Digital transformation in insurance: Steps to success
To remain competitive, insurance companies must meet customers on digital channels, full stop. Here's what insurers need to consider when making the digital leap.
The coronavirus pandemic is having a profound impact on virtually every industry – not least, the insurance industry. Thrust onto the front lines of the crisis, insurance providers are grappling with how to provide customers affected by the pandemic with the level of service they urgently require. This can be challenging, to say the least, since insurance companies and innovation don’t often go hand-in-hand.
So, how can insurers quickly innovate while also tending to the core business? We’ve got the answers.
Insurance companies and innovation: Meeting the needs – and expectations – of customers
It’s no longer the era of status quo for any industry player; if you’re not evolving, you’re probably in big trouble.
Customers have grown fond of the instant convenience and access that comes with the digital age, and expect the companies they do business with to keep up, regardless of whether they’re ordering a retail-therapy item or using a utility or industry product.
What do the experts have to say about insurance companies and innovation?
- Insurance companies that don’t address innovation will lose customers and pipeline
- Digital transformation is finally reaching the industry, with great results
- Driving change often sparks frustration within, and companies must be ready to deal with it
- Legacy systems will also need to adapt
Without adaptation, insurance companies will falter
Peter Maas, Professor of Management at University of St. Gallen, kicked off the discussion by observing that the pandemic is compelling the insurance industry, often perceived as slow to evolve, to embrace innovation.
To meet the dual demands of their customers and the business, Maas asserts, insurers will need to develop “ambidexterity” – the ability to maintain a dual focus on innovating and attending to the core elements of the business that drive profitability.
In fact, Maas cautions, it may be difficult for insurance companies who don’t ramp up innovation efforts to maintain their current levels of profitability.
Roland Bloesch, SAP’s Global Head of Regulated Industries, agrees that the pandemic has put pressure on the insurance industry to catch up with other industries in terms of customer experience and digitalization.
In fact, many insurance companies are already freeing up budget to invest in innovation – with positive results. One example: Many insurance companies have made it possible to file claims online. This may seem like a small step, but just a year ago this type of innovation was virtually unheard of.
From passive risk takers to active risk managers: The future of the industry
As insurers seek to innovate, they often struggle with pursuing innovation within the company’s existing processes, or creating an innovation engine that operates in parallel. Bloesch describes this dilemma as “the cruise ship vs. the speedboat” – the speedboat being the parallel approach.
The problem with the latter approach is that the innovations often don’t survive the integration process. As it turns out, the skills associated with innovation often run counter to the ones that drive success within the walls of the enterprise.
As Maas puts it, innovation can create a tension within the organization that management must find ways to manage.
Sven Roehl, founder of an insurance thought leadership hub called Cookhouse Labs, points out that even before the pandemic, “insurance companies were evolving from passive risk takers to active risk managers.”
Roehl asserts this change is driving new initiatives within the insurance industry, many of which seek to unleash the potential of digital technologies. But looks can be deceiving: Even companies that have digitized the customer experience are likely struggling with myriad legacy systems behind the scenes.
According to Roehl, “One CDO confided that 95% of their IT investment goes to legacy systems, which leaves very little left over for innovation.”
And where you do see innovation springing up, it’s often more of a grassroots effort vs. a deliberate strategy. In fact, there may even be lack of agreement about what is meant by innovation, let alone a common strategy to pursue it.
This is why innovation frequently requires a top-down push to ensure that there’s an organizational focus. Otherwise it remains incremental in nature, although what’s really needed is a more dramatic – i.e., disruptive – approach.
It all gets back to the need for an aligned innovation strategy, one that will help insurance companies move forward to meet the demands of today’s world.