InsurTech start ups are emerging with a host of new technologies such as Artificial Intelligence (AI), and Internet of Things (IoT) to provide data-driven insights and greater efficiency than incumbent organisations can provide, quickly shifting focus away from the pre-existing powerhouses of the sector. These digital startups are capitalising on the weaknesses of larger organisations across insurance types including automotive, health and travel, life and home by providing innovative value propositions previously inaccessible. Insurtech investors worldwide surpassed $15 bn in 2021 alone, highlighting the rapid evolution of small players in the industry.
As in industry already heavily invested in digital, insurers do not need persuading that technology is the future of their industry. In recent surveys insurance leaders envisage a digitally transformed financial services industry in as short a time as the next 5 years, with the perceived payoffs in investing spanning a range of business areas including efficiency, customer-facing applications, retention and much more.
Insurers have highlighted employee retention as among their highest goals and believe digital transformation will be key, with high expectations that the investments they are making in digital will yield positive gains in customer loyalty. Indeed, over time businesses are expecting the benefits they reap from digital transformation to shift from operational efficiency gains toward consumer-facing applications. At present insurers are reaping significant benefits from burgeoning technologies such as the cloud to make major operational gains, but as the technology becomes embedded these gains are expected to fade. On the other hand, artificial intelligence-based improvements and consumer-facing blockchain are upcoming technologies expected to have large impacts in the future, and so the cyclical process of new digital systems emerging continues.
Many insurers believe that they have a coherent plan for their long-term technology innovation. The industry is awake and enlightened to the importance of digital transformation… so our work is done, right?
Well, not quite.
Integrate or Stagnate
While insurers are striving to put plans in place for their digital transformation, their journeys are far from complete. While investment in digital transformation is high, senior leaders in the sector believe that the industry is failing to take advantage of the new systems they are acquiring due to a lack of understanding of what digital tools can do for their organisation. At Digitopia, our analysis consistently highlights that skills and expertise are falling behind technology as an area of investment across sectors, and insurance is no different.
Management experience required for effective systems implementation is lacking, while training resources and support are trailing are also inadequate due to a lack of expertise in digital. These challenges outline a need for change from the top, with leading insurance executives potentially being ill-equipped to guide through the digital transformation goals of the organisation currently. Simply investing in the technology will provide inadequate in delivering the transformative tech dreams of these organisations.
IT integration is also proving to be an issue that exasperates the process, with many insurers stating a lack of collaboration with IT functions was limiting their ability to derive value from their technology investments. Concerns are high that their IT departments are siloed, inhibiting the ability to integrate their new systems in meaningful ways.
Unfortunately for incumbent insurers dealing with these issues, the industry will not wait for them to adapt. Consumers are increasingly persuing return on experience (RoX) when selecting the brands they endorse, with younger audiences expecting a range of interaction channels to engage with brands. Digital technologies are the singular method that insurers can provide on-demand services and enhance the communication and trust they experience with consumers.
The Future is Digital
Insurance organisations are in a critical situation, facing down increasingly savvy new competitors and high consumer demands to deliver excellent service. Executives proudly point to the investment plans they have created as the solution to their woes, but will this be enough to truly adapt and survive? Evidence points to poor implementation due to siloed teams and inexperience potentially leaving best-laid plans in tatters.
But as always, hope is not lost and the benefits of success far outweigh the costs of stagnation. A large incumbent firm that fully embraces digital technology could stand to double profits in the next 5 years based on a recent report, with most insurers believing digital ecosystems are already having a major impact on the insurance industry by reducing the role of the broker and shaking up traditional methods of calculating rates. Automation can cut the cost of a claims journey significantly while higher customer satisfaction driven by processing improvements and higher service quality are a guarantee.
The future looks positive for the digitally optimised insurer, but the true winners are those who move decisively. Those who initiate disruption faired best, making significant gains over those who responde to changes. Taking the initiative not just to adapt to the marketplace but to go above and beyond to shape the future of insurance is likely to pay off in kind.
What Gets Measured Gets Done
The insurance industry is at the forefront of digital transformation, and it is no longer enough to simply have a 5-year plan. Insurers must be prepared to fully capitalise on the digital investments to grow with or leapfrog the competition.
Investment in new technology is only once piece of the puzzle. Insurers must develop an integrated strategy of digital transformation that incorporates all departments, fully integrating the technology they are investing in while educating their teams to maximise return on investment.
Where to begin?
We encourage executives to take a serious look at their business today, and thoroughly assess their progress in integrating digital at all levels of the organisation, not evaluating simply based on technology acquisition. By understanding their current capabilities insurers can map their digitalisation plan, identifying the key strategic business areas that must be developed for success.
Failure is not an option, as doing so means inevitably falling behind aggressive new entrants and potentially losing the ability to compete permanently. Act now, your competition certainly will.