The InsurTech innovation climate within the last four years has challenged insurers by forcing them to pick a path, whether they wanted to or not. Some insurers were ready to move, willing to take the risks and excited about the future. Some insurers were cautious, but acknowledged that they needed to make changes. Others were content to gather information and work slowly toward modernization.
The speed of technology development and the threat of rapid competitive market shifts have given insurers a new perspective in that short span of time. Fortunately, four years ago, at the start of InsurTech and the disruption it has brought, we began tracking how the industry is responding to the trends impacting insurance … identifying the Knowing – Doing Gap. The gap highlights that insurers know and recognize changes in the industry, but many are not planning and doing rapidly enough. Why? They struggle to maintain strategic focus, suffer through limited investment and fight against competing priorities.
Majesco’s fourth annual Strategic Priorities survey results provide a strategic lens into the industry that is now revealing distinctly different approaches being taken by insurers. You can download the full report here. The trends and initiatives we have tracked over the last four years are exposing three distinct paths that have significant implications to growth and future relevance. The three paths include:
- Modernize the Existing Business - Replace legacy systems in a private or public cloud to keep and grow today’s business.
- Optimize the Business Today - Create new digital capabilities to protect and grow today’s customer base.
- Create a New Business for Tomorrow - Build new business models for a new generation of customers and products.
Today, as we look in depth at insurer insights from the survey, you can compare what other insurers are thinking about the key issues, strategies, technologies and relationships that will move them into the future. Do their strategic priorities (and yours) match efforts to remain competitive?
Ready, Set, Know
Majesco’s Strategic Priorities survey isn’t just about tracking strategic trends. It is about tracking a trend’s activity through an insurer’s pipeline of projects and development. In order for Majesco to capture crucial moments of inception, we designed our survey to include those trends that may not even be on an insurer’s radar yet. The first step at the strategic priorities starting line is to know and recognize a trend, so we look at trends through multiple lenses. We look at technologies. We assess customer journeys and distribution channels. We consider trends in partnerships and ecosystems. We also extrapolate trends based on perceived challenges. Are insurers focused internally on their processes or externally on meeting customer and market needs with digital capabilities?
To set the context for these deeper probes, we gathered insurers’ views on their growth and strategic activities from the previous 12 months (See Figure 1). This year’s results show a strong increase in activity focused on modernization by replacing or having replaced core technology. The number of companies claiming to be experiencing rapid growth are also higher than in previous years. Activity also moved up a notch in new product and business model development. Channel expansion activity, however, has remained flat.
Which technologies are important to business models?
When we asked insurers which technologies were important to their business models, there was a strong response to the foundational technologies for platforms including cloud, mobile, open APIs, cognitive/AI and with microservices coming behind (see Figure 2). These are core technologies necessary as we rapidly move into the on-demand, platform and API economy by enabling speed, innovation and flexibility in a rapidly changing market. They assist insurers in meeting the demand of customer expectations, the security needed to manage new risks, and the opportunities arising in new market segments.
Digital payments, chatbots, and IoT were close behind, and are critical technologies for customer engagement. There was strong interest in Social, blockchain and telematics as well. In particular, it is important to note that over one-third of respondents view blockchain as important. The increased activity within the industry around blockchain will continue to drive more planning and doing, shifting us once again to Insurance 3.0. Most insurers don’t yet consider drones, wearables, autonomous vehicles and AR/VR as vital or important technologies. All of these could be considered blind spots when we consider how quickly the industry has moved in just the last four years. See last week’s blog, Pushing Priorities, on how visionary leaders should be keeping tabs on disruptive trends, such as drones.
How do our technologies and channels match up to customers’ needs?
The technologies insurers use play a critical role in the customer journey, from researching to buying and servicing. Paying bills, filing claims and receiving claims payments are what insurers perceive as being the easiest for their customers (Figure 3). Getting a quote and making a policy change are felt to be slightly more difficult, while researching policy offerings, completing a policy application and tracking the progress of a claim are thought to be the most difficult. These perceptions align with InsurTechs’ perceptions as noted in our latest InsurTech report.
Unsurprisingly, distribution strategies are heavily concentrated in traditional channels: Agents/Brokers and Website/Portal (Figure 4). Here, between Figure 3 and Figure 4, we find a crucial link. Those “difficult” services for customers, such as researching policy offerings, quoting and completing applications, may be suffering from a lack of channel options. All of the channels that are below the red line in Figure 4 could be used to meet customer expectations and increase the ability to close sales.
It is also surprising how disappointingly low mobile app usage is, given it is a table-stakes capability in the digital age and the high desire we found in both our consumer and SMB research. They key for insurers is to offer a broader array of channels that expand market reach and meet expectations for where, when and how customers want to engage.
How do we feel about partnering and the use of ecosystems?
As we outlined in our report, InsurTech: Energizing the Shift to Digital Insurance 2.0, an important precept for success in Digital Insurance 2.0 is a recognition that it’s no longer desirable or optimal to “go it alone,” particularly in a “platform economy” where ecosystems are a multiplier effect for growth. Most insurers agree on the value of these relationships, with 80% indicating they are involved with at least one partnership or ecosystem. Other insurers, reinsurers and InsurTechs are the most popular partners/arrangements, each with over 40%. Large insurers (those with $1B or more in annual written premium) are much more engaged with InsurTechs and other industry segments, compared to mid-market insurers (see Figure 5).
With nearly 40% of insurers already partnering with InsurTechs, it follows that they strongly view InsurTechs as potential solution providers (80%) and partners (73%). Interestingly, only 42% see them as a potential acquisition and 36% as a competitive threat. However, company size also matters here, with nearly 90% of large companies viewing InsurTechs as partners or solution providers, and 56% viewing them as potential acquisitions.
What do we consider our greatest internal and external challenges?
Over the last four years, we have tracked insurers’ levels of concern about 16 internal and external challenges. Substantial upward trends in 8 areas emerge in this year’s results, suggesting a potential corresponding increase in urgency to act. However, 5 of the 8 are internal challenges, including data & analytics, talent, digital capabilities, data security and aligning IT and business strategies. While these are certainly important, what is concerning is the imbalance in focus between internal versus external challenges. As we have indicated in previous reports, the danger posed by InsurTech competition is that InsurTechs take an external versus internal view, positioning them to more readily address customer and market demands rather than operational ones. This danger is made greater by the lower level of concern about InsurTech, once again showing that traditional insurers may not grasp the impact of external challenges.
The external challenges that insurers find most pressing include regulatory requirements, the pace of change and changing customer expectations.
In our next blog, Responding to Priorities: What Insurance Leaders are Doing Differently, we’ll look at our survey insights through the lens of Digital Insurance 2.0 leadership traits. Is there a set of criteria that insurers can use to figure out where they are within the industry and how can they know that they are choosing a path that will take them to a leadership position? For a preview, be sure to read Strategic Priorities 2019: Accelerating the Path to the Future of Insurance.
 Note: channel expansion was not included on the 2015-2016 survey.