Comment & Analysis

Three tech priorities for accelerating insurance digital transformation

By Simon Hull, head of financial services at BJSS

The insurance industry is generally not seen as a leading light for digital transformation, but this is changing as insurers realise that accelerating their digital ambitions is the number one strategic priority. In a Gartner 2021 CIO survey, 58% of insurance executives reported an increase in digital innovation funding. So why is this?

An industry under pressure

Many forces at play in the industry are putting immense strain on insurers and their business models.

Margins have been under pressure for years, with price competition and rising claims costs hitting underwriting profit, and ultra-low interest rates impacting investment returns. Covid brought a further hammer blow with the second largest paid loss event in history. 

Customer expectations for digital experiences are increasing as many industries continue to move ahead and raise the bar. Customers expect the same from their insurers. They want to be able to research, compare and buy via digital interfaces. They expect speed and efficiency in the application and claims processes. They demand products that match their needs and a responsive service.

Insurers must also adapt to new and emerging risks. Cyber risk, for example, is more prevalent in an increasingly digital world. The changing nature of work and consumption behaviours, from the gig economy to pandemic-driven phenomena, such as working from home and reduced commuting, impact product development and risk pricing. Understanding risks related to climate change is also high on the agenda.

The competitive landscape also brings numerous challenges. Insurtech start-ups are growing, fuelled by innovative business models and digital propositions. Banks are expanding their insurance offerings, building on their existing client bases and vast customer data sets. Other non-insurance players, such as large retailers and supermarkets, are also growing.

And, of course, there is the ever-present pressure of industry regulation. From accounting standardisation with IFRS 17, scrutiny over pricing practices such as “dual pricing”, to the FCA thematic review on product value, there is no shortage of priorities. Regulatory changes come with a compliance cost and often an increase to the ongoing cost of doing business.

What should insurers do, and how?

Insurers need to carefully evaluate the impact of these market forces on their business models and decide on a strategic path forward. They must determine the “what” – the markets they want to be in, the customers they will serve, the products they will offer, and their competitive positioning.

Many insurers answer these strategic questions differently. There is, however, a certain amount of convergence around “how” organisations plan to achieve their strategic goals, execute on strategy, and survive and thrive in the market segments they choose to play in. It’s probably no surprise that the top strategic priority is to accelerate digital transformation.

Digital transformation is about becoming a more customer-centric, innovative, and agile organisation. Developing the qualities to cope with the market forces described above – to meet customer expectations, produce and deliver relevant products, improve risk modelling, streamline operations, adjust to regulatory changes, and more.

This involves transforming the organisation, the operating model, and the technology platform. The latter is key to underpin the business strategy, with three areas standing out as priorities:

Data and analytics

Smart use of data and analytics will be critical to success and will drive improvement across every aspect of the business. The availability of new types of data, real-time feeds and mature analytics capability is a game changer. Insurers must use the vast historical datasets they already have and integrate them with new external sources. Rigour in the management and governance of data enables it to be leveraged as a strategic capability. Artificial Intelligence/Machine Learning (AI/ML) models can then be used to derive insights, and MLOps will facilitate continuous delivery, productionisation and scale to improve the way business is done.

In an increasingly connected world, a real-time data and analytics capability is critical for insurers to interact more regularly with customers. This opens opportunities in areas such as intelligent automation of processes, continuous risk pricing, usage-based insurance, incentivisation of behavioural change, risk prevention, improved customer service, claims assessment and fraud detection. 

There is a race to invest and get ahead of the competition. Statista data from 2020 showed 84% of insurance executives intending to maintain or increase investment in data analytics, with 74% planning to do the same for AI.

Insurtech and ecosystems

Insurers are increasingly looking to partner or invest in Insurtechs and industry ecosystems to help them to accelerate business model and product innovation, new customer propositions and the digital agenda.

Rather than building solutions or buying products, insurers can now take advantage of the best ideas in the industry and compose solutions by integrating with SaaS offerings and open ecosystems. This requires the data management and API capabilities to integrate, and the ability to manage partner relationships.

Insurtechs exist across all parts of the value chain, providing solutions in areas such as digital distribution, brokerage, data & AI, point of sale insurance, claims management and customer service.

Legacy modernisation

A key enabler to digital transformation is the modernisation of legacy ways of working and technology platforms. Many insurers still have very manual and fragmented business processes, outdated change practices, and complex estates of duplicated systems supporting different business lines. Legacy systems pose such a risk to the digital ambitions of insurers that they must act to tackle this impediment to agility, cost, speed of change and external integration as a key part of their change programmes.

Adopting intelligent automation of business processes can improve customer service while reducing operational risk and cost. A customer-centric and agile approach to change will improve agility and speed of innovation. Reducing complexity and modernising legacy technology platforms will both enable digital progress while reducing IT support and maintenance costs.

The decision to modernise can no longer wait, but with the right delivery strategy, insurers can modernise incrementally in parallel to building out new strategic digital capabilities.

As the disruption of the insurance industry gathers pace, insurers must accelerate their digital transformation programmes to meet current and new challenges head-on, with the above three priorities for the digital platform critical to future success. 

Data and AI will be a primary source of competitive advantage in the future for those who get it right. A mindset shift from build to partner will enable firms to accelerate with the help of Insurtech solutions. And legacy modernisation can no longer wait. It must be tackled strategically and incrementally to unlock agility, scalability, and speed to market.

As an example of what can be achieved, in just seven months, we developed a brand-new Data Analytics Platform for one of the UK’s leading insurance groups, acting as a catalyst for the company’s digital transformation. The business became a first mover as a data-driven insurer, increasing customer value and improving competitive advantage. For another insurance client, we developed a data science and MLOps capability and helped improve customer acquisition and retention using data-driven insights.

By Simon Hull, head of financial services at BJSS. Hull has over 20 years’ experience in the industry, both leading business-facing technology divisions and major change programmes within tier one firms along with leading and growing successful consulting organisations.

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