaction to the new business models and products in the market.
This is all happening regardless of whether incumbents choose, or are able, to play in this area. Majesco’s consumer and small-medium business research last year captured these views and expectations of today’s customers in the midst of the disruption and change rapidly unfolding in the insurance industry. In our Future Trends 2017: The Shift Gains Momentum report, we underscored that the insurance business models of the past 50-plus years have been based on business assumptions, products, processes, channels, etc. for the Silent and Baby Boomer generations. Things began to shift with the Gen Xers, with Millennials and Gen Zers putting tremendous power to move things forward at a rapid pace. The business models of the past will not meet the needs or expectations of the future.
Unfortunately, Majesco’s research, Strategic Priorities 2017: Knowing vs. Doing, shows there is a gap between what many insurers know about the changes that are going on around them and what they are doing about them — the “knowing–doing” gap. The report highlights that turning awareness into doing, with actionable initiatives, is elusive, creating an ever-widening gap between leaders who are taking action and those who are not. And in a fast-paced era of change and disruption, the ability to be a fast follower is fading rapidly, putting insurers at risk of becoming irrelevant. Insurers should be asking themselves, “Are we acting upon our knowledge of the insurance industry and market trends? Or, are we simply educated observers?”
See also: Insurtech: One More Sign of Renaissance
As Albert Einstein famously said, “We can’t solve problems by using the same kind of thinking we used to create them.”
The Shrinking and Shifting Future
The state of the industry in a widening “knowing–doing” gap suggests a need for increasing strategic and future planning, followed by actionable plans. Research, however, suggests an ever-shortening strategic planning horizon. The Harvard Business Review concludes that the focus on defending business models (rather than exploring new ones) represents a significant loss in future options. As we highlighted in our new report, Changing Insurance for the Digital Age (a collaboration with Global Futures and Foresight), investors value the future growth options of S&P 500 firms relatively less, by $1 trillion — for which there are 28 insurers, representing only 5% of the 500 firms. This would seem proof enough that a myopic focus generates less growth and value over the long term.
So how can insurers prepare for change and participate in the rapidly unfolding renaissance?
- Insurers must look to customers — before technology — as the starting point for change.
- Insurers must modernize and optimize their existing business to stay relevant with existing customers, because it will fund the future business. In today’s world, replacement of legacy systems is just table stakes.
- Insurers must develop new business models that meet the digital-age needs and expectations and are the foundation of the future business.
Each of these paths are mandatory and increasingly necessary to ensure relevance and growth. In our Strategic Priorities 2017: Knowing vs. Doing report, Majesco found that companies that reported strong growth in the past year were 17 times more likely to also be developing new business models, compared to those that had lower growth. Nearly 90% of the higher-growth companies were also developing new products — three times higher than companies with lower growth. Those that adapt quickly will likely see new business heights, while those that do not will possibly experience dramatic market losses instead. The growth gap between leaders, fast followers and laggards will likely expand, creating an unbridgeable chasm with devastating business implications.
The Digital Age is Powering the Renaissance
The digital age — a revolution — is rewriting the rules of business and, with it, redesigning organizational and business model structures. However, as we noted in Changing Insurance for the Digital Age, only 11% admit feeling ready to craft more “future-proof” organizations. Many industry orthodoxies are increasingly irrelevant, yet most insurers have been reluctant to reinvent themselves, with less than 25% of insurance executives expecting their operating models to be disrupted by changes in consumer behavior. Technology and customer expectations are already radically rewriting models; almost half of insurers business models are already in the process of being disrupted by new competitors. We saw this onstage at Insurtech Connect this past week, with new insurtech startups and traditional insurers creating business models and offerings.
As many companies stated at Convergence 2017 and Insurtech Connect, the perception gap of customer expectations to what we deliver cannot be addressed through the provision of technology alone. It must be aligned with strategic re-organization and customer-centricity, thereby using technology to help avoid the widening gap between own orthodoxies and customer expectations. In effect, insurers must disrupt themselves. As we have said before, “It is better to Uberize yourself before you are Kodaked.”
Narrowing the Knowing–Doing Gap
Are we acting upon our knowledge of the insurance industry and market trends? Or are we simply educated observers? Each and every day, we see the growing impact of change in the insurance industry — new products are introduced, new channels are established, new services are offered, new business models are launched, all which recalibrate customer expectations.
Acknowledging the role and strength of changing customer behavior expectations and then acting upon that awareness across the organization is central to future success. Customers are increasingly demanding personalized, on-demand, digital insurance services. In many cases, these go beyond the realm of traditional products, into providing valuable services that range from reducing risk to engaging with a community of similar customers. These services — when added to a robust, relevant product offering — have the potential to reposition insurers within the market and give them a future-focused, customer-centric edge.
See also: A Renaissance, or Just Upheaval?
Insurance companies must stop talking about opportunities and start doing something about them by using the disruption and change as a catalyst for real change. We are entering a new age of insurance. These efforts will carry insurers into that new age, where they will be prepared to capture the revenue growth presented by a market shift that will define a new ecosystem of market leaders.
Are you taking knowledge and acting on it? Are you walking the walk? Insurtech Connect highlighted that your future competitors are.