‘Tech is always a bottleneck when it comes to implementing our strategies.’ ‘Startups are disrupters trying to eat our lunch.’ ‘Digital is just another distribution channel.’ Sounds familiar? Reality is that businesses are seriously struggling with the disruption caused by new technology. In the insurance industry, where analysis of historical data was always the way to evaluate future risk, the challenges go beyond tech disruption. Disruption in other industries is actually changing user behaviour and the nature of risk, so there is no relevant historical data anymore.
Use tech to get closer to customers
However, while tech may be the origin of these challenges, it may also be an enabler to face them, rather than being a bottleneck. Startups provide a toolkit to be used, to address the challenges of a rapidly changing world. And digital is not ‘just another channel’, but THE way to get closer to customers again, after years of technology having the opposite effect.
This last remark may be the most controversial, but also the most critical to understand the importance of digital strategy and partnerships. Insurance used to be a business of trust. Historically, to insure someone’s ship for an Atlantic crossing, you had to know and trust them. Over the centuries, insurance became a distrustful numbers game. Technology actually accelerated this trend. Price comparison sites, for all their (alleged) customer benefits, are the ultimate embodiment of this. At the extreme, assets such as brand, product, and service quality get diluted down to one number: price. That resulted in a race to the bottom on product and service quality.
But digital will change this. Digital offers a whole new way to engage with customers. An interactive way that allows for customised service, makes the customer feel heard, and ultimately generates trust. How can digital do this? By offering modular customisable service, addressing unique needs. By pulling together datasets, to simplify user journeys. By offering 24/7 chats that feel more human than static forms do. By offering self-service portals, and AI to be fast and responsive when problems arise. This list is certainly not exhaustive and the ‘silver bullet’ might not even be on it.
Corporate product development strategies are obsolete
Now, this insight might seem trivial, but it actually is the key. The advent of tech companies and the sprawl of the startup sector have challenged decades of corporate product development strategy.
Best practice used to involve preparing multiple, competing business cases, complex budget cycles and vast IT projects planned out from start to finish and taking years to implement. With hindsight, it probably wasn’t even the best approach at the time, but at least it worked. The problem now is that this method will become increasingly less effective, because the world is moving too fast.
The value of trial and error
What tech companies and startups have shown is the value of trial and error. This is especially true in an environment that is changing fast and which lacks historic data points to help decision makers accurately represent the current or future state of play. A Minimal Viable Products (MVP) – a first, fast, basic, AND affordable iteration of a new product, only focusing on the core value proposition – allows you to gather relevant data and customer feedback, test basic hypotheses, and ensures failing projects can be canned fast and early assumptions can be revised base on fresh data, guaranteeing a better ‘final product’ than all the pre-planning in the world.
Current priority setting focuses on ‘safety first’
But most MVPs and experimentation require tech solutions. And IT resources are often limited. There are really two types of IT projects. Firstly, large infrastructure projects that take up a lot of IT resources. These are mainly focused on cost-savings and operational control along existing processes. Secondly, competing for finite internal resources, are business-led IT projects to launch new products and address new markets. Traditionally, the former is usually prioritised over the latter due to a ‘safety first’ approach: cost savings appear to offer more certain results than chasing ‘risky’ new business opportunities.
Culture shift: use partnerships to solve resource issues
However, over the last few years many tech companies have emerged, providing innovative solutions addressing all types of challenges, and trying to work with, not against, incumbents by taking on the development burden for both types of IT projects. They thus effectively provide the capacity to enable technological changes where limited resources are available internally. This is why a cultural shift is required within organisations: now that much of the resource burden can be placed on partnerships, organisations need to recognise that the trade-off between these two competing project types need not be so severe. So digital transformation is actually more of a mind/culture issue than a technology one. Businesses should be using MVPs and low implementation costs to foster a culture of cost-effective, data-driven decision-making through trial and error, rather than large scale business planning and resource allocation programmes based on retrospective experience.
Partnerships with insurtechs speed up innovation
So how do you start this transformation if your IT resources are tied up right now? Each industry needs its own approach, but in the insurance industry, there are insurtechs that help exactly with this. For example, (shameless plug!) KASKO offers a middle layer between insurer’s legacy-IT and the digital world, allowing insurers to test and launch new products, integrate third party data and tech and all this without sapping up in-house IT resources. This is how smart strategy can be developed and implemented quickly and at minimal risk and customers can be won over.
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About the Author
Nikolaus Sühr is a Founder and CEO of KASKO – an insurance technology platform, which acts as a middle layer between insurers and the digital world, and allows insurers to respond to changing customer demand and evolving consumer behaviour. Customers move online whilst insurance is largely sold offline.