Change is inevitable, even for insurers. Leaders in the global market across all industries are not bracing for but rather embracing change. Positive transformation is modeled around true business agility and innovation coupled with profitable growth–and it's happening. Within the next two years, transformational business models will begin to realize their potential–expanding product offerings, reinventing service levels, and driving efficiencies to the fullest. The insurance industry, on the other hand, has become accustomed to bypassing any type of transformation.

As the global marketplace continues to evolve around the insurance industry, insurers will need to embark upon the true journey of transformation. External trends such as shifts in demographics and changing customer expectations are driving the need for underlying business processes and supporting technology to transform across the insurance industry. Attracting and retaining Generation X and Y as customers and employees are two of the biggest hurdles for insurers. These generations are not loyal to anyone or any company; they are technically savvy and have unprecedented expectations and demands.

The shift in demographics is having an immediate impact on the distribution channels. The number of independent agencies is decreasing due to a flurry of consolidations from mergers, acquisitions, and retiring agents. This transition immediately puts the squeeze on the carrier's ability to be one of the top carriers from an agent perspective. Independent agent-produced quotes are decreasing across the industry while sales through the Internet and call centers are increasing. In 1998, Internet and call center sales for private passenger auto accounted for less than one percent; today, it is more than 12 percent.

Within the walls of the industry, there are a few market leaders embracing change and raising the bar. These few are executing against aggressive strategies, creating a more complex and dynamic competitive landscape. They are buying distribution channels, expanding geographical footprints, enhancing products and services, transforming their business models, reinventing business processes, and making the right IT investments.

Not an Island

The insurance industry cannot afford to continue to operate like an island. As other service industries, insurers are faced with the same challenges of adapting to a transforming marketplace. The new external drivers in the competitive landscape have positioned insurers to seize the moment and create a tipping point for transformation to occur within their walls and across the industry.

The new generation of customers and employees expect full technology capability to be applied and woven into the fabric of business process. Responsiveness, agility, and flexibility are all required to satisfy the new customer. The expectations by both customers and employees are new technologies, such as Web 2.0 capabilities, instant messaging, blogs, mobile technology and alerts, and advanced Web portals, will be part of all service requests and inquiry and business processing.

Accepting change offers the insurance industry the opportunity to connect and coexist with the other transforming industries and meet the expectations of the new generation. The concept is simple; however, the difficulty lies in breaking the insurance industry free from past practices. The best approach is for the business strategies to be clear, the underlying business processes to transform, and the right technology decisions to be made.

How to Get Started

It is imperative the industry accept that the global marketplace and external drivers are having a direct impact on the industry and every company. Now is the time for insurers to tackle change head-on.

It is essential we guide and drive based on the business rather than technology. We must think differently about our business capabilities and explore infinite possibilities. Beginning at the business level and then aligning the right technology will flip the enterprise on its side and spark evolution of transformation. Ultimately, this approach will allow us to gain the full potential of the technology through the business. By driving from technology, we run the risk of repeating our past, overlaying technology and not experiencing the full potential of possibilities.

Each insurer should think conceptually of linking business strategy to business process to IT investments. This will create "true linkage" between deliverables, not alignment between the business and IT departments. This new approach assumes all IT investments are derived from razor-sharp business strategies linked to clear, innovative business processes tightly coupled to financial goals and metrics. With the direct tie to financial goals, there is immediate ownership and accountability. Since the IT investment decisions are derived from strategies, they are clearly linked to needs vs. wants.

The following outlines the steps necessary to begin the change management process.

Step one: Focused strategies. Beginning at an enterprise level, a clear vision with focused goals should be defined. Start with last year's vision and goals and revisit them (see figure 1). Each year, at an enterprise level, develop a line of business (LOB) plan with a SWOT (strength, weakness, opportunity, and threats) analysis. SWOT analysis looks outside the insular walls of the insurer and takes a detailed pulse of the marketplace and competitive landscape. From this, goals are restated and adjusted, and the desired outcomes, measurements, metrics, time lines, and ownership are defined. A detailed business operational plan can be created or updated from the prior year following SWOT analysis. The business plan should contain the basic tenets of any business plan–competitive landscape, sales, marketing, products and services, operations, organization, and financials. The deliverables from focused strategies lay a great foundation to the next step–clear processes.

Step two: Clear business processes. All too often in the insurance industry, once strategies are defined, there is an immediate jump to IT investments. The business process step usually is overlooked, and it is the most imperative step in change management (see figure 2). Today, it is essential we look at our business process with clarity to explore infinite possibilities. Otherwise, we continue to automate the manual process of yesterday.

In this step, business leaders at the enterprise and LOB levels define the business and IT capabilities necessary to achieve the goals and desired outcomes and support the business operational plan. A gap analysis on the current capabilities is mapped against desired capabilities. Once this is completed, the key areas of the business process are highlighted and decomposed with a focus on "what" is being done at an activity and task level. It is essential in the process that we focus on the "what" rather than relying exclusively on the "how" and "who" in order to transform and reinvent the business process. At this detailed level, the business first should look to eliminate, then automate, and then delegate/reassign activity and tasks.

Based on the activities and deliverables in this step, the output becomes a list of business and IT initiatives documented in a three- to five-year road map. This list is tied not only to reinvented business processes but to strategies and goals. Annually, the road map is adjusted, augmented, and validated. These deliverables feed into the next steps, i.e., making the right IT investment decisions.

Step three: Right technology investments. This final step is to link the right technology decisions to strategies and business process innovations. The dynamics of linkage force technology decisions to link deliberately strategy and business processes. Of course, technology is critical; but the insurance industry has relied too heavily on the promises of technology for too long. The increasingly changing competitive landscape leaves more pressure for carriers to make the right technology investments. Without tight business linkage, the cost of misaligned IT investments is significant. Not only are these costs incurred through sunken dollars but also through lost time and missed market opportunity.

In this final step, the business and IT establish priorities and integrate the business needs into the IT budget cycle. From this point, high-level business cases, appropriate pro-formas, and cost-benefit analyses are completed. The final IT budget and list of IT initiatives are finalized. IT initiatives then are well defined, understood, and ready to be sponsored, funded, and launched.

With today's increasingly dynamic competitive landscape, changing global marketplace, and new external trends such as shifts in demographics and shifting customer expectations, insurers are required to drive modification to the underlying business processes across the insurance industry. Technology is more mature, complex, and robust, playing a significant role in enabling strategies and business process evolution. Today, there is more pressure for insurers to have focused strategies, bring clarity to new-business processes, and make the right technology investments. High success rates of technology investments are critical; there is no longer room for flaws.

Smallwood (dsmallwood@smallwoodmaike.com) is a co-founder of Smallwood Maike Associates, a strategic advisory firm offering research, advisory, and consulting services to insurance companies and solution providers. She has held leadership roles at Liberty Mutual, ICW Group, KPMG LLP. and TowerGroup. Also a co-founder of Smallwood Maike, Maike (cmaike@smallwoodmaike.com) brings clients a wealth of insurance and financial services experience. Previously, in a variety of leadership positions at IBM and ACORD, she honed her skills in business architecture, development/standards, global software marketing, business strategy, management consulting, business architecture, and IT strategy. They can be reached at 913-451-6790.

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