Innovation Imperatives for Insurers in the Digital Age

Even a casual look into the history of insurance reveals its rapid evolution over the last decade - from a slow-paced and highly regulated industry, to one consumed with technology transformation.

Till recently, insurers have grappled with challenges of engaging millennials, managing investments, simplifying systems, improving combined ratios, and driving growth. Today, however, there is a slew of disruptive forces changing the playing field. The availability of new user experiences in the hands of policy holders, coinciding with the sprouting of InsurTech has created new, asymmetric competition for established carriers. Legacy products designed decades ago are unable to support the deluge of new data, while millennials are ride-sharing and buying fewer cars. Technologies such as connected health, homes and autonomous vehicles are forcing traditional insurers to re-invent offerings at an unprecedented pace.

Market reports reveal that over the past few years, technology spend for insurers is higher than the market growth rates, signaling a shift to technology-led-models. The UK FinTech sector alone hopes to create 100,000 jobs and seed $8billion in investments by 2020. In view of these developments, speed-to-launch will become a real differentiator. Insurers – as Carriers strive to launch new products in 3-4 months to keep pace and stay abreast of customer demand. They also need to accelerate the integration of enterprise risk management into decision-making for these emerging products. Data monetization and customer-centricity will become key imperatives  while lights-on cost continues to be sucked out of legacy platforms.

Using technology to re-invent insurance

In the face of myriad transformation alternatives and confusing consultant-speak, choosing the right path can be tedious. To address this challenge, I suggest a three-dimensional approach that maps outcomes to technologies. I strongly believe that this framework will empower insurance organizations in making informed decisions on how technology can drive future growth.

A2C: Artificial intelligence (AI), Automation and Cloud – This category comprises new and emerging technologies that help insurers improve efficiency, reduce cost and scale easily. For instance, the adoption of cloud platforms and agile infrastructure continues to be a hot trend among insurance providers given the radical performance advantages. Automation is helping organizations achieve huge cost benefits and efficiency improvements by automating repetitive processes and eliminating the risk of human error. I find that robotic process automation (RPA) or software robots are best-suited for back-office insurance processes such as claims processing, billing reconciliation and subrogation. While adoption of Machine Learning is still nascent in the industry, companies are beginning to deploy chatbots for front-end processes. For instance, ICICI Lombard has developed a chatbot, MyRA, that engages with customers to sell policies and execute transactions without human intervention.

D3C: Design, Digitization, Data, and Consulting – This category comprises mature technologies that help insurance companies accelerate revenue growth. In my opinion, as demand for intuitive policies rises, product innovation will become a key differentiator for insurers. Carriers must listen closely to what their customers are saying and develop products that meet their needs. Here, Design Thinking™ can be a vital tool for product rethink that meets the key criteria of desirability, feasibility and viability. When design thinking is coupled with digitization, companies can access advanced ways of improving efficiency and tracking customer sentiment. Analyzing such customer feedback provides valuable insights into how insurers should revamp user interfaces to deliver delightful customer and user experiences. Digitization also supports insurers in providing self-service dashboards and omni-channel capabilities for customers to interact with their providers, thereby increasing customer stickiness. However, any initiative involving digital or design thinking must be reinforced with a strong data strategy. This is why I highlight the importance of investing in intelligent systems that collate unstructured and structured data to gain a holistic customer view. Such solutions enable extreme product and service personalization such as usage-based policies, customized pricing and claims validation across auto, life and home insurance. Consider how Ford is partnering with IVOX to develop a technology that gives insurers insights into driver performance, to lower premiums. Finally, such innovation requires robust partner ecosystems, underscoring the need for strong consulting services. Seamless collaboration across partners is critical if design, digital, data, and consulting are to generate tangible value.

CoLT: Core systems, Legacy systems and Total outsourcing – Over the years, while some insurers have built robust albeit monolithic enterprise applications, others have grown through mergers and acquisitions. Both now have an intricate web of IT infrastructure and legacy systems. Managing these inherited systems is an ongoing cost that insurers are forced to bear. McKinsey estimates that handling this complexity accounts for 75% of the operational and IT costs when it comes to servicing policies. Not surprisingly, many insurers choose outsourcing as a solution because it makes the bloated appear low. Third-party service providers are better equipped with the skills and infrastructure as well as the agility to adopt innovative technologies. Further, insurers will need to reinvent existing systems to meet increasing customer demand for better services and products. This can be a heavy burden on organizational budgets, particularly when dealing with legacy core systems. This is a key concern as stricter data security laws increase the liability for penalties. I strongly feel this is where leading technology service providers can demonstrate their expertise. Best-in-class technology solutions can help insurers modernize their legacy systems at lower cost to improve efficiency and performance. Additionally, intuitive solutions allow insurers to on-board new technologies and enjoy sophisticated digital capabilities while reducing TCO.

Thus, technology service providers seeking to provide real business value to insurance organizations must design solutions that deliver innovation in the above three categories. Application modernization, cloud computing, automation, and other new technologies will help insurers optimize their core systems, develop customer-centric insurance products and streamline underwriting and risk management. Such capabilities will empower insurance companies to build and sustain competitive edge in the digital age.