If it were possible to take a time-lapse video of an industry, insurance would be fascinating. Think of all that has transpired over the last five years. The buds of InsurTech have unfolded to announce the coming of a new type of insurance industry. Many insurers have moved from a self-sustained silo business model to a growth-focused, partner-seeking model that will accommodate innovative ideas. They are planting their own seeds of growth with digital technologies and customer-centric processes. The need for new product types has pushed insurers out of their comfort zones and into the land of opportunity fostered by ecosystems and platforms. In a time-lapse video, we would see many traditional insurance processes wilting and dying while new ones are thriving with flexibility and agility. We might glimpse the winds of investment shifts. We would certainly see the animated development of new channels and the improvement of existing channels.
You might be surprised to know that this time-lapse perspective actually exists — and you have access to the results. Majesco’s Strategic Priorities Reports act as a camera, uniquely-positioned to view our industry through the lens of strategic priorities across a broad range of insurers. Because this is Majesco’s fifth year in surveying and tracking the information, we are now able to provide a valuable set of comparative statistics that will help insurers to grasp where the industry has been and where it is headed. Majesco’s new report, Strategic Priorities 2019-2020: Insurance Transformation Gains Momentum, takes readers to the heart of technology and priority trends to consider what is currently important to executives like you.
Business Model Transformation is Visible Through Knowing, Planning and Doing
The Strategic Priorities camera uses Knowing, Planning and Doing as its time-tested benchmarks. Knowing, Planning and Doing survey questions around key areas have been a useful verification gauge for the measurement of transformation strategies. Because organizations move through all three phases on their way to accomplishing their strategic goals, Majesco is able to capture an aggregate picture of where the industry is at on the journey. We are able to also assess the steps in reference to their stated priority. If insurers’ responses indicate that a certain technology, for example, is a strategic priority, then it is likely that we’ll see that technology moving from knowing, through planning and into doing over a very short span of time.
Strategic Shifts are Real
Over the last five years, we have seen dramatic changes in the industry, from the influx of capital into InsurTech to the rapid adoption and maturation of emerging technologies and a seismic shift in generational buyers that continue to point insurers toward new strategic priorities that are driving growth. In particular, the development of new business models, new products and expanding channels are seeing strong strategic shifts – reflecting a focus on the two-speed strategy – speed of operation and speed of innovation.
Within this year’s Strategic Priorities survey results, we found that replacing core systems dropped in priority from last year, even though there remain significant Non-Platform systems – monolithic legacy and modern on-premise systems. In contrast, the development of new business models and new products are the two highest areas of activity – reflecting a strong shift to speed of innovation – and potentially the use of new cloud SaaS based systems to launch both, given the challenges of existing businesses to rapidly innovate. Whereas legacy replacement has been a heavily IT-driven strategy, these others are business-driven, highlighting a significant shift in priorities.
As the generational shift from baby boomers and Gen X to Millennials and Gen Z expands, the need for new products will intensify. And with the continued growth in InsurTech investment in MGAs and Insurer startups and emergence of InsurTech Unicorns, we should anticipate continued focus on the speed of innovation areas, particularly with the pending launch of AM Best Innovation Ratings, which we discussed in our last blog.
Knowing: Understanding Internal and External Challenges
Over the last five years, we have tracked insurers’ levels of concern about specific internal and external challenges. This year we added two new internal challenges including change management and innovation, and 1 external challenge, market availability of new, innovative products and services. Amongst all 17 challenges, innovation stood at the top, highlighting the growing focus by insurers.
Internal challenges dominated in priority with 8 of the top 10 (two tied for the 10th spot) as compared to 3 of the external challenges. Similar to last year, there continues to be a higher focus on internal versus external challenges – posing an underlying potential threat for insurers because new competitors like InsurTech are taking an “outside in” approach to their business model, products and services to more readily address customer and market demands.
By tracking these challenges over the last five years, we can view the overall trends. For example, 10 of the 16 original trends dropped in priority from 2019, generally realigning to 2018, and 5 remained the same with only one increasing slightly year over year. Data and analytics, talent and new regulatory requirements experienced the largest drop. Other findings include:
- L&A/Group’s top internal challenges were innovation, digital capabilities and data and analytics. The top three external challenges were changing customer expectations, pace of change and adoption of new/emerging technologies.
- P&C’s top internal challenges were innovation, data and analytics and talent, surprisingly leaving digital capabilities in the lower half of priorities. Similarly, for P&C, changing customer expectations, adoption of new/emerging technologies and pace of change are the top external challenges.
- In stark contrast to single segment or new product only insurers, multi-line P&C and L&A insurers’ top challenges were legacy systems, talent and budget, reflecting the complexity and decades of legacy that hinder change in a fast-changing market. Adding to the contrast, the external challenges pace of change, growing market availability of new/innovative products, changing customer expectations and competition from tech giants reflect the growing concerns of those leading innovation in the market.
Multi-line insurers are the most challenged with their legacy plus the rapid market changes that include customers, products and competition — putting them at risk for future relevance and viability.
Planning: Preparing and Prioritizing Strategic Initiatives
Insurers’ priorities across 11 strategic initiatives reflect the strategic focus on becoming a digital insurer and adapting to the rapidly changing marketplace, encompassing customers, products, technology and competition. Insurers’ primary focus is now on the future and innovation rather than optimization of the current business. This is very different from last year, where the primary driver was modernizing and optimizing the current business.
While technology is often the center of attention when looking at industry disruption, it is just one ingredient in the recipe for change. Changes triggered by technology will only “stick” if they achieve adoption by enough people who gain value from the new products, services, capabilities and experiences created by the technology.
“Traditional” customers are increasingly digitally adept, placing their satisfaction at greater risk because of increased expectations and demand for a better experience, product, and service. Adding to this change are Millennials and Gen Z, who expect insurance to be much different. They want new products that will align to their activities and behaviors, regardless of line of business or segment.
This is well understood by multi-line insurers, which appear to be heavily customer-centric rather than product centric, yet they are still active in developing new products that fit. They exhibit a much stronger priority for all of the initiatives, with the exception of cost containment / reduction.
Doing: Responding to Trends
The gaps between insurers’ awareness of issues, priority of initiatives, and their level of response is evident once again this year – raising the concern of lack of doing. When it comes to incorporating specific marketplace trends, technologies or capabilities into their business models or offerings, insurers are currently focusing on a very limited set of opportunities.
We asked them to indicate their level of response, from “No focus on this” to “Already implemented,” for specific items within these categories:
- Marketplace trends and new products
- Regulatory and rating agency
- Partnerships & ecosystems
The zone of action this year (indicated by a score greater than 3) includes a focus on cyber risk and value-added services. Encouragingly, the other categories all increased in rating from what we saw last year, with using new data sources for pricing and underwriting gaining the most. This is positive, given the rapidly growing new risks, new customer demands and unbundling of insurance into new or on-demand products.
Once again, multi-line insurers are far more active across all of the areas, with the exception of cyber, reflecting their broad customer base and products. What is most striking is the range of difference, from 20% to 50% higher than single-segment insurers. While multi-line insurers’ complexity is a challenge for them, they have a significant advantage they can leverage: innovating new products that cross traditional segment lines, something the next generation of customers will be looking for.
Mid-Tier Insurers at a Current Disadvantage
Further analysis by tier highlights the advantages of both the large and small tiers – those with more resources and those with less complexity and greater agility. Many of those in the small tier likely represent MGAs and startups that are developing business models inclusive of ecosystems. The real danger is for the mid-tier insurers that are caught between those with resources and those with less complexity. Ecosystems, such as Digital1st EcoExchangeTM, would help them close the agility/resource gap.
Multi-line insurers are leading the way in embracing partnerships and ecosystems, by nearly 40%. Most striking is their use of APIs, embedding of insurance, and white labelling their products or using other’s products. This illustrates a growing eagerness to provide a multi-channel approach to reach customers when and how they want to engage, a key customer expectation for insurance. Single-segment insurers need to strategically and aggressively consider new options to meet changing customer expectations, moving beyond their internal, controlling view.
Technologies that Power Transformation
In our next blog, we’ll examine some of the technologies that are transforming the insurance business. We’ll consider the current state of core systems, both platform and non-platform. And, we’ll see if our time lapse view can tell us anything about the next three years. Be sure to view all of our most recent findings by downloading Strategic Priorities 2019-2020: Insurance Transformation Gains Momentum.