Digital Readiness for Insurance
As the saying goes in the world of Artificial Intelligence, “you cannot learn something unless you already almost know it”.
Every new thing learned, every new capability excelled is a preparation for the next step in the learning curve. The same goes for industries, where the capabilities acquired or developed internally prepare the organization for the journey ahead.
Digital is bringing considerable changes to almost every industry including the insurance industry. These changes touch everything from customer preferences to distribution channels to operational aspects. The changes covered by the term digital are not just representing a set of technology changes, they represent important shifts in the way the industry conducts its business and how the value is delivered. In other words, the ways companies serve their customers, build their products and generate value are changing.
As these shifts are beyond what is changing in the technology landscape, there are a number of steps insurance companies must follow to transform their mind-set so they can truly be ready to learn what is coming with digital and what kind of competitive advantages they can create.
One key aspect is that the format of the industry is changing. Insurance business is moving from just risk management towards a complex service business combining different products and services based on the lifecycle and needs of the customer. Although key processes will likely to remain in place like policy management and claims management, companies will be expected to provide additional services, which either complement or augment the core business aspects.
Definition and positioning of the customer is changing. It has long been the practice that the very definition of customer in insurance companies revolved around the agency network. Still today, many insurance companies, especially the ones in P&C business, will put forward their agencies when they are asked to define their customers. It is true that agencies (and brokers) are customers of insurance companies and most of the time they are critical customers. However, with the advent of digitization and its impact on the next generation consumers, reaching out to the end customer has become a necessity. Understanding the end customer in detail is the stepping stone to achieving improvements including designing additional products and services to enhance the core offerings and to move the company to a more service oriented business.
Building ecosystems will be vital for the future shape of the business. In today’s complex world and with the ever increasing speed of technology and its applications, it is not possible to become the source of everything, rather it is moving towards becoming the integrator of key value propositions. In this respect, developing collaboration opportunities and establishing partnerships with different players will be crucial for the future. Having partnerships is not a new thing in the insurance industry space; bancassurance agreements and assistance services are all types of partnerships. However, in today’s digital world, the partnership must extend to different players and industries including insurtech players and other start-ups and technology firms, which can enhance the value propositions. Some of them might bring additional services like wearables supporting the health insurance while others might open up new customer segments to widen the customer base.
Understanding the new reality coming with the automation is another key piece in understanding the impact of digital. When we talk about the automation, many people think about the automation of operational processes and to some degree the automation in distribution channels. However, in today’s world, automation is a multi-faceted concept affecting the insurance industry in different ways. On one side, automation is changing the business related aspects. For instance, with the advent of driving assistance tools in automobiles and with the expected arrival of autonomous vehicles, the insurance related aspects will move from consumers to vehicle manufacturers. In addition, policy and premium structure will considerably change due to improvements in autonomous driving, road infrastructures and lower accident rates. Another example is healthcare. When we look at the trend of healthcare industry, it is moving towards a data-heavy, analytics based preventive healthcare world where many aspects of the diagnosis and treatment advice will be automated. All the data, algorithms and models are powered by increased automation, which in turn creates a much more transparent picture and changes the premium structure in this part of the insurance business.
On the other side, automation is changing the operating model of the company and how it deploys the workforce. Processes once thought to be done mostly or completely by employees are sliding towards partial or full automation. Technologies like robotics process automation are permeating many parts of the business including operations, finance, distribution and claims management. Even the first generation automation technologies have considerable efficiency gain potential in these business functions.
Automation has a ripple effect, starting with nice improvements and capable of ending up in a paradigm shift. It is vital from an insurance company’s perspective to understand this irreversible process and its part in understanding digitization.
Designing and managing the right technology stack is another crucial point that we need to include in our list. As is the case in other industries, having the right technology infrastructure is a key ingredient for digital readiness. When we look at the technology space, there is a myriad of applications serving different purposes and incumbent insurance companies should also manage their legacy infrastructure to make sure that they are able to run the business as they are changing the business. The success here depends on defining the right enterprise architecture and making it a starting point to move towards defining the technology stack. Given all the points we mentioned above regarding customer, ecosystem and automation, it will be important to add key components to the technology stack while underlining the competitive advantage points including customer data, actuarial know-how and product knowledge.
Regarding the technology stack, analytics capabilities and artificial intelligence are important areas to be included in our thought radar. These concepts have long moved beyond academic environment and they are becoming mainstream technology components laying the groundwork for more personalization, improved automation and improved customer experience. Developing capabilities in these areas require a number of things including talent management, right tools and most important data management. With the digitization, the importance of data has grown exponentially and similar to the ecosystem concept we explained above, the data space will need to include not just the internal data but all the relevant data the company can collect, derive and use. As data management walks hand-in-hand with data regulation, this will be a topic which companies need to manage carefully. If used right, if data management can be linked in the right ways to the technology stack and business imperatives, it can be a powerful fuel in the move towards digital.
Industry format, customer, ecosystem, automation and technology stack can all be considered things that need to be learned and mastered before understanding and getting ready for the digital in insurance industry.
The views expressed in this article are the views of the author only. This article provides general information and point of view, and should not be considered as professional advice.
