Going digital is more than the sum of individual initiatives, and insurers who fail to grasp that will lose opportunities and competitive advantages.
According to McKinsey & Co.’s “The Making of a Digital Insurer” report, successful digital firms leverage mobile, social and the cloud to make better decisions, automate processes and deepen their connection with customers.
Truly successful digital carriers go one step further and integrate digital into everything from strategy and organizational structure to day-to-day operations and workplace culture.
Based on their experiences in other industries, customers are demanding more digital sophistication from their insurance companies. But what about insurers who focus on other markets? “Most insurance companies know that digital is important, and they can be overwhelmed and not know where to start when setting up their digital transformation,” says one of the report’s authors, Tanguy Catlin, who is a partner in McKinsey’s insurance practice. “The intent of this report is to show that the journey can be simple.”
Characteristics that have differentiated successful firms will continue to play a role in digital success: underwriting, claims execution and investment management strategy. However, carriers who combine these strengths and also leverage digital tools will be in a position to lead the industry, the report says. The report details the following six key areas in which insurers can achieve significant immediate gains while paving the way for long-term change.
You don’t know what you don’t know, and given that technology changes and advances in a nanosecond, how can carriers create a long-term strategic plan?
“Have something flexible that if the industry evolves in different ways, you are not locked out,” Catlin advises. Consider the current needs of insurance customers and their pain points. What digital opportunities can be captured? Can current capabilities and infrastructure meet those opportunities?
Catlin gives a four-step approach that will help carriers create a flexible strategy: First, imagine three to four different scenarios for what the world could look like five to 10 years from now and find common themes. Second, spend more time in discussion with stakeholders. It could be worthwhile to spend time with car manufacturers to understand how they envision self-driving vehicles, for instance. Third, forge partnerships with organizations that create value for your firm. And fourth, significantly accelerate decision making. Come up with prototypes quickly and don’t be afraid to fail, Catlin says.
Also consider current trends in which risk can move from personal to commercial lines, such as self-driving cars. “In an accident, it might not be due to a driver, and liability will shift to the manufacturer or software provider. It will move from personal lines to commercial. You need to think about those trends because they can have massive implications,” Catlin says.
Digital companies such as Amazon and Uber are shaping experiences and are changing what customers have come to expect from the businesses they engage with.
Examine how digital can improve the customer experience at each step of their decision-making. Use digital tools to develop a clear view of which customer interactions can be re-imagined through digital, which are frustrating for policyholders and shoppers, and where an improved experience will have the most impact.
Digitize business processes
Most carriers have not embraced this opportunity, McKinsey says in its report. “Some expect their antiquated legacy IT systems to be an insurmountable obstacle, but the reality is that insurers can revamp many discrete processes without making changes to their underlying technology infrastructure.”
McKinsey estimates that between 30% and 40% of insurers’ expenses support the top 20 to 30 core end-to-end processes. Numerous smaller-scale processes involving “the needless pushing of paper and duplicative tasks” can be cost-effectively digitized.
Organize for digital
Successful digital firms have more than expertise—they also have a corporate culture, approach to talent and an organizational model that supports digital excellence.
The culture values that drive digital excellence include a higher risk tolerance, an acceptance of failure as part of innovation, and a test-and-learn approach. Digital talent needs to be sourced from leading technology firms and startups, not promoted or moved from within other branches of the company, and an organizational model must fit the company’s level of digital maturity.
Many carriers are afraid to fail, and as such, their innovation lacks that of other industries. Because insurers are in the business of managing liabilities, they often are risk averse. Catlin points out that, because insurance is highly regulated, carriers are hesitant to make sweeping changes in their systems that might conflict with laws in some of the states where they do business but not others.
Ninety percent of carriers say that they are struggling to develop a technology infrastructure that supports digitization. Outdated legacy platforms and the complexity of their IT systems present a barrier to development.
McKinsey recommends developing IT capabilities that run at two speeds: a foundational architecture centered on transaction systems, and a high-speed, agile IT model that focuses on customer engagement.
“There is too much change in the digital era for a carrier to make all of the changes to their legacy systems at once,” Catlin says. “Create some acceptable Band-Aids outside of the core systems to use for a period of time that won’t slow down your innovation.” Although this is the more expensive solution, as carriers will have to revamp their IT infrastructure twice, Catlin says this is the best approach as you won’t lose ground and will continue to provide value to customers.
Digital analytics and decision making
Data fuels insights and innovation, and elevates highly successful firms. Data is growing exponentially, but it is unstructured. Develop ways to mine both internal and external data sources in real time for actionable insights.
The insights can be gleaned from the full breadth of the insurance value chain, McKinsey reports. Carriers should consider optimizing digital campaigns to provide hassle-free quotes, apps that assess vehicle damage, and monitoring social networks or applying voice analytics to identify fraud as steps toward digital success.