Insurers are full of economy-speak these days. We have the gig economy, the digital economy, the data economy and the sharing economy. There is the economy of one, the economy of the many, the service economy and of course the experience economy. These concepts are all real and vital considerations for insurers, yet most deal with the implications of external impact, asking, “How will the world impact our business?”
In one striking case, however, we are faced with an alternative question; “How will our operations impact our world?” We are in the midst of the digital age race where survival and winning will require rapid adaptability and innovation. The digital age represents a seismic shift in the insurance industry, pushing a sometimes slow-to-adapt industry by challenging the traditional business models and assumptions of the past 30-50 years. The business models of the past will not meet the needs or expectations of the future for digital insurance. So insurers will be drawing upon the strengths of a new type of economy that will provide internal energy to the organization and competitive drive to the industry.
This economy is the platform economy.
Cloud platforms are the future because they are the core of revolutionized business models. They are proven. They are intelligent. They combine sought-after technologies. Best of all, they fit an industry that has been trying to become consumer-centric.
Of course, there is an issue. The cloud-based, digital-ready platforms within the platform economy are easiest to plant in uncultivated environments. Most established insurers are in the thick of modernization of a different type and scale. When faced with the options, many will choose digital answers that are painted over modernized frameworks. At the same time, they will be flirting with the idea that a real platform shift may represent a hyper-jump into insurance’s agile future.
The Rise of the Platform Economy
In our new thought leadership, Cloud Business Platform: The Path to Digital Insurance 2.0, we note that the use of big data, artificial intelligence, and cloud computing is changing the nature of work and the structure of the economy.[i] Companies such as Apple, Amazon, Netflix, Facebook, Google, Salesforce, and Uber are creating online structures that enable a wide range of activities. They have opened the doors to radical changes in how we work, socialize, create value in the economy, and compete for profits. This is why a digital platform economy is emerging.
Cloud business platforms represent a new era of impact and industry upheaval. A cloud business platform is one that can run key business applications and services in order to match the reality and requirements of the current business environment. That environment is characterized by constant disruption, heavy competition and growing market demands. InsurTech entrants are embarking upon business and technology initiatives that exploit untapped markets and address under- or unmet needs. Incumbents with outdated technologies are at a huge disadvantage because they are unable to respond with the flexibility, agility and speed that has become the hallmark of companies that are digital natives.
With investments in this market subset being tracked at just under $16B since 2010[ii], insurers need to immediately take notice. Successful companies across all industries leverage technologies such as mobile, social and cloud to make better decisions, automate processes, strengthen their connection with customers, partners and channels, and pursue innovation. They do all of this at an increasingly rapid pace, positioning them as “digital first” companies. The acceleration in the uptake of digital technologies and cloud foundations is a crucial first step to entering into the platform world and the shift to a new era of insurance we call Digital Insurance 2.0.
The implication from all this is that the digital age economy is powered by the platform revolution.
Digital Insurance 2.0
Traditional insurers must have digital daydreams now and then. What if we could have started like Amazon, instead of like a traditional insurer? What if we had a digital native architecture like Netflix? Why couldn’t we have turned an app into a multi-billion-dollar business such as Uber? Google was disruptive because its framework and model were created to meet the future head on. How do we do what they have done while we are shackled to the constraints of insurance? The advantages these companies enjoy compared to the challenges faced by insurers can make digitalization of insurance seem like an impossible task. The reality is, however, that insurers now have every opportunity for freedom within traditional insurer constraints utilizing a Digital Insurance 2.0 framework.
What are the attributes of Digital Insurance 2.0? In every aspect, digital platforms are driving toward business models with fewer barriers and greater data access with improved flow. Digital insurance platforms share these traits:
- Maximized effectiveness across the entire customer journey with deeper, personalized engagement.
- Process digitization that improves operational efficiencies and customer experience.
- The ingestion and use of digital data-driven insights for better decision-making and to proactively identify customer needs.
- The ability to rapidly roll out new products and capabilities while expanding into new markets or geographies.
- Quick adaptation to rapid changes.
The crucial technology underpinning digital insurance platforms is cloud-based. The idea that a 10-year old technology like cloud computing could provide new opportunities for insurers seems far-fetched.
Cloud platforms, however, have become the option of choice for Greenfield or startup operations that are offering digitally-enabled traditional insurance products – like Lemonade, Slice and TROV. Cloud platforms are the basis of a new generation of core systems based on a micro-services architecture that is needed for innovative new insurance products like on-demand and micro-insurance offerings.
Shifting from Products to Platforms
Since the beginning of automation, the insurance industry has seen fundamental design, architecture and technology shifts in insurance core software solutions. First, we had the monolithic solutions running on the mainframe from the 1960’s to early 2000’s. This was followed with the best of breed components in early 2000’s for policy, billing and claims based on J2EE and service oriented architecture, but each still using different business, data and technology architectures. Next, beginning in the early 2010’s, came the loosely coupled “suites” inclusive of the policy, billing and claims components but with a consistent and common business, data and technology architecture.
Yet, through these transitions, they maintained a product-focused business architecture view, emphasizing policy, billing and claims capabilities and with implementation primarily on-premise or in a private hosted environment, often a “pseudo cloud environment.”
Today’s digital shift will require cloud-based platforms which provide a great promise to address new challenges and opportunities that enable insurers to disrupt their markets before they are disrupted. This requires a new thinking of our solutions … one that transitions from products to platforms and is underpinned by three key attributes: ecosystem friendly, centered on customer experience and enabled by cloud computing.
Unfortunately, too many insurers are taking a page from their old business transformation playbooks and expecting it to work in today’s digital age. They are forging a new path by “paving the old cow paths,” which is simply creating greater complexity while moving in a direction that will not serve them well in the future. Instead, insurers need to look outside their companies to a new cadre of digital leaders and imagine the art of the possible. What can they do now that they could not do before, due to technology, customer and market boundary changes? Today’s emerging new competitors are answering these questions ahead of traditional insurers, positioning themselves as the new generation of market leaders in a time of significant disruption and change.
Fundamentally, to succeed in the digital age, an insurer’s strategy must focus on the following attributes:
- Customer experience and engagement is priority #1 (People)
- Business innovation is mandatory (Technology)
- Ecosystems extend value (Market Boundaries)
- Speed to value is the differentiator
For an effective digital transformation, it is important that core, data and digital capabilities are broken out into micro-services. They are then integrated back into the platform to provide a digital experience. Innovative, “digital first” companies like Google, Amazon, Salesforce, Workday, Uber, Airbnb and Netflix have successfully used this architecture and technology that is disrupting industries. In the case of insurance, digital experiences are enabled by cloud economies of scale — an advantage that many digital-first companies do not have.
Why is this important? Because it will allow insurance companies to more rapidly position themselves in the digital era of Insurance 2.0 and enable them to:
- Accelerate digital transformation to become digital era market leaders
- Accelerate innovation with new business models and products
- Accelerate ecosystem opportunities and value
- Avert disruption or extinction by new competition within and outside the industry
At the heart of this disruption is a shift from Insurance 1.0 of the past to Digital Insurance 2.0 and a growing gap where innovative InsurTech or existing insurers are taking advantage of a new generation of buyers with new needs and expectations and capturing the opportunity to be the next market leaders in the digital age.
The path to a cloud business platform will evolve differently for each insurer undertaking it. Being open to operationalize around the cloud platform’s promise as a new business model paradigm acknowledges the role innovation will continue to play as insurers encounter future insurance ecosystems. The time for plans, preparation, and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.
Will established insurers suffer at the hands of tech-savvy, culture-savvy competition or will they turn their digital daydreams into dynamic realities?
In a rapidly changing insurance market, new competitors do not play by the traditional rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules.
[i] Kenney, Martin and Zysman, John, “The Rise of the Platform Economy,” Issues in Science and Technology, Spring 2016