The “Digital” wave has triggered a storm in the property and casualty (P&C) insurance industry. Backed by strong venture capitalists and powered by modern technology, new start-ups continue to redefine how insurance business is conducted – this includes everything from product development, to underwriting, to sales and distribution, to policy servicing and claims.
Take for example Lemonade, a peer-to-peer (P2P) insurer that offers instant everything to customers for renters and home insurance. It claims to insure a customer in 90 seconds and pay a claim in under three minutes. Touted as the first true disrupter and backed by VC giants, the company has grown its market share from measly 0.7 percent to about 28 percent among first-time buyers of renters insurance in just one year. Another startup, Snapsheet, offers easy mobile claim processing. Insureds can take a photo of a damaged car through an app post which the startup will work with its partners to turnaround at lightning pace. It has already garnered over 35 clients and achieved 100 percent year-over-year growth from 2016 to 2017. Other startups such as PolicyGenius, Trov, Goji and many more are coming up with innovative products and delightful customer experiences that are causing customers to question incumbents’ abilities to understand and service their respective needs.
However, most incumbent insurers are still hesitant to change and are responding to this threat with random initiatives such as automating few processes, creating an app or updating their website. Yet the transition to digital is much more than automating processes and updating websites. It is about putting the customer at the center of everything a company does and creating organizational processes around them.
Simply put, being digital means being fully flexible and agile. Flexibility and agility in a truly digital insurer will exist in each and every function, not just the customer facing ones.
In a truly digital insurance industry of the future, for example, hundreds of highly personalized coverages will be available that the customer will be able to switch on and off at any time depending on his or her needs. There will not be rigid boundaries between lines of businesses; for example, a customer will be able to add cybercrime coverage in a personal lines policy. Underwriting will be highly automated and near real time for most personal lines and small commercial lines submissions. Distribution via online, aggregators and real time affiliations will be norm. Claims processing will be instantaneous using AI-based workflows with payments reaching the customer within minutes of their uploading an image or video of the damage involved.
The Roadmap to Digital
CEOs wanting to transition to digital are stymied by many questions: Where should I start? Will I need to sacrifice short term benefits for longer term results? Should I build a new system from scratch or should I add new capabilities on top of existing systems incrementally?
It is important to note that digital is eroding value out of the industry, especially for personal lines and small commercial lines. With rapidly decreasing premiums, the ability to sustain profitable business in the digital age will depend on an ability to build economies of scale. With rapidly proliferating smart devices and a shift in risks, the insurance industry of the future will not just be a stand-alone risk mitigation industry but an ecosystem of insurers, device manufacturers, data aggregators, telecom providers and service providers who collectively work together to prevent risk.
Hence the first step in the digital transformation journey should be to prepare a growth-oriented vision of the organization. Partnerships with device manufacturers, data aggregators, and other insurers with complementary offerings should be an essential part of this digital vision.
The true spirit of digital is to rapidly adapt to market. To do this safely, there must be a culture of continuous innovation in the organization. Setting up a center of excellence for innovation is one way of achieving this. CoE will always be on the lookout for the best way to integrate newly acquired data capabilities with modern technology sustainably. The CoE will rapidly develop and test the scalability of the idea in real market conditions. This will bring out the potential of technology more accurately, thus enabling the organization to make an informed investment decision.
Additionally, there is tremendous savings present in the insurance value chain today for most organizations. For example, one of the largest companies in United States was able to save as much as 40 percent on operating costs by modernizing its claims processes alone.
Thus, with proper vision and a well thought out strategy, insurers have the chance to make huge gains both in the short term and long term.
Once long term and short-term initiatives are identified, a detailed assessment of business objectives, current business and technical architecture, processes, and market conditions will need to be conducted before deciding on the best approach to build new capabilities. Building an entirely new system and enhancing the current system are both good options but cannot be generally applied to all organizations.
Digital is all about rapidly adapting to changing business conditions. A clear growth-oriented vision combined with a culture of continuous innovation is the best bet to transition to digital – safely.