4 ways insurers can prepare for 'Digital Insurance 2.0'

Every business today has legacy processes and systems and faces thedilemma on how they will adapt to the rapidly changing marketdynamics that are driving the shift to the digital age. Insuranceis no exception.

InsurTechs are embracing these dynamics and powering the shiftthrough the significant capital flowing to new technology andstart-up companies from MGAs and insurers. But is there a properapproach to digitization?

There is much discussion and debate on how InsurTechs willre-shape the insurance market. But the industry should not forgetthat this same disruption has also impacted other industries suchas retail, media, travel, telecom and banking, where successfulcompanies created new business models, technology solutions andmore.

Change has been time coming

The insurance industry has long had a degree of protection fromnew entrants, provided by the complexity of the regulatoryenvironments. However, regulators are quickly realizing they needto understand the new digital technologies and work with theinsurance industry to integrate them into the market. Today weare seeing that new entrants are making strong moves into themarket by proactively working with regulators. At the same time,existing insurers are bringing new, innovative products to marketwithin their current businesses.

Irrespective of where one operates within the insurance marketand across the insurance value chain, change is coming. Change inthe insurance industry is being driven by:

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    - A combination of new customer needs and expectations;
    - The rapid adoption of new technologies that offer significantopportunities to innovate; and
    - Changing market boundaries that expand market reach.

The result is the rapid emergence of new entrants who see theselling, marketing and servicing of insurance in a very differentlight to the more traditional entities.

Digital Insurance 2.0

For existing insurers with legacy technology estates, tinkeringaround the edges or waiting to be a fast follower will not work,given the pace of change. Insurers are experiencing atectonic shift that is creating a new market dynamic, according to recent Majesco research. My colleaguesand I call this era Digital Insurance 2.0.

If one embraces the need for change, what should they do to helpadapt and innovate for the new world? Which slices should beapproached first?

Here are four suggestions:

No. 4: Hear and understand thecustomer. This is basic stuff, but the industrydoes not do it so well. In Majesco's research, The Rise of the New InsuranceCustomer and The Rise of the Small-Medium Business InsuranceCustomer, it clearly shows thatinsurance is at the bottom as compared to the businesses thatcustomers interact with. In today's digital age, the customer is incontrol. So, to transform a business, it is imperative to take thetime and make a concerted effort to understand your customer needsand expectations … because your new competitors are.

No. 3: Evaluate alignment of yourstrategy to your current systems' infrastructure andorganization. You'll most likely find that your legacy systems'estates are inhibiting your ability to change, let alone shift toDigital Insurance 2.0. Digital Insurance 2.0 requires amodern, open architecture that is cloud-ready and hasopen API capabilities to integrate new data sources, newtechnologies and more. Trying to apply a closed technicalinfrastructure to address the needs of Digital Insurance 2.0 is theproverbial square peg in a very round hole.

No. 2: Prioritise. You can't flip anestablished business on its head overnight. It's just not going tohappen. You need to grow theexisting business, while transforming and building the newbusiness. This is crucial. Marketing and Distribution should notpull back from traditional business in anticipation of the launchof new business models, new products or new channels. The currentbusiness is funding the future and needs to be kept runningefficiently and effectively as the market shifts.

No. 1: At the same time, optimize the existingbusiness while building the newbusiness. Ideally one would seek to transform a"sliver" of the operation which goes from "front-end" right throughto the "back-end" function. If an organization's teams have beenworking toward placing digital front ends on the traditionalbusiness in order to engage customers, they shouldn't stop in themiddle of the bridge. Any process that can be optimized on thetraditional side will help to maximize the existing business,reduce the cost of doing business, and provide a bridge from thepast to the future while beginning to enable realignment ofresources and investment into the new business. These are veryoften the incremental changes that will also gently shift thecustomer base through new ways of doing business.

As Albert Einstein said: "We cannot solveour problems with the same thinking we used whenwe created them." (Photo: iStock)

Evolution vs. revolution

Evolving or transitioning a business is not going to be withoutits difficulties; but the greatest risk is allowing 'old thinking' tosolve 'traditional issues.' This is not an ageist issue but astate of mind.

As you bring your thinking into what the new world lookslike — most likely it won't look like what iscurrently in place. From an organisational perspective, one shouldalso be very open to creating "Greenfield" entities — newstructures built on a clean slate approach rather than replicatingthe traditional silo approach so frequently seen in largecorporations.

Increasingly, insurers are developing anew business model for a new generation ofbuyers. Some insurers have made the mistakeof envisioning their digital front end as their big leap into thefuture, not realizing that they have only just touched the newlandscape. They need a strategy for a new business model thatsupports simultaneous leaps forward that will create new customerengagement experiences underpinned by innovative products andservices. This will create growth, competitive differentiation andsuccess in a fast-changing market.

Creating the requisite infrastructure to address the realitiesof the market shift shouldn't be underestimated; it will not be atrivial investment. Many insurers are looking at justifyinginvestment based on growth strategies as well as competitivesurvival. Strategically, more are moving to the buy vs. buildapproach. Forward-looking companies are seeking a cloud-readyplatform with a modern architecture that can support all theinsurance business functions, as well as increasingly-sophisticateddigital and data capabilities to support the customer anddistribution channels.

These solutions seamlessly integrate core insurance processingwith a growing ecosystem of other technology providers,3rd party data sources and the growing number of externalsales/service platforms or marketplaces. As systems and theirunderlying architectures become more open, products and serviceswill be sold and serviced as part of "non-owned"processes. As a result, insurers will need to integratetheir data collection and transactional requirements into portalsand platforms which they don't control directly.

The takeaway

Clearly, we are seeing the shift to Digital Insurance 2.0, a keytopic of discussion and strategic planning in the boardroom, thoughmany may not fully appreciate the extent and ramifications of thisshift. Truly transforming a business to Digital Insurance2.0 will be a customer centric, digital first endeavour. Thedigital age shift is creating both a challenge and an opportunityfor insurers. The time for plans, preparation, andexecution is now — recognizing that the gap is widening and thetimeframe to respond is closing.

Mike Smart is director of business developmentat Majesco. This column publishedfirst on the Majesco website, and is reproduced here with thecompany's consent.

The opinions expressed here are the writer's own.

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