If insurance companies were asked to insure their own business models, premiums would be sky high for most carriers. Traditional contract-based business models are a risky bet. Although digital transformation hit other industries much earlier, the digital day of reckoning is now upon us. It's a challenging time of physical, social, and behavioural change. And the industry needs some coping mechanisms to successfully make the transition to full digital maturity.

Core insurance operations are no longer about internal efficiency or simply policy, billing, and claims functionality. Today, the customer – not the process – must be at the core. And that core must be digital. Marketing channels, social networks, personalization, localization, intelligent pricing, real time risk analysis and consistent multi-channel customer experience all stem from a digital core.

It's a lot of change all at once and the industry's reticence is understandable. Providers are being forced to reimagine business models and processes, shift from risk mitigation to risk avoidance, from products to outcomes, and to execute real time data insights in new ecosystems. Value was once measured simply by profits. Today, value creation comes in multiple forms, and is largely derived from serving customers better to extend customer lifetime value – which is increasingly found in IoT sensors.

Take Discovery Vitality, for example, which rewards customers for adopting a healthy lifestyle using Apple Watches to provide feedback on how active they are – resulting in a 17 percent jump in profits. Other providers offer discounts on workout clothes at certain stores, refund money back to customers when they buy healthy foods at specified supermarkets, and offer gym membership discounts.

Likewise, some car insurance companies now acknowledge that the value of a car decreases over time, and offer slightly lower premiums each month for customers. Others are rolling out in-vehicle telematics to better evaluate and price a driver's risk. By digitizing their existing business, providers can significantly reduce costs across the value chain, and further increase customer loyalty. A recent McKinsey study found that automation can reduce the claims journey by as much as 30%.

But the key dilemma holding most providers back is how far and how fast they should move. Everyone wants to reach the customer directly, but no one wants to upset the apple cart and disenfranchise their agents. And not every customer wants to engage this way. Although younger, Gen Y customers are natural targets for IoT-driven initiatives, customers over a certain age may view sensors in their cars or on their wrists as an ethical grey area or an infringement of their privacy.

The answer, of course, is that one size doesn't fit all. It never has, but in the new digital reality, you must now cater to it. This hybrid approach to personalisation of products and services is a subtle but important consideration. In the main, we see five key steps for insurance companies on in this transformation journey: adapt to customer behaviour, harness real time data analytics and data science strategies, embrace (and invent) new business models through connected devices, improve your internal operational efficiency, and accelerate your time to market.

Most CEOs I speak with recognize they're on the threshold of a once-in-a-generation opportunity for cost reduction and new avenues of revenue generation. But only a handful are embracing innovation, experimenting with different business models, and monetizing the opportunity before them. My hope is that you will be one of them.