The insurance industry has not been historically known for innovation. This may be an unfair characterization – insurers have in the past been at the forefront of leveraging technology and data to uncover insights about…well, mostly risk, but it was still innovative at the time. And, while previous technology investments served insurers well for a long time, they have now become millstones around their proverbial necks – weighing them down as they try to deal with a rapidly shifting marketplace. This shift, driven from the outside-in, is a key reason for the emergence of InsurTech, which in turn is creating a wave of innovation in insurance.
As an industry steeped in risk avoidance, evolution is fine but revolution with rapid change and disruption creates uncertainty and potentially increased risk. At the heart of this revolution is a shift to the digital age. Unfortunately, many insurers do not fully understand or embrace this shift, creating a gap between insurer capabilities and market expectations.
Insurers sitting on the digital sideline waiting for a clear winning approach that they can copy in a “fast follower” mode, are allowing the gap to grow, giving existing competitors within the industry and new competitors from InsurTech and outside the industry to expand within the void. The year 2016 saw the revolution in full force with the rapid rise of InsurTech that is creating tremendous disruption and innovation in insurance, with digital playing a leading role. From the emergence of new insurance start-ups like Haven Life, on-demand insurers like Slice and TROV, and peer-to-peer insurance like Lemonade that have launched as “digital first” companies and solutions, traditional insurers are being increasingly challenged from both business model and market perception perspectives by new entrants.
And while some insurers can point to a few sporadic initiatives and say they’re already in the digital game, our experience is that most have done so in a piecemeal way, without an overarching digital strategy that aligns with and informs the overall business strategy. It requires business leaders to shed sacred notions and wake up to the possibilities of rebuilding on a new foundation while maintaining the old structure long enough to transition smoothly. Meeting the digital revolution with real transformation demands an acceptance that nearly everything industry insiders have known about insurance no longer applies.
This requires a true “outside-in” view. Cultivating a deep understanding of customers’ needs and desires should be the first step any insurer takes as it begins or accelerates its own digital transformation.
What do we mean when we say “digital”? Defining this – or at least coming to some common understanding – is essential to wise decision making when it comes to digital investments. Wander the streets of any insurance enclave and ask every insurance company employee you run into what “digital” means in the insurance context and you are going to get a lot of different answers, more than a few of them self-contradictory.
Definitions can range from narrow to broad, although in our experience, most insurance company personnel stick with a narrow, capabilities-focused view of what digital is: “Digital means a portal” or, slightly more broadly, “Digital means a tool or tools for enhanced customer communication”. From our perspective, these are too restrictive – because it’s not just about the technology. It’s about the people, processes and technologies that allow insurers to understand and interact with stakeholders – insureds, agents, brokers, partners, internal staff, etc. – in compelling, consistent and personalized ways.
Transforming from the Outside-In
So how do you create those compelling, consistent and personalized experiences for customers? The first step is widening the aperture on who a “customer” is. It is not just insureds, nor even agents nor brokers, which have been the focus of portal solutions. This narrow view leaves out a range of other stakeholders across the value chain that interact with the insurer and each other and are ripe for digitalization.
Digital initiatives of some kind are almost universal in the insurance industry. It is rare for a company in any industry to not have at least a simple Web page. But what insurers do not consistently consider is defining what they mean by “digital,” what they want to achieve, and how all the pieces fit together holistically to get a solid return on digital investments.
Many insurers take a very tactical approach to digital strategy and investments, focusing on discrete capabilities rather than taking a business-need-driven approach. To make matters worse, the capabilities are too often based on internal stakeholders’ views rather than the external “customer” – the classic “inside-out” approach (aka, “build it and they will come”). The more effective approach is to deeply understand your customers by mapping their interaction journey across the value chain. This is the “outside-in” approach that will shape the digital strategy and priorities.
Creating a digital strategy includes key building blocks. Insurers must outline their objectives and map customer journeys as steps in a calculated progression of the insurer toward a continuum of integrated digital initiatives. But no matter what the strategy and priorities are, they need to be based on the customers themselves. Whether through surveys, interviews, workshops or some combination, it is essential to step outside of your company walls and view the process from the perspective of the customer.
It is also important to look outside of the insurance industry for guidance. Majesco’s own research studies with consumers and small and medium businesses revealed that insurance is in last place compared to other industries when it comes to ease of researching, buying and servicing products and services – even below the cable industry! The studies show that ease of use is very tightly connected to Net Promoter Scores (NPS) and we know from industry research that NPS scores are a key indicator of growth, profitability and customer loyalty. Insurance is clearly different in many ways from those other industries, but lessons and inspiration can and should be gained from their success.
Why is it Different This Time?
You may think this is just another buzzword or fad. But there are key reasons why digital transformation is different than previous business modernization initiatives, such as e-business.
From our perspective it comes down to two over-arching reasons. First, customers are the drivers. Whether those customers are individual policyholders, small business owners, large business employees, insurance employees or distribution partners, they are people who use digital technologies every day. Their digital demands are driving this shift, often based on their digital experiences with other businesses and industries. This is often referred to as the “Amazon effect”.
And second, the digital revolution is led from outside of insurance. Relevant stakeholders experience high-end customer engagement from non-insurers on a regular basis To paraphrase Paul Papas, head of IBM’s Interactive Experience, the last best digital customer experience someone has anywhere is what they now expect everywhere, even from their insurance companies.
Where to Start
Given the range of things to consider, it can be difficult to know where to begin. Many insurers have started with sales, marketing and distribution. These are natural starting points. A host of InsurTech startups have also focused on these areas, offering tremendous innovations and best practices from which insurers may derive their own transformational lessons.
But there are several other areas of the value chain that can capture needed efficiencies, value and improvement through digital transformation. Enrollment, claims, product development, policy issue and service are all great starting points for a digital transformation and can have a profound impact on customer satisfaction and efficiency.
In upcoming blog posts I will explore each step in the value chain and the potential impact on each from digital transformation.
If you’re reading this, you’ve probably already begun your digital journey, or are at least thinking about doing so. I hope so! The gap between what customers expect and what insurers are able to provide is growing daily and rapidly into a chasm that will be increasingly difficult for many insurers to traverse. And it is only going to get tougher. The pace of change is accelerating and the gap is widening and becoming harder to bridge. Those who don’t make moves to bridge or at least slow the widening gap are going to be left behind.
It is a time of great change in insurance. A rebirth – a renaissance – of the industry is happening with the customer at the forefront. While it can be frightening, it is also exciting. It is time to embrace the shift and begin your digital transformation!
For a deeper look at this topic, please see our recently published white paper, Insurance in the Digital Age: Transforming from the Outside In.