Winter is coming for some insurers who are late in their digital plans. Insurtechs, and more worryingly Big Techs, are eyeing up how they seize distribution and put traditional insurers into the shadows. But it is not too late to take the strategic decisions to re-organise businesses to respond to changing customer needs and competitive pressures.
The need to move into the digital age continues to be pressing. There is not one customer demographic that doesn’t have an expectation for service that isn’t 24/7, on a channel or device of their choice and that always knows them and treats them as an individual.
Many insurers’ peers in personal banking, loans and credit are well on the way to doing all of this anywhere between adequately to extremely well. While some insurers are moving fast on digital, too many are moving too slow. The reasons include not only legacy systems but also a complex layering of many different legacy systems. And, yes, there also has been some conservatism in really pushing ahead on digital beyond installing a few siloed digital channels.
The other factor is how insurtechs are beginning to make inroads and are flush with venture capital cash to seriously compete for customers. Their pitch to the insurer is beguiling: we will distribute insurance products, look after customers and back end the policy from you. Big Tech brands like Amazon and Google are targeting distribution, too; though they have yet to make a serious play.
Some insurers may regard insurtechs as minnows focussed on niches. There is some truth in this assessment when you consider how the poster child of the insurtech movement, Lemonade, is largely focused on the rental market. The only problem is how many smaller insurtechs there are that can collectively nibble away at an insurer’s customer base. So, the analogy is less about shoals of minnows and more of swarms of piranhas and potential death by a thousand cuts.
The outcome of this scenario is that the insurance brands could become very different to those customers have known for 200 years. Traditional insurers could find themselves very much in the shadows when it comes to customer interaction and value.
So how can insurers pick up the pace on digital late into the race?
Firstly, they must finally get a complete view of their customer in terms of the products they buy and all other useful datapoints.
Making strategic choices
Secondly, build a technology platform that serves end to end customer journeys such as one-click to buy cover, change of the customer’s insured vehicle or quote acceptance. Insurance businesses are built around vertical business units and functional silos, each of which has its own systems and processes. By running a layer right across these, the platform emulates the insurtechs in caring about what the customer wants to do first and then servicing that desire through the back end services.
Thirdly, having worked out the customer journeys, you must then automate these journeys using the back-end systems and services. This is where insurers can steal more ideas from insurtechs who make their handling of customers journeys seamless and smooth thanks to AI and machine learning. This is how AI changes models of operation and sits inside how you talk to your customers on these journeys, making those processes proactive and even predictive but always intensely personal.
The final step is making sure it is all truly omnichannel. There is little point in having lots of exciting digital channels like mobile, chat, social and web if the customer doesn’t have the power to flick between these and always get consistently the same experience.
All the above is extremely challenging, particularly at an enterprise scale and calls for more than just smart technology.
Leadership is critical to make an insurer power ahead on this road. Insurance leaders need to set the vision and structure the sponsorship of how the work will be done because this is about fundamental organisational change.
The challenge here is not simply external. An insurer’s passage into the digital world may require the leadership to address the power of the “barons” who currently run these business and technology silos. Leadership will need to reflect digital change too. So, expect to see boards re-aligned like insurtechs with executives with end to end business responsibilities such as heads of customer experience, data analytics and AI taking the key roles.
Moving into the digital world is about making a strategic choice. If you don’t want to restructure your business, insurtechs will do it for you. Indeed, some insurance business leaders may choose to become the back-end insurance service to insurtechs. This is perfectly acceptable though reinsurers may ask why primary carriers are entering their domain and respond accordingly. And, of course when an insurer becomes a services supplier, the insurtech has the leverage over how much commission they take out of the premium, and to shop around for services.
Insurers aren’t impotent when it comes to digital – there are steps that can be taken. However, you cannot underestimate the scale of change necessary.
Tony Tarquini, European director of insurance, Pegasystems
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