Disruption and Insurance: A Square Peg in a Round Hole?

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New technologies. New players. New products. New business models. The clamor of disruption is loud in our ears, but seeing a clear path for adapting to change and implementing new technologies to support change is hard. In their urgency, are insurers force-fitting disruption on old operating models and systems?

Speakers at the Insurance Disrupted conference last week in Silicon Valley were bullish on the opportunity for insurers to ride the wave of disruption and bearish on the consequences of cleaving to traditional models. The consensus was that it is tough for insurers to change from within. Therefore, we will see new dominant insurers and new entrants. It is hard to imagine any of today’s big household brands will not be known to our children, but it is possible.

Crafting a response to customers

The theme of the conference was customer engagement and seen as an essential linchpin of disruption. A new model of engaging and transacting with customers – to increase the frequency of relevant, value-adding interactions and build brand perception – is a critical response to what is in large part a consumer-driven disruption. And new technologies to facilitate it abound in the various flavors of IoT, big data analytics, mobile and omnichannel. So how can insurers go about implementation?  Where should they start?

Unfortunately, when looking at the new array of customer engagement technologies and comparing them to the state of the core technology underpinning today’s insurance markets, it appears we are mostly force-fitting digital customer engagement into current processes, and hoping that our customers won’t notice. There is a lack of alignment between the two.

You want to do what?

For example, how do you sell micro-insurance when you have a traditional transaction system that can only look at a policy as a one-year or six-month duration?  Or price and manage a policy based on something much closer to real-time customer behavior rather than a rigid rating class?

And, can we expect to acquire the customer of the future if we don’t have new technologies that make our insurance products, in the words of one speaker, “easy to find like Google, easy to buy like Amazon, easy to understand like Apple, and easy to cancel like Netflix?” Simply put, how can we claim that we are easy to do business with when we are still giving policyholders a 60-page policy document?

There is no practical way to ride the wave of disruption to success atop the typical insurance core processing systems. Complicated workarounds and data integrations are necessary, yet only provide connectivity within limits. What is needed is a new foundation for digital insurance and customer engagement.

Overcoming a Flawed Foundation

Our industry has historically designed its systems around the policy and its related transactions and processes; not around the customer. Most core processing systems do not have the data modeling or configuration to adapt to customer-centered disruption. They are a flawed foundation. This helps to explain the irony noted by a speaker that while the insurance industry pays out 4 trillion in claims, covers over 3 billion people and 150 million businesses, and saves people’s lives, it only garners a 30% rating for positive customer experience.

Here then is a caution to the many insurers undertaking the challenge of accepting and adapting to the forces of disruption. Don’t use all these shiny new tools to further complicate what you have to do on the backend to deliver customer-centricity to your organization. Make sure you have a solid foundation for digital insurance – core systems that are an open, flexible digital platform and gateway that connect easily by their very nature with emerging technologies. Without a solid foundation, the whole exercise of customer-centered transformation will be a frustrating practice of banging square pegs into round holes.