'Digital transformation' can be a misnomer in the insurance industry
These three insurance trends and four business strategies make 'digital transformation' more than just talk.
Digital transformation is a common phrase within insurance. It can carry many meanings, with little consensus.
We know that digital transformation is good for the most part. We know that it’s inevitable for insurers looking to stick around and serve the next generations of consumers. When looking at specific examples of digital transformation, we can pinpoint what it is (and what it is not) in a contemporary context. Understanding the context makes it easier to define an approach for achieving digital transformation, compared to building software that may improve operational efficiency, but fails to ‘move the needle’ on real transformation.
The following are three major digital transformation trends that are revolutionizing the property & casualty insurance industry.
Trend No. 1: Digitizing the end-to-end customer journey
Insurance customers expect intuitive, automatic, expedient, self-service omnichannel experiences. If customers are unhappy with their experience, they can (and do) change providers.
Insurance providers overwhelmingly view customer experience (CX) and engagement as top strategic initiatives and are working to improve CX through enhancing their digital capabilities and digitizing end-to-end customer journeys.
Insurance companies should be and are taking cues from disruptors within the industry.
Consider Lemonade. It launched in 2015 as a mobile-first artificial intelligence (AI) powered P&C insurance carrier. Lemonade’s AI technology enables them to digitize insurance processes and eliminate paperwork, resulting in faster service. Lemonade offers a rapid application process. Customers answer questions about their property and items they want to insure. Then, they receive a quote in seconds.
Lemonade’s first notice of loss (FNOL) is chatbot-based. After a customer submits a claim, the chatbot rapidly reviews the claim, cross-references it with the customer’s policy, runs anti-fraud algorithms, sends wiring instructions to the bank, and informs the customer their claim has been closed.
In 2017, Lemonade set a world record for paying a claim in three seconds with zero paperwork.
Digitizing the customer journey is a worthwhile investment, given its ability to increase customer acquisition, satisfaction and retention. Digitization also has additional benefits, including automating manual tasks, and improving operational efficiency.
Trend No. 2: Telematics and data-driven decision making
Insurers are increasingly using telematics to provide customers with more automated and personalized experiences across the insurance life-cycle. But telematics is emerging as a risk management and fraud prevention tool. If customers know insurers are monitoring them, they are less likely to engage in risky or fraudulent behavior.
For example, drivers whose vehicles are being monitored by their insurers are probably more likely to drive safely, preventing possible accidents. Drivers are also less likely to falsely claim they were injured in an automobile accident if their vehicle collected data from the crash that indicates a low chance of any bodily injury.
Another application of telematics is usage-based auto insurance. Telematic software installed in an insured’s vehicle allows the insurer to monitor driving habits, including factors like the number of miles they drive and any periods of rapid acceleration or hard braking. As a result of this monitoring, insurers can reward drivers who demonstrate good driving habits or who drive shorter distances with lower insurance premiums.
Progressive is a leader in telematics due to its telematics-driven Snapshot program. Through this program, Progressive installs a Snapshot device in a customer’s car that monitors how many miles the customer drives, when they drive, and how often they slam on the breaks. Customers deemed low-risk drivers then save up to 30% off Progressive’s standard rates.
Today, Progressive offers its Snapshot program via a mobile app; when a user is driving, the mobile app runs in the background and tracks their behavior. Insureds can then enter the app to view their driving stats and rating and to see personalized tips for how to improve their score.
Telematic devices can also improve the claims process. For example, if a customer has a telematic-based device in their vehicle and gets into an accident, the device can provide insurers meaningful data about likely damage and the probability of bodily injury. Telematic devices can initially detect the seriousness of an accident and automatically dispatch emergency responders, which estimates show can shave many minutes off emergency response times, improving the outcome for bodily injury claims in some cases.
Swiss insurance company Zurich Insurance partnered with connected car solutions provider IMS to offer claims-as-a-service (CaaS) software to improve its claims process. CaaS is telematic software that delivers comprehensive information about each accident their customers get into directly to Zurich. This information includes the vehicle’s speed and direction, G-forces, vehicle rotational movement, directional change, and a second-by-second depiction of the accident. Zurich has used telematics data as evidence when conducting fraud investigations to determine if the cause of a driver’s injury was an auto accident. Additionally, liability investigations are enhanced by telematics, enabling a more accurate picture of an accident to either support or oppose driver testimony. Through using CaaS software, Zurich has been able to reduce claims costs and further automate their claims processing process, which has enabled reductions in premiums for policyholders.
Trend No. 3: New products and services
Insurers are expanding their product and services offerings to increase customer satisfaction and retention and keep up with changing customer needs. New products such as identity theft protection, specialized car insurance for ride-sharing drivers and passengers, and usage-based insurance have recently entered the market.
INSHUR is a mobile-first provider of commercial auto insurance to private and rideshare drivers (especially Uber and Lyft) in New York and the United Kingdom. Private hire drivers, such as Uber and Lyft drivers, have traditionally experienced difficulty when purchasing specialist insurance.
Now drivers can manage the entire insurance life-cycle on INSHUR’s mobile app and can to obtain a quote and purchase a policy in minutes. INSHUR offers competitive rates and uses risk and pricing calculations, as well as data such as average tips, location, and driver ratings, to reward safe driving.
Slice launched in 2015 as a digital platform that offers usage-based insurance. Usage-based insurance enables customers to insure items only when they are in use. For example, Airbnb hosts can purchase a policy that insures their property only for the nights they have guests.
Trov is a digital insurance solutions provider offering usage-based insurance for single items. Trov’s on-demand mobile app allows its user to protect and unprotect personal items. Users can go onto their mobile app, add items like cameras, computers, or musical instruments, and then swipe to insurance or uninsured their chosen items.
Insurance providers will continue to offer new digitally-driven products and solutions to innovate and keep up with customer’ changing needs.
The new approach to digital transformation
Digital transformation can become a search for shiny, InsurTech objects without a disciplined, business-driven approach. This approach is linear (even if iterative) and must include:
- Business strategy
- Corporate capabilities
- Technical architecture
- Technical ability
While a business strategy can be impacted by digital (e.g., new products), the business strategy is generally independent of how you achieve it. For example, instead of claiming “we need to use telematics,” the conversation should begin with reducing the loss ratio. Instead of claiming “we need a mobile app,” it should start with understanding customer (or business partner) requirements and pain points. Digital is not a strategy; it’s a means to realize your strategy.
Any strategy that includes digital requires people. Those people all operate within the landscape of your organization, and that landscape can shift with digital — that’s where capabilities come in. Think of capabilities like a map; they allow you to identify how and where digital can impact the way people work. Thinking of capabilities like a map also helps you understand the effect on those individuals from an organizational, change management perspective. Note that in between the strategy and capabilities, you’ll do some customer journey mapping and design thinking, to understand how to realize that strategy.
Technology can enable or hinder business strategy. Without an open technical architecture, you cannot enable many digital technologies (at least not without creating a big technical department). For example, if you’re working to lower your expense ratio by creating a self-service mobile application that allows insureds to understand their policy or claim, but the underlying policy and claims systems cannot expose that data, you’ll be stuck. Having an open architecture is essential.
Execution is as important as strategy. Just as you would never build a strategy without business experts you shouldn’t build anything digital without digital experts. An honest evaluation of the current state of your technology team helps you avoid mistakes (noting you’ll probably still make some mistakes). Consulting digital experts doesn’t mean you need to hire a busload of consultants, but it may mean supplementing the technical staff for some period until they can work independently. The good news is that most technology people want to learn digital if they don’t know it already, so the path to self-sufficiency should not be overwhelming. Even in a situation where a vendor solution is involved, this is still important because that vendor (or vendors) requires management, and informed management is more effective.
There is a great deal of activity going on under the auspices of ‘digital transformation.’ But there is, unfortunately, a lot less actual digital transformation going on. This is, in part, because companies are chasing solutions instead of solving insurance problems. By renewing your approach to digital transformation, you can avoid ‘shiny object syndrome’ (i.e., pursuing cool solutions that may not help your business) and move your business forward.
Elizabeth Cahan (elizabeth.cahan@capco.com) is an associate consultant with Capco, a leading global business and technology management consultancy firm. These opinions are the author’s own.
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