As insurers battle rising claims volume and the costs of servicing those claims, the industry must find ways to protect itself against price pressure or see its profits dwindle further. Being adaptive is going to be the single biggest success factor for the industry moving forward. However, that change must go further than moving established processes online.
As we’ve seen in the banking, retail, and travel industries, real gains come from reimagining the way you do business for how people live today. According to Statista, the global app economy surpassed an estimated value of USD $6.3 trillion in 2021 (up from USD $3.3 trillion in 2019), with roughly USD $693 billion in annual revenue.
Overcoming insurance’s built-in limitations
One of the foundational challenges insurers are facing is that the current approach to digital transformation simply isn’t working.
Consider this: Gartner forecast that global IT spending within insurance would reach $210 billion in 2021, growing to $271 billion in 2025. Contrast that with retail, which Gartner said would reach $193.2 billion in 2021 and an estimated $257.1 billion by 2025.
Despite spending more, few would argue that insurance has kept pace with the advancements we’ve seen in the retail sector. The difference is what they spend it on. The conventional wisdom is that legacy and “modern legacy” insurance technology still offers value given its familiarity, stability and security. For many, the strategy is to acknowledge and maintain their dependency on these systems while evolving away from them under the assumption that “slow and steady” lowers their transformation risk.
However, because even modern legacy tech lacks data fluidity, scalability, and ecosystem potential, this approach defers the benefits of joining the digital experience economy and cedes market share to more aggressive competitors. While common, digitizing offline forms into online forms, or developing pricing models from spreadsheets and hard-coded data sets, are examples of an industry lacking the tools and vision that have driven the growth of the experience economy and the previous technology revolution.
Insurance’s customer-centric future
Look at the sorts of experiences offered by the likes of Amazon and Netflix. Because of their willingness to reconsider every aspect of the customer experience and leverage the native abilities of cloud computing (APIs, scalable analytics and AI, for example), those companies are now able to continuously collect customer data – from partners, IoT devices, and other sources – and use it to craft and present highly-personalized product recommendations and digital experiences.
Because of their openness, these digital experience leaders are able to bundle multiple products, even those from a range of partners, based on that customer knowledge. Because of their digital experience platforms, they are able to present those options at an optimal time for the customer, accept payment, and seal the deal in a matter of moments.
Insurance has always been a people business, and with good agents and brokers, these are the types of things insurers used to be good at. But our reliance on outdated technologies now stand in the way. Insurers have missed the opportunity that technology offers to know customers better and act like it. Instead, they focused on back office and digital window dressing, frequently failing to connect the two.
And it’s not just my opinion. As McKinsey has pointed out, insurers have been struggling to meet the cost of capital and despite doubling down on process efficiencies for more than a decade have not achieved much progress. Now the cost of capital is rising and the insurance ownership gap continues to increase.
While these abilities may sound fanciful to many insurers, they represent achievable goals to those ambitious insurers that reject the race-to-the-bottom of commoditized insurance.
For them, it’s time to try something new. It’s time to leave legacy systems behind.
Rory Yates has more than 24 years of business leadership experience spanning client, agency, consultancy, start-up, and private equity roles. As EIS’ SVP of Corporate Strategy, Rory helps insurers achieve their transformation goals and evolve toward ecosystem-based futures via insurance core systems transformation, including truly personalised engagement, taking innovation from concept to market quickly, and growing efficiently.
Source: “How insurers can protect themselves against price pressure” Insurance Post, April 5, 2023, https://www.postonline.co.uk/technology/7953137/how-insurers-can-protect-themselves-against-price-pressure