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The insurance industry is facing change, competing priorities, and a brittle and costly legacy technology environment. Agent-heavy firms are least likely to explore digital opportunities, as their familiar hunting-grounds degenerate into commoditized markets. Insurers must embark on a transformation journey by leveraging their legacy investments to create an agile enterprise and bring focus to omnichannel customer experience and customer intimacy with goals to acquire, service and retain. There are three principal drivers of this urgent transformation mandate:

1. The Tempo for Change: Fickle regulators, changing distribution models, sharing trends, innovations, and disruptive technology make agility essential.
2. The Tension of Competing Priorities: Widespread adoption of InsurTech point solutions has created disaggregation and functional silos among the insurance value chain, but at the same time focus has shifted away from product-centric to customer-centric objectives. Still, visibility of the customer is obscured by the disaggregated value chain. There’s a growing chasm between digital insurance leaders and the laggards.
3. Costly Legacy:  Significant money was spent implementing Policy Administration systems with great promise and expectation. Quickly it became apparent that customizations and additional dependent products were required to meet functional demand. Exponential investments have been required to continue to tweak and support an aging, very brittle legacy. Some insurers maintain a $100MM per annum support budget for their monolithic, all-in policy administration systems. This is directly traceable to the customizations made to these applications.

These market conditions compel insurers to “shift left.” The focus must shift left from the back office to the front office in response to these pervasive conditions to meet several key objectives:

1. Effective Business Acquisition: Increase market share and profitability within key customer segments that are aligned with insurer product set and risk appetite by providing highly personalized offers through a coordinated multi-channel customer buying experience.
2. Increase Policyholder Retention: Increase desired account retention results (measured by profitability) through coordinated and proactive conservation programs including personalized engagement and customized offers.
3. Expand Cross-sell/ Up-sell: Expand customer insurance product consumption and share of wallet (measured by products per household/ business) through targeted campaign management and digital product placement (social, co-branding).
4. Enhance Sales Channel Effectiveness:  Improve lead/ contact conversion rates and decrease acquisition costs by providing opportunity prioritization, superior sales automation capabilities, and best offer/product configuration solutions.
5. Enable Superior Underwriting Performance: Optimize the underwriting cycle from pre-submission to binding by utilizing end-to-end workflow automation and sophisticated submission prioritization capabilities.
6. Create Outstanding Customer Engagement: Provide insight into customer needs that power positive interactions that develop long-term relationships. Use this insight to proactively expand customer engagement touchpoints and reinforce through superior digital interaction capabilities
7. Deliver Operational Excellence: Deliver solutions that enhance the quality and timeliness of applications that deliver customer expectations (service request, policy change, loss reporting).

Insurers need to address these strategic imperatives in a way that will scale with flexibility and sustainability. The acquisition and constant tweaking of a monolithic policy administration system is not the answer. As a matter of fact, that approach perpetuates the problem because if you purchase a solution that solves all your problems as long as you just tweak these 10 minor things, eventually those minor things will become significant enough to find a replacement. The objective should certainly be to extend the life of existing policy administration investments and to potentially replace legacy enterprises and improve operations and customer service. This can be done with the adoption of a “Pace Layering” strategy, which is an architectural doctrine Gartner coined for categorizing applications and developing a differentiated management and governance process that reflects how they are used and their rate of change. This approach essentially creates a taxonomy of processes and capabilities to liberate business process and customer interactions from the confines of some software vendor’s vision of how insurance ought to function.

Adopting a pace-layered strategy decouples processes and business rules from underlying applications. Business and IT can work together to rapidly define, configure, maintain, and tune insurance business processes and rules in “Systems of Differentiation”—decoupled from “Systems of Record,” such as existing policy, claims, underwriting, and additional network applications and systems (e.g., Duck Creek, Guidewire, SAP, Seibel) to protect the aging investment or depreciate elements of the legacy. And to keep pace with disruption in the industry, more agile capabilities can be expressed in “Systems of Innovation.”

For those business processes that are static, commoditized, or otherwise not differentiating, the guidance would be to adopt the process as expressed by the underlying system of record; the policy administration platform. However, where business processes are truly differentiating or subject to frequent change, insurers can implement a robust blend of digital process automation, predictive/adaptive analytics-based decision automation, and robotic automation to enable them to have an adaptive customer-centric front office through increased back office automation.

Modernization and innovation is not only essential to grow the business, it has become an imperative for survival.  The method and technical enablers described herein provide a better, cheaper, more sustainable way to not only modernize, but to future-proof the insurance technology landscape.

CX in the Age of Digital Insurance: What to Do, and What’s at Stake