Today’s insurance customers demand more. They expect their insurer to quickly process and underwrite their insurance application online or through an app, easy self-service transactions, and speedy claims resolution. The good news, according to most studies, is that consumers are willing to pay more for the value and convenience of a world-class seamless experience.
By enhancing their digital capabilities, insurers can meet these customer needs, provide excellent customer service to improve retention, and cuts costs to provide competitive premiums in an increasingly price-conscious market.
This creates both a challenge and an opportunity for the insurance industry. Insurance companies have decades of optimized processes and systems that are not aligned to this new digital business model. Disruption is a real and looming risk, and perceptive insurers realize they must adopt a digital strategy.
What is Digital Transformation?
Digital transformation must reimagine customer engagement at every step, increase operational capability, and augments process execution with new enabling technologies across the front office, middle office and back office through:
- A highly automated flow of structured data between online, enterprise and cloud applications;
- Enabling transparent transactions and interactions between brokers, customers and third parties and,
- Supporting smarter decision-making through real time reporting and embedded analytics
These drivers are pushing insurers to implement digital initiatives in the following areas:
Automation: “The speed of the fleet is that of the slowest ship.” Any manual activity – compared to automation - brings three negatives to a process; lower performance, less accuracy and a hindrance during normal volumes and a chokepoint at peak demand. Further, not capturing data from non-automated activities can result in insurance companies to working with a fraction of all the data they need – the very antithesis of digital. Automation and analytics can transform claims processes, enabling insurers to improve fraud detection, cut loss-adjustment costs, and eliminate many human interactions.
Increasing demand of an agile and scalable IT infrastructure: There are many positive outcomes when an insurer’s technology structure is able to support the core business drivers, from enabling brokers to win new customers to maintaining high retention through digitally transforming customer engagement. Insurers can significantly increase the ability to make quick updates without sacrificing the IT resources required for day-to-day operations, and customers have quicker, easier access to information. Brokers may benefit the most as they reap increased premium volumes and greater customer loyalty. To get there, insurers must augment their existing IT with a software delivery approach designed to accelerate digital innovation. This will allow them to quickly move the business forward without disrupting their existing IT systems and processes.
Analytics: Mining Big Data to gain highly specific business and customer knowledge is a foundational underpinning of any digital strategy. Bear in mind that this data is usually an aggregate of enterprise data and qualified third-party data. Assuming an enterprise’s data is not compromised by silos and black holes, this aggregation can provides insurance companies with a strong, unique, competitive edge.
The same goes for customer knowledge. Aggregating this information with third-party data provides such companies with a powerful risk assessment underwriting edge, making it easier to retain existing customers, run an efficient operation and yet maintain healthy profitability ratios.
Additionally, fraud poses a major threat to both insurers as well as policyholders.
As fraud creates significant financial cost, insurers pass on this cost to policyholders in the form of increased premiums. Using advanced analytics, it is possible to implement efficient fraud detection strategies. Advanced analytics techniques like logistic regression and Gradient Boosting Model (GBM) can often identify potential cases of fraud at the First Notice of Loss (FNOL), instead of waiting weeks or months for an adjuster to review a claim. Since advanced analytics is capable of assessing the propensity of an individual to engage in fraud before it has occurred, it can also be used in the sales and underwriting process before a policy is sold.
Front office: Digital channels will replace and augment physical channels: A 2015 Bain survey of insurance companies projected that digital channels will continue to significantly replace physical channels in the next three to five years. The survey found that most physical activities in insurance will be transitioned to digital. Specifically, pre-purchase, purchase, servicing, renewals, claims handling and management, payments, and customer feedback and resolution will become digital first, followed by other functions later. This transition will require incremental IT and integration transformation.
What should be done?
Insurers need to think beyond strategy. They need to get to transformative execution and outcomes and ensure those outcomes create key differentiators in the marketplace. It’s important to develop an approach that can span this divide between strategy and execution so that once the transformation objectives have been selected, there’s a clear path to a unified architectural approach for holistic digital execution.
Step 1: Identify digital transformation objectives
As Insurers progress from strategy to execution, it’s important for the strategy to set the stake in the ground in terms of target business outcomes. Digital business is often discussed solely from the lens of the digital customer experience, but that’s only a part of the story – albeit a vital part. In addition to re-thinking and re-designing of entire business models, the key desired transformation objectives often map to the following steps.
Step 2: Study technology enablers in the market
Insurers must be fully aware of, and leverage, technology enablers in the market. That means looking beyond the SMAC stack and into the next wave of enablers: personas and context, intelligent automation, human-machine collaboration, and the Internet of Things.
In addition to these more recent enablers, the core SMAC stack is evolving as well. Mobility is evolving through wearable technologies, the cloud, hybrid IT, and software-defined data centers. These disruptive technologies are today’s building blocks – some mature, some emerging – in the new digital business platform ecosystem of on-demand services. Taking a holistic view across all these enablers can help to maximize business benefits and unlock new forms of value.
Step 3: Envision the future platform for digital business
Architecturally, these foundational technology enablers can assemble a highly-virtualized, highly-distributed platform of on-demand services. Based on an insurer’s current infrastructure and architecture, selecting various technology combinations is extremely critical to achieve expected business outcomes that includes harnessing the digital customer experience, enhancing the digital workplace, transforming and simplifying business processes and optimizing infrastructure
Step 4: Master the digital services lifecycle
The next step for IT is to consider the “how” as well as the “what.” It’s no longer sufficient to have an innovative set of products or services. You have to be a master of how you design, develop, deploy, manage and continually evolve your digital services as well. Mastery of the digital services lifecycle is going to become a key competency for insurers to grow their business and build sustainable competitive advantage in the years ahead.
All in all, there are six key approaches that are shaping how IT services are produced and consumed: agile, DevOps, as-a-service infrastructure, intelligent automation, personas and context, and finally, digital service management. Progress in these six areas helps you build your organization’s mastery of the digital services lifecycle.
Step 5: Organize for digital business innovation
Having established the platform ecosystem for digital business as described earlier, organizations will select the appropriate sub-set of disruptive and enabling technologies based on their specific target business outcomes. Rather than a monolithic platform that integrates everything, the future platform will consist of a highly virtualized, highly distributed, ecosystem of services from best-in-class providers. Foundational services will be selected based upon role-specific and outcome-oriented needs. Common groupings of pre-integrated services will emerge such as those provided by software-defined data centers so that you don’t have to do all the assembly yourself.
In terms of practical execution, business managers can select from this palette of options based on their specific needs. For example, for the digital customer experience we need a new set of capabilities including a persona-driven approach, omnichannel integration, customer centricity, and insights from analytics. Some of the key elements are as follows:
- Persona-driven approach to support new work patterns and preferences
- Omni-channel integration and re-designed business processes for faster, improved experience
- Customer centricity using social, mobile and cloud computing to transform work processes
- Contextually-relevant anticipatory analytics to enhance customer insight and differentiation
Step 6: Execute a swift journey to the future platform
Finally, when taking the journey to this new platform, it’s important to bear in mind that we live in a hybrid IT world. Organizations need to take the journey to the future platform, while supporting and maintaining their existing applications and infrastructure. While some elements may be retired or modernized, other elements may need to co-exist and be integrated into the new platform.
Since IT will be a hybrid environment for quite some time, it will be important to interoperate across these two divides. In addition, an agile and iterative journey to the future platform can simultaneously optimize infrastructure and simplify management on the back end (the IT transformation) as well as improve the user experience and transform business processes on the front end (the business transformation). That way the business can gain early benefits for customers and end users at the same time as IT transforms its own delivery model.