The Rise of the Digital Insurance Middle Layer
The outbreak revealed how slow the digital transformation of insurance has been to date. And it certainly pushed insurance executives to change their mindset. Covid triggered more demand for online, digital and remote services. Incumbents are retooling themselves. In this process many incumbents still show an appetite for reusing legacy assets. Which is understandable, since the legacy systems cover all current products and reusing these assets is less risky than totally replacing them. However, legacy systems also have their limitations – as we all know.
How to answer to new customer expectations
With the pandemic almost under control, it is safe to say quite a number of consumer trends that already existed shifted into a higher gear. Consequently, to remain relevant, insurers need to play at the top of the digital game, just to name one thing. Increased digital savviness, more connected cars, wearables and smarter homes result in new opportunities for e.g. embedded and connected insurance. The application of AI is becoming table stakes; to gain deeper customer insights, optimize underwriting, fine-tune pricing or pinpoint fraudulent claims, among others. At the end of the day, these are essential to deliver an outstanding customer experience – against reasonable costs.
Middleware and APIs for speed to market
So, rapidly changing customer demands require creating new value propositions and bringing them to the market more quickly, and more and more digitally. Unfortunately, legacy systems are not so good at that. Middleware platforms and APIs close the gap between fast-pace front end innovation and the stability of the backend. Over the past year, we noticed that middleware platforms are increasingly moving towards a customer facing role, especially in view of two key insights; two key drivers.
1. Contact Frequency is the Economic Engine
An increasing number of insurers are embracing the fundamental understanding that contact frequency with customers is an essential part of the economic engine. The more you engage, the more you add value; the more you build a relationship, the more share of wallet. This notion is fuelled by permanent changes in customer behaviour. Insurers have to deal with more demanding customers. They are increasingly reaching out to their providers digitally.
This results in an ever-expanding list of ways that customers want to talk to the insurance industry. Ranging from asking quotes on the website and connecting with the policy administration through a mobile app to reaching out to the customer service department using direct messages on social media. The rise of connected devices, all the smart phones, all the wearables – and all the data streams that come with it – make it possible for insurers to become ‘Always Part of Life’, to add value on a daily basis. This is exactly where insurance is heading to.
2. Ecosystem Thinking is the Future
The insurance industry has always been an ecosystem, with lots of participants: reinsurers, brokers, agents, claims assessors, body shops – it is a very collaborative industry. The growth in digital interaction, in the variety of touch points and channels, across the value chain does not only apply to insurance customers, but also to these suppliers and partners as well. And this is not going to stop any time soon. We mentioned this in previous publications quite a few times already: ‘Ecosystems beyond Insurance’ is in our view the overarching trend for the coming decade. More and more incumbents realise that being present and active in ecosystem platforms is the most effective way to reach out to customers, to solve the real challenges they have in life. Playing an active role in ecosystems requires fostering partnerships with more and more companies and organisations outside the traditional insurance vertical. Which in turn will dramatically increase the various communication patterns.
New challenges ahead
These two insights have their impact on the various ways in which the core system, the middle tier and the digital layer should work together; and how the middle tier should be designed. Think of how including new services in more holistic propositions may impact the middle tier, in particular if these services are delivered by an ecosystem partner.
But that is not all. There are also new solutions that are becoming mainstream, such as RPA, to automatically run customer processes which could involve multiple steps in the backend. Furthermore, we expect an even bigger role for insurtechs which really accelerate digital transformation and innovation, especially because the time frames to achieve this have been compressed.
So, on the one hand middleware is on the rise. So much is obvious. But on the other hand, it is also clear that with all kinds of new developments also come new challenges. The key question is, how to design the middle layer, so that it results in staying on top of what the market requires. Not only now, but also in the future.
What to consider in middleware design?
If you are interested to learn more about what to take into account in middleware design, this might be a convenient way get up to speed: Celent and CCS are actually hosting a webinar about ‘The Rise of the Digital Insurance Middle Layer’ featuring Craig Beattie, senior analyst at Celent. Craig will discuss both the opportunities and the challenges and why this iteration is insurance specific. For more info and to register, follow this link: https://ccs.webinargeek.com/the-rise-of-the-digital-insurance-middle-layer