Mapping the Insurance Ecosystem
Digitalization today has broken the invisible walls across different domains, giving way to inter-industry competition at every front. For instance, online retailing has set high standards for customer experience not just for itself, but for every industry. Keeping this in mind, insurers are compelled to think radically about the way they assess risks, innovate products, manage claims, and, most importantly, manage customer expectations. This challenge further gets complicated with geopolitical, environmental, regulatory, and other constraints on the insurance industry.
Despite all these external forces in play, there is still a great optimism that the market will only grow. Mckinsey and Company’s recent study shows the overall growth of global industry by 4% (2017-2018), with total premium reaching to € 4.7 trillion. A KPMG insight report surveying global CEOs captures this unique paradox as “confidence amid uncertainty,” concluding that 85% still see insurance as a booming industry, and 97% sure that their respective companies will win the race. However, the question arises: How are companies in the insurance industry going to do that? The challenge is complex, and will drive incumbent insurers to examine the external and internal forces affecting the industry.
Technology: Goal or Means
The usual response is that the use of latest technological innovations such as artificial Intelligence, advanced robotics, Internet of things (IOT), cloud computing, or other solutions will help insurers tackle all the current challenges. This is a misconception, technological interventions work in complex layers. At one level, it becomes a means to tackle a problem. On another, it becomes a problem itself in itself through issues such as cyber risks. At a very different level, it acts as a competitive enhancer and differentiator. At the same time, it influences and redefines the market. Technology assists in innovation, but it innovates itself in the process. With these overlapping roles of technology, the difference between the means and goal, product and service, producer and consumer, threat and opportunity, continues to get diffused.
What is also important to note is that how technology has transformed and still transforming the customer centricity. Today’s customer researches, navigates across myriad of information and data points available online to make a decision, exercises control on mode of communication, payments, services, updates themselves with the latest news, and, most importantly provides, feedback and participates in co-creation.
Changing Roles of Service Provider
Such a dynamic and ever changing landscape of insurance demands that role of a service provider also goes through transformation. The traditional third-party model (TPA, hereafter) in many ways has become marginalized. While it has made the transition from “lift and shift” to a “lift and uplift” model, improving the value proposition, it never could materialize fully into a solid benefit. This is because service providers never had the holistic vision of the whole business, as they are responsible only for a portion of it. The best they could do is to look upstream and downstream to a limit of their scope of operations, but this fails to map the cross-functional, intersectional webs that these businesses encounter across the whole value chain. The second reason is through their total dependence on other suppliers, vendors can cause huge delays in the transformative journey. Despite relying on service providers to oversee portions of their business, insurers continue to be pulled into managing and coordinating between multiple providers, thereby investing a lot of time which could have been used for product ideation and risk decision making. At its best, traditional TPA remained a corollary and needs to go through a radical shift.
An Expert View from Jill Stabler, Senior Director, Sourcing Practice Lead at The Hackett Group.
“ Delivering competitive advantage through product suites that are highly integrated, accessible and curated around customer expectation and experience will be critical to enabling insurers to survive and grow. The choices that insurers make around adoption of digital therefore go to the heart of equipping them to respond to the challenges faced by the industry. In The Hackett Group’s view, BPaaS providers have a critical role to play in enabling insurers to catch up, keep pace and ultimately stay ahead of rapid and continuing evolution in customer expectations, fueled by technological advances. BPaaS partnerships will no longer simply provide services, but create capabilities.”
Transforming Global Business Services to Digital Business Services
The shared services model, which is widely known as global business services, (hereafter GBS) has been constantly experimenting and evolving to transform the businesses and come closer to tackling such issues. One of the studies on GBS by Hackett Group show that over a period of time, the focus on sheer process standardization, economies of scale, and labor arbitrage has expanded to create value for the customer and the company through integration and redesign of the end-to-end process chain. This integration and consolidation of entire services into a one unified function is not an easy task. One undercurrent mode of this unification is deeply ingrained in the digitalization of business. Perhaps, this is the reason that GBS will need to transform from GBS to DBS, or digital business service (DBS, hereafter), not just in nomenclature but also the way they plan and execute their businesses. This builds a double pressure to not just bring change, but bring a digital change. This poses a number of questions.
- Is DBS today ready with digital redesign models for their businesses?
- Is DBS ready with a digitally enabled and skilled workforce?
- Has DBS created a priority matrix to digitalize businesses?
- Has DBS accumulated sufficient digital tools to constantly drive insights and improve their process?
These are important and difficult questions for any DBS to handle, and this is where the role of partners who can share the load at every front becomes more relevant. DBS does not need to wait for a digitally enabled workforce, but can bank upon their partners who have been preparing for the change. DBS does not need to own the tools, because their partners have created some customized tools already.
The strategic decision to digitalize and redesign the organizational structure involves a constant juggle between what one can or must delegate to a partner and what must be retained. Despite its ambitious goal of digital transformation and customer centricity, DBS’s appetite for engaging with third parties remains low. The successful leverage of a service provider is still embattled in the domain of low risk and high volume activities, and is only centered towards gaining efficiency. Future DBS projects need to focus on effectiveness while looking at end-to-end process redesign in order to provide long-term benefits.
Managed Digital Business Service
The question is then how to optimize this division of business priorities between captive and other service to make sure that they are both empowered. An empowered GBS function does not just meet KPIs, but rather contributes to the overall growth of the company. This is possible when an insurance GBS create a holistic approach to the end-to-end process chain and the tools which impact it.
For example, a number of insurers delegate work to partners, but are still responsible for providing the IT stack and infrastructure. In the new scenario, a third party could be responsible for providing the system of record, the appropriate infrastructure, and end-to-end process management. In other words, it could be the entire web of the product lines and its corresponding support structure, which could be provided by the GBS function in order to facilitate quick business decisions, scalability of operations, and improved business results.
With these capabilities in place, a third-party BPaaS provider could deliver significant value by replacing existing suppliers who only address one part of the value chain. This could include MGAs and TPAs, particularly those who haven’t effectively optimised or transformed their operating models and who therefore charge a higher price for their services.
Some insurance companies have started to take steps in this direction. They are clear about what are their core IP activities such as brand, product ideation and risk decision making, and the rest can be managed by a mixture of owned or outsourced GBS providers.
In a time when new products are being launched in the market at speed, along with ever changing needs of the customer, insurers already have a lot to do. It’s time that they exploit the value that can be delivered by sharing the non-core and non-IP elements of their business with an end-to-end DBS supplier.
With the following capabilities, EXL is well placed to support insurers on the journey to deliver the benefits of a provider of Managed Digital Business Service
EXL has extensive experience and proven domain knowledge that has been leveraged on multiple engagements across geographies with global marquee insurance companies. Its industry-leading, ready-to-deploy digital assets and capabilities drive innovation, deliver real outcomes for clients, and are expertly orchestrated to amplify human abilities. With these capabilities, EXL is well placed to support insurers on their journey to realize the benefits of a BPasS provider of DBS.
For more information on EXL’s digital insurance capabilities please contact Jonathan Phillips, Senior Advisor to Insurance Services Division, at Jonathan.Phillips@exlservice.com