8 Musts for Insurers in a Changing Business Environment
To accelerate the digital transformation of insurance – to improve customer experiences while increasing flexibility and profitability – insurers need to make an array of strategic decision. We’ve gathered a list of the imperatives they must consider carefully.
At intersections, we are confronted with an important choice about how to move forward. This is where today’s insurers find themselves: confronting perhaps their most significant strategic decision for decades. The vision they set out today – and their ability to execute that vision effectively – will determine their future competitiveness.
- Insurers Must Move from “Doing” Digital to “Being” Digital. Until now, most insurers’ approaches to going digital have amounted to a digital veneer placed on top of legacy systems, processes and products. However, the growing impact of the Internet of Things (IoT), big data insights, and the advancement of machine learning and automation, signals a step-change in how insurers must apply digital technology. And as digital promotes transformation of their customers’ business models, insurers must also evolve their products and risk management processes to meet new demands.
- Insurers Face A Battle to Remain Relevant. Insurers are struggling to keep pace as digital opens up new ways for retail and commercial consumers to access services — and heightens their expectations. For personal lines, new entrants are focusing on new insurance models and targeting specific failings in the current insurance customer experience, while life insurers are struggling to attract new business: a 2016 study by the Association of British Insurers found that 8.5 million UK adults with dependents do not have a policy. Commercial customers, meanwhile, are striving for deeper insights from big data. Finding new ways to add value through data will be key to insurers’ differentiation and growth in commercial and personal lines.
- Exciting Opportunities Are Arising for Insurers that Can Deliver New Value Beyond the Preventative Model. Big-data advances can unlock new revenue streams for insurers. To capture opportunities, insurers must shift from the traditional reactive insurance model, to a new IoT-driven preventative model and ultimately develop new value propositions. For instance, commercial property insurers can use data captured by connected buildings not only to help their customers reduce the risk of fire or water damage, but potentially to add further value by generating insights about building-use patterns and worker behavior.
- Understanding Human Behavior Will Enable New Service Models to Succeed. As growing volumes of real-time data become available, insurers can become more than indemnifiers of risk; by understanding how to drive positive behaviours, they can coach businesses and individuals to avoid risk by acting on insights from data. However, they will need deeper human behavioural expertise to embed new services and interactions with customers in a way that makes them take action.
- Insurers Stand to Make Significant Financial Gains By Moving to the New Model. If insurers successfully shift their models from reactive to preventative, it will disrupt the economics of their businesses: customers will make fewer claims, and premiums will fall. Insurers will therefore need to convince customers to pay for the new types of value they can deliver. However, by going a step beyond the preventative model, to one that adds value beyond risk, insurers can generate new revenue streams which are much more capital efficient. If the revenue is not specific to risk, insurers will be able to free-up capital previously tied up for liquidity compliance — opening up huge opportunities.
- New Engagement Capabilities Will Be Key to Succeeding with Interactive Business Models. While insurers’ traditional business models involve limited customer interaction, new models will require multiple client interactions and proactive engagement. This presents a potential threat if not done well, but for those that can adapt, there is a clear opportunity to increase interactions with customers. By automating processes and implementing intelligent digital technologies, insurers can become hyper-efficient in areas such as claims handling and underwriting, and devote greater resource to more meaningful, higher value interactions with customers.
- The Right Enterprise Strategy Is the Key to Growth. As the insurance industry is disrupted, insurers must assess their strengths and identify the model that they can compete with in future. That might be as a master of omnichannel delivery that owns the customer relationship, the orchestrator of an ecosystem of partners, or a super-efficient, data-savvy supplier that offers its services through third-party providers. The key to future success is charting the right course, sharing a clear vision across the organisation, and empowering the workforce to get behind and carry out that change.
- Insurers Must Now Learn to Run. While insurers’ existing business models hold significant value, both in their vast experience and knowledge, and their strong capital base, there are many areas where insurers are not performing well, or that will not offer value in future. The next step forward is to assess where value can be generated a decade from now, and to embrace strategies that will accelerate the path to get there — whether it’s collaborating with industry disruptors or establishing new ventures. Whichever route they choose, insurers must make the most of their heritage advantages to ensure that they are the chief beneficiaries of industry change — and they need to move fast.