Point of View

Insurance Executives: the time is right to go “straight to digital”

February 9, 2021

Customers are asking their insurers, “Where were you when we needed you?”

The pandemic has changed everything, but insurance, like banking in 2008, has been painted as the bad guy with customers paying regular and growing premiums for cars sitting idly in the driveway and businesses feeling aggrieved over the levels of compensation for business-interruption insurance. So how does an industry whose basis is “We’ve got your back” respond to the crisis?

Read on—this is a good news story.

Digital transformation: What’s the story, morning glory?

Insurance has often been unfairly viewed as an innovation laggard. A legacy of process and technical debt has hamstrung the development of great new products and distribution partnerships. Enterprises are wrangling mainframes, multiple systems, traditional underwriting practices, complex distribution networks and supply chains, and legion books of business—each with their specific customer nuance.

The challenge for insurance executives is how and where to attack the twin terrors of process and technical debt while serving their customers.

A smorgasbord of siloed solutions

Competition has driven changes in pursuit of cost competitiveness, often focused on outsourcing, offshoring, and automation. Increased regulatory scrutiny—with tremendous customer-centric intentions—has added to this mix, driving the adoption of new standards and platforms, all while insurers are trying to develop new products and markets.

Consequently, transformation has been inside-out, sitting broadly in four categories of automation:

  1. Core systems of record such as Guidewire and Duck Creek have delivered control and compliance as executives sought to innovate from the back-end into the customer. Implementations have been extended and expensive, sometimes costing careers. Nevertheless, they have been necessary to consolidate the technology base and reduce technical debt.
  2. Distribution systems. Software platforms such as Acturis, CDL, Sapiens, and Majesco have made significant headway establishing core systems of record. Still, they remain challenged by product complexity, myriad distribution channels, and numerous actors in the process, from the insured and the broker/MGA to the carrier and, finally, the reinsurer.
  3. Process automation. As far back as 2012, RPA players such as UiPath, Automation Anywhere, and Blue Prism sought to plug the gaps between functional silos by automating data flow from one system to another and eliminating many manual processes. The challenge is that they started in the back office with the CIO function and have struggled to get into the front office where the source customer data exists.
  4. Home-spun and point solutions. And finally, myriad solutions exist to fix the all-pervasive spreadsheets, whether in underwriting, risk management, bordereaux, customer services, actuarial, or claims recoveries. Don’t even start on customer documentation…

What’s the result? A smorgasbord of siloed solutions.

Ah, but where is the customer in all this?

Before the pandemic, many carriers were often cash-rich but P&L poor, as regulation drove up balance sheet reserving and products became more available and commoditized. Many were staring into the headlights, stunned immobile by the sheer complexity of it all.

The pandemic has accelerated the need for change.  Add in the reputational damage, and we see that new business adoption, customer retention, and unique service innovation are critical to profitable growth. As our HFS Insurance Primer points out, 24% of insurance carriers are grappling with a shift toward digital and online customer interactions as their number one business challenge amid the pandemic (see Exhibit 1).

Exhibit 1: One-fourth of leaders see the shift toward digital as the most pressing business pressure

Source: HFS Research supported by KPMG, “State of Operations and Outsourcing” 2019. Sample: Global 2000 Enterprise Leaders = 355

So, the customer action is all in distribution and claims

The challenge is that these solutions have been built in response to a particular regulatory, functional, or technical challenge—inside-out.

However, as a retail consumer, former business owner, and (feeling somewhat guilty) a former purveyor of many of these solutions, I am now looking outside-in.

As our research has consistently pointed out, insurance customers want simple-to-understand products and low-touch processes for onboarding and servicing. Yet, they also need tailored policies based on usage, the ability to respond to life events, and high-touch services in times of distress.

Recent HFS research confirms that despite the challenges of re-orienting toward customer experiences, the old insurance dog is having its day. Of all sectors, insurance is less focused on cost savings and much more focused on leveraging the balance sheet to drive the change.

Exhibit 2: The global insurance industry is using the pandemic to create new opportunities

Sample: 400 executives across global 2000 enterprises. Source: HFS Research 2020.

The entire industry ecosystem is moving up the value chain to the customer

Examples of a CX focus are now myriad. Perhaps the arduous journey has paved the way for real digital transformation. Here are a few observations from my travels: 

  1. Start-ups are enhancing client, broker, and advisor relationships: Relationships are being enhanced by innovative start-ups, such as the £180 million-backed Guardian Life (UK), which offers a digital-first service with simple question sets and customer journeys for advisors. Disruptors such as Balkerne enable brokers to manage risks effectively with property clients by providing comprehensive and real-time perils data—fire, flood, weather, crime, and pandemic data.
  1. Carriers are investing in services (versus products): DLG’s acquisition of London insurtech broker Brolly brings a subscription and loyalty model for contents insurance to homeowners and renters. ByMiles, underwritten by AXA, ensures you pay a monthly subscription based on actual usage per mile while providing risk alerts and motor health information. BoughtByMany, underwritten by Great Lakes, provides a whole of life service for pets, including advice, topical information, and telehealth for your furry and exotic friends.
  2. Service providers are now industry partners: Service providers are combining data with operations and home-curated tech solutions with extended partnerships to manage the entire value chain, such as Coforge’s AdvantageGo, EXL’s NerveHub, Genpact’s Cora, TCS’s Diligenta, and WNS’s Insurance-in-a-box. Increasingly, these end-to-end solutions are putting skin in the game relative to customer experience and premiums earned.
  3. Platform players are now service providers: The last three years have seen the emergence of low-code and no-code applications that automate the distribution and supply chain with short implementation spans and subscription models. For example, the heavily funded Instanda now has over global 60 clients in life, health, and P&C (property and casualty), including names such as Zurich. Similarly, 360Globalnet offers a no-code claims platform with comprehensive digital capability, automation, and analytics (including unstructured data), that connects all claim parties—including policyholders, brokers, carriers, TPAs, repairers, recovery networks—across all lines of business.
  4. Reinsurers are in on the act. As SwissRe recognizes the value of the customer and data, it has bet wisely on IptiQ to digitize the entire distribution chain.

What’s the common denominator? Well, you guessed it, as all the above examples attest: a common purpose, enhanced customer experience, digital journeys, and data.

A new dawn for digital insurance: This is one crisis that is not going to waste. The industry has had a kick up the proverbial and is advancing steadily toward the customer. This old dog has some serious new tricks.

We recognize that a collective purpose is a key to delivering change and that change is not a cost line item to be scratched to provide a paper-based business case. The proof of the pudding may be in the eating, but this dish is smelling good so far.

HFS is pioneering the way with our OneOffice thinking, which insurers can apply to a single business or collectively to a whole market or class of risks. It connects the front, middle, and back offices to align around customers and employees, enabled through data and change. For more information on the OneOffice, click here.

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