Since its beginnings, the insurance industry has successfully built itself on the expert understanding of managing and pricing for risk, and then investing the premiums to achieve a superior result. The exploitation of technology has always been an important part of its journey. As consumers become more empowered by digital technology and the transparency it can provide, they begin to exercise their right of choice and explore new ways to transact insurance online, including alternative distribution models. As a strategic response, it feels to me like it’s more important than ever for insurers to focus on digitizing their businesses in order to make them more efficient and exploit new technologies, such as external data, to improve the underwriting result.

A Digital Journey Starts with the Existing Business
Insurers are focused today on enabling the firm to become more digital. For many, the scope for making their own internal processes more efficient through automation and technology renewal presents an opportunity to make a real difference to their operating returns.

… Then Extends to the Engagement Model
Yet solely focusing effort on the traditional business internally is unlikely to be sufficient. Consumers are demanding more when it comes to being able to deliver an excellent digital service. Omnichannel has fast become a “hygiene” factor as they apply their experiences from online banking and retail industries to their insurance and investment portfolios. However, perhaps unlike some of these external reference points, the importance of a “human touch” channel remains a critical part of the engagement model mix, especially when applied to more complex transactions, where the consumer is less confident in what they are buying. 

Figure 1: Based upon your experiences of engaging with financial service providers, how important is delivering an excellent digital service alongside traditional face-to-face and phone channels? Source: Celent – Digital Consumer Survey, 2015. N = 2,338 Consequently, when designing its digital engagement model, it is essential for insurers to segment the market by age, income, and digital savviness if they want to be successful in driving up online adoption and delighting the customer. The industry must be careful not fall into the trap of designing solutions for products on a “one size fits all” basis and thinking that all the consumer wants is self-service. Executing this well also requires a flexible and easily adapted technology foundation — the time may have come to purge many of the older systems in the way of effective digital customer service.

…. Leading to Innovation in the Proposition and Business Model
Exploiting new opportunities in data for innovative proposition or business model design remains an area of high interest to insurers. According to our research, approximately 92% of insurers believe that digital will disrupt the industry in both proposition design and business model. However, today, few insurers have prioritized investment behind many of the initiatives usually associated with disruption in financial services, such as peer-to-peer, usage-based insurance (UBI), and the Internet of Things. These investments are still at a nascent stage. This does not mean there is no activity. Allstate, State Farm, USAA, BNP Paribas Cardif, and Intesa SanPaolo have all launched connected home propositions in 2015 — part of the first wave of firms to do it – and circa 20+ “Peer-to-Peer” have started to establish themselves . Some insurers are approaching digital innovation more cautiously, preferring to experiment first.

The Verdict
Over the last 20 years, digital enablement of the existing business and demands placed on insurers to improve their digital presence have increased as consumer expectations of their digital experiences in the retail sector and banking transfer to insurance. Inevitably, this has resulted in an increase in technology investment to play catch-up. The next wave of activity may see the concept of digital being exploited for innovation, providing insurers with a far greater scope to reinvent the business. However, in the near-term, some realignment may be required for Insurers to catch up and deliver an engaging experience, where a “human touch” needs to be delivered alongside a variety of digital channels in a seamless customer journey. More than ever, insurers have to make a greater return from their core business of managing risk. For many, adoption of digital will need to be core to their strategy.