(Photo credit: Santeri Viinamäki.)
There’s no doubt that the insurance industry is currently undergoing rapid change. Technological advancements, shifting customer expectations, and new players are challenging traditional business models. While this sea change is causing a great deal of consternation in certain circles, it should also be viewed as an opportunity. Disruption is likely to displace an average of four of today’s top ten incumbents (in terms of market share) in every industry within the next five years, according to Cisco research. And yet, one third of companies are adopting a “wait and see” approach, and just 25 percent describe their approach to digital disruption as proactive.
While a conservative approach can serve business well in some circumstances, in the current climate too much caution could lead to insurers missing the boat altogether and being replaced by forward-thinking competitors and newcomers. Companies with the highest revenue and earnings growth looked for digital opportunities across all elements of their business model and either led the disruption or were fast followers, according to McKinsey’s report, Digital disruption in insurance: Cutting through the noise.
If we drill into the structural change that automation and advanced analytics can bring, we can immediately see the imperative to act. McKinsey estimates that up to 40 percent of P&C and life insurers expenses are locked in their top 20 to 30 core end-to-end processes, which digitization can reduce or even eliminate. The real beauty of digitization is that it has the potential to simultaneously boost customer satisfaction, improve effectiveness, and reduce expenses.
Procrastination is going to lead to an inability to compete. But what should insurers do? Where do they focus to gain a competitive edge?
Build a framework
Investment in the underlying infrastructure and mechanisms that will support digitization and enable innovation is a fundamental necessity. Flexible IT architecture, effective and rapid access to data with analytics, the ability to polish operational efficiency, and the capacity to quickly prototype and test new services and ideas are all vital.
Many insurers are failing to fully leverage data analytics, but the potential is there. If regulatory requirements and established legacy systems in service are preventing modernization, so that carriers are struggling to compete with newcomers, then perhaps they should consider partnering—if you can’t beat them, join them.
Create the right culture
You can find innovative ideas anywhere, so encourage your employees and customers to share their experiences and desires, and make sure that you listen to them. A positive, open atmosphere where good ideas are recognized and rewarded is the right kind of environment for innovation to thrive. It’s also important to empower passionate people to try new things, even if they fail sometimes.
This culture change might require an injection of fresh blood. Whether that means hiring in the best talent, creating new autonomous departments that can educate and influence the rest of the company over time, or acquiring disruptors that show promise, the path is up to you.
There’s a growing awareness of the need for carriers to adopt a customer-centric approach. Listen to your customers and work just as hard if not harder to retain their business as you do to acquire them. Remember that loyal customers are cheaper to serve, they spend more, stay longer, and promote their insurer to friends and family, according to Bain & Company research.
Analyze the end-to-end experience for your customers, from acquisition through claims, and look for ways to make their life easier. There’s plenty of data and opportunity out there. A full 67 percent of consumers said they would be willing to have a sensor attached to their car or home if it led to lower premiums, according to a PwC survey, and 50 percent said they would provide additional personal and lifestyle information to find better deals and more relevant services.
No carrier can afford to stand still while digital transformation gathers pace and everyone around them is moving forward. Pursuing innovation is fraught with risk and it can mean disrupting yourself, but risk is the path to reward. Act now to create a technical foundation to support digitization, foster an innovative culture that encourages creativity, and always remember to put your customers first.