The traditional insurance business model, which has beenresilient for over 350 years, is now being challenged bytechnological and behavioral change.

In the not-so-distant future, driverless vehicles may diminishor eliminate road accidents and injuries. Connected homes couldsignificantly reduce residential hazards. The sharing economy willlikely offer peer to peer coverage.

It follows that the type of consumer served by traditionalinsurance companies is rapidly ceasing to exist. Today's moderncustomers are connected and social. They are fast to switch betweenproviders, and expect instant reward and feedback.

The insurance industry will soon find that the only way to attract and retain customers isin their very own personally digital way. With that in mind, here,in descending order, are some practices that I believe areessential for successful digital transformation of an insurancecompany.

Related: Embrace the shift! Transforming the insuranceindustry from the outside-in

No. 8: Stay focused on digital transformation goals.

What does it mean to become a digital insurer? Well, we knowwhat it is not. It is not moving insurance products online. Infact, it is not so much to do with products at all. Customer mentality is shifting toward consumingon-demand services, such as insurance for exactly six days of askiing holiday or coverage for a favorite custom mountain bike. Tobecome a digital insurer is to redefine the vision in terms of thekind of service, experience and a relationship the company is ableto offer consumers.  A single interaction/touchpointmindset (selling a policy and hoping that nothing will happen) mustbecome a relationship mentality. The value proposition shouldevolve from simple indemnity to prevention, education andcontinuous support.

Related: Insurance in the Digital Age: 3 steps to maximizingyour strategy

This new kind of customer requires next generation services.Insurance offerings have to become simpler and easier tounderstand. Insurance companies have to enable consumers to manageservices easily, give their offerings a flexible and modularstructure so customers can construct their own policies, and theninteract with those products by trying them out, changing them orterminating them as needed.

Customers want companies to know them,recognize them, predict their present and future needs andexpectations, and see truly personalized value propositions — allwhile being offered a consistent, omni-channel user experience.

A successful digital plan should permeate aninsurer's entire operation. (Photo: iStock)

No. 7: Aim for organization-wide transformation.

In order for digital to achieve the goal of true customer centricity and personalization,it should permeate the whole enterprise, from culture and strategyto operations, from front-end to back-end processes, from policypurchase to claims, and from finance to HR (human resources).Moreover, customers are not the only beneficiaries of the digitalway of doing business. Digital also has an important role to playin making the middle office agile enough to adapt to the evolvingbusiness model and in making the back office transparent andefficient.

Related: 8 ways that digital innovation is reinventinginsurance customer service

No. 6: Implement an agile approach.

While digital transformation is a multiyear journey,perhaps counterintuitively, it should not be over planned. Thecurrent rate of technological change and increasing interdependencebetween industries diminishes the value of highly detailedlong-term plans. It is simply too likely that the context willevolve before the strategy is implemented. So make surethe strategic approach to digital transformation is flexible enoughto adapt to change.

The most reasonable way to start the process is to explore thevalue digitalization can bring to specific markets or products andstart where it will solve most problems or bring most benefits. Animproved experience is likely to have the most impact in areas ofhighest customer activity, and in the largest and most cumbersomeprocesses.

No. 5: Tune IT infrastructure to support digital strategy.

The dynamics of change place a high value on operational andstrategic adaptability to shifts in competitive landscape, customer needs andmarket conditions. One of the roles of IT is to enable adaptabilityas well as rapid digital development (rapid release cycles,automated testing and deployment) and dynamic interactions acrossthe partner ecosystems. IT architectures must be reconfigured,enabling redesign of the front-end systems to deliver smart,customized, intuitive, rich user experiences and their integrationwith back-end business operations and data.

The dynamics of change place a high value on beingnimble when it comes to shifts in competitive landscape, customerneeds and market conditions. (Photo: iStock)

No. 4: Instill a culture of customer focus, innovation,collaboration and learning.

Nothing is sustainable without the support of organizational culture. To drive digitalexcellence, a culture of customer centricity is key. It isalso imperative to evolve the type of culture that discouragesinternal competition and rewards collaboration and mutual learning.For example, the digital team and the IT infrastructure team oftenhave conflicting values and yet their cooperation is essential forsuccessful digital transformation to occur.

Organizational structures may have to be augmented to promotecollaboration. Cross-functional digital teams, formed to developsolutions from the customer perspective, are a good way toencourage customer centric innovation.  

Also, digital leaders have test-and-learn cultures that acceptfailure as a natural byproduct of the innovation process. Thesecultures are highly risk tolerant and promote and reward quickdecision-making and adaptive learning.

Related: The direction of insurance in 2017: It's all aboutconvergence

No. 3: Attract and retain talent.

New kind of talent with practical understanding of digitalbusiness dynamics has to be brought in. Insurers must developstrong talent attraction and retention strategies to competeeffectively with the leading technology firms and startups for bestdigital experts.

Look to high-tech startups when it comes torecruiting digital transformation experts. (Photo: iStock)

No. 2: Capitalize on data for personalization, improvement andinnovation.

Getting insights from data has always been the keycompetence of insurers. In fact, their businesses always dependeddirectly on this specific capability.Yet, the new sources and typesof data that digital customer interactions will provide (devicedata, real-time data, unstructured data, big data and so on) aredifferent from structured, statistical data that insurers are usedto processing. Getting actionable insights from these new types ofdata requires new skills as well as data management and analyticcapabilities.

Furthermore, a new competence for a digital insurer is to expandits use of data from solely underwriting purposes to using the data topersonalize all aspects of client interactions throughout theentire value chain, including marketing and sales, claims, productas well as for operational innovation.

No. 1: Take partners with you.

Digital transformation for an insurer is a group endeavor.Insurance companies are inextricably linked to their suppliers, andit is important to look at the transformation as a process integrated across the supply chain. Itis also important to assess who are the reliable candidates for amutual digital journey.

Becoming a digital insurer is the only viable path tosustainable growth, customer loyalty, reduced costs and increasedprofitability. It is important to take a broader view ofdigitalization than simply 'applifying' insurance products.Digitalization requires one to address many organizational aspectsto support this transformational exercise of rethinking andreimagining customer experience, relationship and value.

Alexey Utkin is senior vice president of the financepractice at DataArt, a global technology consultancy.He can be reached at [email protected].

See also:

Insurance 2017: Priorities for innovation,automation and transformation

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4 digital strategies to reach auto insuranceshoppers