Solution Partner Views
Igniting Digital Value in Insurance
Have you ever seen highlights from the World Series or Super Bowls in the 1980s or even the 1990s? The footage is grainy and the sound is feeble. It makes you wonder how viewers put up with such poor quality.
The footage is from the pre-digital days of television. At the time, picture quality and sound were perfectly acceptable. It was the best technology available. Today, however, everyone has experienced the sharpness and clarity of digital television and there is no turning back. The same phenomenon is occurring in insurance.
For decades, the intricate business of insurance has trudged along routinely, with spikes of innovation and change to keep up with the times. Legacy systems have typically served the industry well and helped to create large, profitable companies. But our increasingly digital world has exposed the sub-par performance of the very systems and processes that insurers have relied upon for decades. As customer expectations change and consumers become accustomed to instant access to information and products, the traditional “analog” domain of insurance is not acceptable or productive. We have definitively entered the age of digital commerce and it is fast reshaping the insurance landscape, just as it has in many other industries.
Differentiating the customer experience through intuitively designed and thoughtfully executed digital strategy is now critical to the goals of reducing policyholder service costs and improving retention. According to Ernst & Young, for example, “…customer expectations and behaviors are evolving at a rapid pace, often faster than traditional mechanisms can react. Driven by their interactions in other digitally enabled industries, such as retail and banking, property & casualty customers are increasingly demanding a more sophisticated and personalized experience—including digital distribution, anytime access, premiums accurately reflecting usage and individual risk, and higher levels of product customization and advice.”
The U.S. television industry actually received a big boost in 2009 when Congress required a transition by full-power TV stations to an all-digital broadcast format. The television viewing experience was literally transformed overnight. There is no comparable mandate in insurance, and insurers have been relatively slow to embrace comprehensive digital strategy.
Insurers are naturally risk averse and it`s natural to avoid rushing headlong into a new technology landscape. Legacy systems are expensive to replace; and while those systems are suboptimal today, most are still functional, much like analog television was for a while. Scarce IT funds are typically allocated to modernize core systems or to introduce incremental but mission-critical functionality. Realistically, it`s hard to convince insurance leaders to replace technology that is “working.”
Meanwhile, the digital revolution has changed the way business is conducted. By 2020, there will be more than 50 billion connected devices worldwide. Consumer spending on mobile devices reached $200 billion a couple years ago and is expected to triple by 2018. Digital consumption has impacted just about every industry and it will eventually engulf the insurance industry as well. For many insurers, it`s already about how to catch up.
According to the 2014 Novarica Digital Strategies and Capabilities Report, insurers have been focused on investment in agent portals over the past decade, enabling distributors to submit business information details and receive quotes online. And many insurers have digitized their underwriting and claims workflows. These new digital infrastructures, while still being developed, are helping to improve processes and workflow efficiency. Insurers are also modernizing their intelligence gathering, for better understanding and pricing of risk.
However, there is much more to digital transformation than improving legacy processes. Digital ecosystems are actually leading insurers to change how they strategize, run operations, and pursue new market opportunities. Insurers have always been adept at making predictions based on historical data, but the digital age is demanding the accommodation and analysis of new, rich and real-time data sources. Insurers are slowly gaining the ability to use predictive analytics to look forward more accurately. The industry is getting much better at anticipating future outcomes, not just interpreting past trends, and becoming more agile in using data-driven knowledge to propel digital strategy.
Insurers are also adapting cognitive analytics and machine learning, the seemingly magical science of computer intelligence behind the success of companies such as Amazon and Google. Take, for example, the new digital environment of an Australian home and auto insurance provider. Complex rating algorithms allow the company to generate a premium quote in seconds. But the system also learns from those policies it cannot quote automatically. Every time a quote is kicked to an underwriter for manual evaluation and pricing, the system learns from the underwriter`s actions and can apply the same logic on-demand for future referrals. As the digitally enabled underwriting system gets smarter through cognitive analytics, fewer policies need to be priced manually.
Imagine how much more business can be written when an insurer can provide a precise, instant quote—while competitors must refer that same business to an underwriter for manual pricing. Now imagine many other processes in the insurance lifecycle benefiting from similar cognitive analytics and machine learning. It`s a leap of innovation and transformation that begins to reshape the entire insurer-policyholder relationship, and one that can rapidly tilt the business development and competitive landscape.
The digital age, and the resultant policyholder expectations, are pushing insurers to become much more customer-centric. Every customer touch point becomes a significant, relationship-building opportunity. Digital insurance companies will consider every e-mail and telephone conversation as an instructive and revealing connection with policyholders and not just a way to push generic information or sell products.
Insurers need to evolve their thinking from “inside out” to “outside in” perspectives. Instead of being driven solely by the admittedly critical goal of producing revenue, the digital age has ignited the necessities and obligations of delivering value in personal and instantaneous ways. To that end, insurers have new opportunities to move from providing services and products to being a highly responsive, trusted partner for their policyholders. Insurance companies need to understand customers as “distinctly-insured,” a state in which their risks are measured individually, and products, services or practical information are delivered at the moment they need it.
For insurers, there is little choice but to embrace the digital age. They need to invest judiciously in enabling infrastructure to collect, evaluate and analyze real-time, rich data. While they are modernizing their core platforms and operations, insurers must also learn from the advances of other industries in successfully incorporating real-time data sources and cognitive science for personalized digital engagement.
Those insurance companies able to make this imperative transition will expand into a world of possibilities that will forever change their relationships with policyholders, and drive profits through a laser-focused, customer engagement model. Those insurers unable to transition or sluggish in doing so, will be in the same position as pre-digital TV broadcast providers—the ones that dissolved and disappeared—as their customers quickly embraced the new digital paradigm.