In the disruption era, insurance executives have realized that quick-win strategies and just doing more of the same is unsustainable. The window of opportunity for digital transformation and future-readiness is now.
This article examines how insurers can get fit for digital through the three levels of innovation — basic, transformative and disruptive. Disruptive innovation is the most meaningful and challenging level to achieve, and here we outline the four key business components that insurers must address to move forward and stay competitive in today’s market:
- shift from a product mindset
- seek technology partnerships
- address backend processes
- create a culture of innovation.
The future insurer will look drastically different than today's incumbent model. Technology can fundamentally change not only how consumers perceive and interact with their insurers but also the role that insurance plays in their everyday life. Instead of insurance being a back-end purchase in the wake of decisions about home, health, travel and more, it could become a major part of the front-end ecosystem.
We are already witnessing the first steps towards this change — but significant challenges are barring the way forward. So, how can an organization meaningfully pursue digital innovation that challenges the industry?
Understanding the potential depth of change
Customer needs are changing, with digital products and purchase options becoming more essential to the modern consumer. Yet the different technologies used for digital services have varying levels of business impact. When we look at the potential of digital innovation, there are three levels that companies can aim for: basic, transformative and disruptive.
Basic innovation is using digital means to replace or simplify existing processes. Today’s examples include process automation, chatbots, cloud computing and AI triaging high-volume, low-value claims. These areas bring incremental improvements that deliver short-term benefits and is where most insurers are focusing the majority of their time and attention today.
In contrast, transformative innovation can potentially change the way insurers interact with their customers. Key to this transformation is a shift from a product-centric to a customer-centric approach, in which insurers use AI, big data and analytics to understand customers and provide data that allows decision-makers to act quickly.
This approach does not only help insurers understand how to better reach potential markets and through what channels, but also offers the ability to design tailored products based on customers’ needs. On-demand coverage is an important first step on this journey.
Another way is by using technology to support a mindset shift from protection to prevention. For example, an insurer in Singapore is providing affordable insurance to diabetics while helping individuals manage their condition. Using portable monitors that track health information like blood sugar, heart rate and weight, the insurer can lower their risk profile while providing coverage to an underserved market. Other examples include mobile risk alerts based on a consumer's location, to health trackers that notify pregnant women of potential issues before their unborn child is at risk.
Disruptive innovation is both the most meaningful and challenging level for insurers to achieve. Instead of using a specific technology, disruptive innovation creates a vision for a new insurance business model that is supported by technology. Today's business models will no longer exist in tomorrow's digital landscape, because insurers must evolve to survive. To achieve this vision of an insurer at the front end of a customer's daily transactions — such as new purchases, travel or trips to the doctor — the insurer must reconsider the way it operates from the ground up. Therefore, using technology becomes the means to achieve that clear and specific business vision rather than a goal in and of itself.
How should an insurer move forward?
Understandably, insurers are mired in immediate issues. Challenges regarding legacy IT systems, changing regulations, rising competition and low consumer trust all loom large in the traditional insurer's windshield. As a result, many incumbents have not created a digital vision to guide their activities or are not making decisions to move the organization toward that vision. The critical first step is to create both this vision and a clear roadmap for the way forward.
Next, insurers need to address four key components of their business:
1. Shifting product mindset. Most insurers today think about specific product lines instead of the needs of the customer buying the product. Insurers must shift their focus to consumer needs and anticipate how changing behaviors will create new product opportunities.
2. Seeking technology partnerships. Building or buying technological solutions may no longer be the best option. Instead of developing an in-house solution, companies should consider partnering with insurtech and fintech companies who can provide immediate digital capabilities.
3. Addressing backend processes. Legacy processes can be a stumbling block in the road to change. While more insurers offer digital products, few have reengineered their backend to match, which is inefficient and increases the risk of error. Insurers must address these gaps and take advantage of opportunities to improve their digital processes.
4. Creating a culture of innovation. There is nothing that an insurer does today that cannot be innovated, transformed or entirely rethought with enabling technology. However, an organization-wide cultural change is required to seek and embrace this innovation. From the C-suite to the mailroom, insurers must encourage their employees to look out for innovation opportunities, with KPIs to measure performance and incentives to spur action. This type of culture will also help insurers take considerable strides in attracting and retaining digital talent.
There is no direct path
In an inherently risk-averse industry, many insurers have approached digital innovation with caution and even hesitance. Yet a basic, step-by-step approach to innovation as part of pilot programs and discrete innovation groups will achieve one result only: being left behind.
Disruptive change is already happening in the industry, driven by new and developing technologies. Digital insurers, fintechs and insurtechs that are unencumbered by legacy systems, processes and people are already pushing the boundaries and leading the industry. This change will only accelerate. Embracing disruptive innovation at a cultural level is a significant challenge — but it is better than the inevitable alternative.
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