Chasing the Leader or Innovating to Stay Ahead?
It’s the relay-runner’s frequent nightmare. No matter how fast you seem to be running, you can’t catch up. Or, sometimes you are out in front of the pack and you are looking over your shoulder. Someone is right on your heels and there is nothing you can do to speed up and escape their come-from-behind win. Is this scenario playing out for insurers?
Looking over the shoulder or trying to catch up — worry is the plight of most insurers who fight to stay relevant in the midst of a competitive pack. They are either out in front, in the middle of the pack, or struggling to catch up. Is there anything an insurer can do to just keep themselves at the head of the pack? What can insurers do to ‘stay ready?’
The best ideas and decisions are made from within the position of knowledge. That’s why Majesco helps insurers to assess their own technology positioning with our Strategic Priorities surveys. You can take advantage of these insights to not only compare your organization to others, but also to consider how trends should re-think and inform your decisions. This year’s Strategic Priorities 2019-2020 survey report, publishing early next week, highlights the greatest successes and struggles of all insurers. More importantly, it highlights how the Leaders are increasing the gap to Followers and Laggards. Today, we’ll give you a preview of what’s to come.
Competitive Position — Recognizing Leaders, Followers and Laggards
Too often, strategic planning does not yield the bold changes needed because insurers do not rapidly move into a leading position — from knowing to doing, creating a significant gap between leaders to followers, and laggards. Our Strategic Priorities research over the last five years has brought clarity to this challenge. This year’s research shows an ever-widening gap that is redefining a new era of leaders.
The June 2019 McKinsey article, “How to win in insurance: Climbing the power curve,” further emphasizes the gap and split between leaders and followers or laggards. McKinsey’s research shows that the capital allocated to each business unit from one year to the next is nearly identical – keeping things relatively the same rather than reallocating capital to make bold changes for the future.
Capital shifts indicate priority shifts. They also point to investment strategies. This is consistent with the growing Knowing-Doing Gap emerging in the industry highlighted by our Strategic Priorities research over the last 5 years, which is putting some companies at future risk for relevance given the pace of change and limited resources.[i] Investments aren’t necessarily being made where they are most needed. Many insurers still aren’t recognizing that investments today may result in long-term reductions in technology investments due to platform efficiencies. We’ll look at market saturation for platform technologies in just a moment.
The point is that taking action around strategy and reducing or increasing competitive gaps (depending upon where you are now) is so crucial, particularly with the pace of change and rapidly evolving competitive landscape. As the McKinsey article points out, strategy is about playing the odds, increasing the amount of “doing,” even if some plans fail, to ensure overall success. Insurers must focus on both optimizing today’s business and boldly creating tomorrow’s business – a two speed strategy.
Strategic Priorities Report Highlights
This year’s research highlights how Leaders have replaced legacy, expanded their channels, introduced new products and new business models, and they are now seeing higher growth over the past year. But even more important, they see greater growth over the next 3 years. If your organization isn’t currently in the leadership position, you CAN catch up, albeit potentially needing additional resources depending on where you are. The importance of knowing the details of competitive position is that you can also see where leader’s investments have been paying off for them. These will serve as a guide to move forward and fuel for transformation, optimization, innovation and growth justification and reduced timelines for platform use.
Here are some key insights from this year’s report:
- When we asked insurers about the state of their business (growth, systems, products, models and channels), last year was challenging for Laggards, who had a 41% gap to Leaders; and Followers, who had a 15% gap.
- Leaders are laser-focused on both speed of operations and on speed of innovation. This is reflected in their active work on legacy replacement, channel expansion, new products and new business models, whereas Followers and Laggards are primarily concerned with speed of operations.
- Leaders’ replacement of legacy core is greater by 75% than Laggards, and 20% for Followers – putting them at a clear advantage.
- Leaders are creating new products and new business models at a faster rate of nearly 55% and 20% respectively – enabling them to capture market share and revenue more quickly.
- Leaders are expanding channels at a staggering rate of 19% higher than Followers and 88% higher than Laggards – expanding their market reach and their ability to acquire and retain customers, and revenue.
- The impact of these and other areas of focus by Leaders is that the state of the business over the next three years was wider and more impactful, with Laggards and Followers falling further behind Leaders, with 62% and 21% gaps, respectively.
These bold moves to optimize today’s business and create the future business substantially increase an insurer’s potential for success. Leaders are blazing new trails to the future with their new business models, channel expansion, new products and core system replacement that is influencing growth, while Followers are attempting to do a few things and Laggards are primarily watching, creating a growing gap between them that will be increasingly difficult and expensive to breach, putting their businesses at increasing risk. Highlighting this further, the McKinsey article identified a “power curve”, where economic profit is derived from the combination of similar strategic moves. The industry must change to adapt and remain prosperous.
Platforms, Production and Products
Overwhelming, one of the most fascinating and instructive portions of the Strategic Priorities report is what Majesco found regarding platform planning, development and use. We wanted to understand where insurers were in their core system transformation, defining four answers within two simple concepts: Platform and Non-Platform.
- Platform was defined as cloud-enabled, API and SaaS-based solutions or next-gen that were cloud-native, API and microservices solutions.
- Non-Platform was defined as old monolithic legacy and modern on-premise solutions.
Consider these two, related findings.
- P&C and L&A and Group insurers are operating with Non-Platform core solutions at a staggering 60%, impacting their ability for innovation, speed and agility.
- Insurers introducing new products and services are more likely using Platform-based solutions in the range of 60%-70%, a complete flip from the existing business and reflecting the growing focus on greenfields and startups to create the new.
This means that many insurers are missing out on necessary agile product development processes that can be found through platform vs. traditional core systems.
Response to Regulatory and Rating Agency Developments
This year, Majesco added a new area of focus to cover insurer responses to the rapid advancements in the regulatory arena during 2019. The adoption of the AM Best Innovation Rating and the introduction of sandboxes by state regulators to test and learn new products in a more rapid, managed manner, are certain to have a growing impact on insurers innovation timelines. The question we asked was, “How actively is your company responding to these recent regulatory developments?”
For the most part, we found a lack of understanding and planning around these highly-important changes within certain market segments. For example, L&A and Group insurers lag significantly behind P&C and multi-line insurers in preparation for the AM Best innovation rating, with a gap of nearly 30%. In addition, multi-line insurers outpace both P&C and L&A and Group insurers by upwards of 35% in the use of sandboxes. For more insight, check out the replay of this week’s webinar, titled, “The Future of Insurance and Regulation: Optimization, Growth and Innovation” that features individuals from AM Best, Ohio Insurance Department of Insurance and a former First Deputy Commissioner for Iowa. Their insights highlight the growing need for insurers to be innovating for a new era of insurance.
Future thoughts — a unique perspective
Majesco’s Strategic Priorities Survey 2019-2020 isn’t just an industry snapshot. It’s an industry predictive tool. Within our survey, we asked insurers about their expectations over the next three years. So, not only can you know where your organization stands in the midst of the competition, but you can also gain insights into insurer planning and strategic priorities. It’s a helpful take on future directions and where you should be focused, investing and headed.
Today’s change requires insurers to gain clarity on how to succeed in the future of insurance, which is coming faster than most realize. Insurers must lay the groundwork of a new digital insurance business model that embraces customer, technology and market boundary changes with vision, energy and speed. Future market leadership and success will be defined by prioritizing leadership, innovation, and speed – leveraging a two-speed strategy.
How do your strategies align to what leaders are doing? What specific plans can you take to improve your odds of success? How can you rapidly move from knowing to doing?
Your answers will determine your readiness in a new decade and the future of insurance. To find out more and to gather competitive insights and new knowledge regarding insurance trends, be sure to download Majesco’s Strategic Priorities 2019-2020 report.
[i] D’Amico, Alex, et al. “How to win in insurance: Climbing the power curve,” McKinsey, June 2019, https://www.mckinsey.com/industries/financial-services/our-insights/how-to-win-in-insurance-climbing-the-power-curve