Established insurance carriers are under pressure from new disruptive market entrants that are using new technologies to become digital native providers.
These ‘insurtechs’ are shaking up the traditional risk-averse industry presenting new and uncharted territory that insurers have to navigate.
With this shift, come three main digital priorities that insurers have to focus on in order to stay relevant and compete with insurtechs: product innovation, customer experience and operational efficiency.
Insurers know that they need to transform their existing products and processes for new digital channels, technologies and customer expectations.
But knowing you need to go digital is only half the battle, especially in an industry bogged down by legacy systems, process limitations, security challenges, cultural barriers and resource limitations.
These are in fact the top inhibitors insurers must overcome to drive digital innovation, grow revenue and differentiate themselves in an increasingly crowded market.
Insurers are more steeped in legacy technology than any other industry.
Insurance companies want to develop new solutions that integrate with core and legacy systems easily, but renovating their core has been an area of challenge for many insurance companies and is a long, time-consuming and expensive process.
Organisations can’t put a halt on innovation, operational efficiency and product development opportunities until they have completed renovating the core.
Customers will not wait until the core is renovated to find the intuitive digital experiences they are seeking.
Instead, in order to begin the process of innovation and to test out ideas, quick fixes for integration can be the best option with the intention of proving out success and then bringing those successful products into the core systems.
Security and cloud strategy
The digital world brings the challenge of security to the insurance industry.
Many insurance companies are unsure and uncomfortable with using cloud deployment, which leads them to use up time, resources and money for on premises deployment.
On average, it costs £50,000 per environment per year to run an application on premises.
One insurance company had to invest £250,000 for on premises infrastructure and wait three months just to provision the environment. If you have to pay that much and wait that long just to test an idea, you will kill innovation.
In fact, SMA’s latest research reveals that 58% of insurers made the critical decision not to deploy new core systems on premises this year, and 36% of all core systems purchased in 2015 were deployed in the cloud.
If your organisation is reluctant to go all-in on cloud, start with getting clearance from your security officer to do development and testing in the public cloud.
>See also: Is telematics the future of car insurance?
You will minimise time to market and the cost of failure. Another approach is the CIA (confidentiality, integrity and availability) model for determining cloud usage based on the data within a specific application.
For instance, at one financial services organisation, if the app scores high in one of the three areas, it’s deployed on premises; otherwise it’s deployed in the cloud.
Lack of resources, a shortage of appropriate resources, or an implicit inability or unwillingness to reallocate resources is one of the biggest challenges when it comes to insurance product delivery and operational efficiency.
As mentioned before, insurers are often investing in a large-scale technology refresh to core systems.
This means getting time on the agenda of the IT department is difficult, if not impossible due to competing priorities.
In order to keep the core systems operating while also delivering new, innovative and efficient products, it is important to allocate resources to both initiatives.
Allocate a specific, cross-functional team dedicated to product creation and innovation.
Culture is one of the key areas limiting insurers from innovative product delivery because innovation often means embracing areas that are uncertain, with unknown outcomes, which is hard for the conventional insurance organization to accept.
In order to overcome the cultural barrier, your organisation needs to have the right teams, structure, people and a willingness to change the overarching governance model to alleviate bottlenecks.
>See also: Telematics in the insurance industry
The role of change agents is very important in order to create a cultural shift, including; investment from the c-suite, involvement from IT leaders to implement a new style of IT, and product owners from the business who are empowered to make decisions.
Part of the challenge of product innovation and operational efficiency is the mindset it requires.
One of the biggest barriers to making greater use of digital is the business attitude toward risk, which requires a deep overhaul.
For the organisation to become an efficient digital insurer, it will mean creating entirely new services and business models.
As these ideas represent new and uncharted territory, turning them into value-driving products requires frequent iteration and close collaboration between developers and the business.
In order to adopt a process of development that allows for this rapid, low-cost experimentation, companies need to approach these projects with a willingness to fail often – in order to figure out how to succeed sooner.
In fostering an environment for rapid experimentation, insurers need to use visual, model-driven development to create a common language between business and IT, and to be able to experiment rapidly at low cost.
To overcome these five challenges and begin delivering new and innovative insurance products, create great customer experiences and ensure the entire organisation is operationally efficient, it is helpful for your organisation to have a person who takes on the role of making the digital innovation initiative a reality.
This role has taken many titles including chief digital officer or VP of Innovation. But whatever the title, this person has the mindset to help IT organisations overcome these challenges, is responsible for driving revenue with new and innovative initiatives, and for creating a scalable way to get these new initiatives to market quickly.
Sourced by Hans de Visser, vice president solutions, Mendix