Top three digital transformation myths in insurance
What does digital transformation mean for the insurance industry and what challenges do carriers face?
Google “digital transformation in insurance,” and you will find claims of the trend being in full swing. But is it?
Compared to other sectors, insurance has been slower to modernize digitally. To change this paradigm, tech vendors line up at insurers’ doors, promising silver bullets to operational challenges. But often, technology becomes a Band-Aid for deeper challenges rather than a catalyst for meaningful change.
Why? Digital transformation is much more than the technology that enables it. In insurance, when it comes to areas where the “rubber hits the road” (like policy administration), businesses are unsure how to make the leap with technology. At the same time, insurers want to avoid becoming one of those painful stories they hear from peers around digital transformation gone wrong. Rather than get swept up in the trend, insurers need to understand that real transformation comes from clarity of vision and fresh thinking, with technology as a supporting vehicle.
Here, we lift the veil on the top three digital transformation myths pervading insurance today.
1. Digital transformation comes with time & big price tags
The insurance industry has been fed the narrative that digital transformation equals large-scale programs that take years to roll out, half the workforce to manage and triple-digit, million-dollar price tags to support. This is not the reality. The best transformation comes in small, incremental bites that move the organization toward a bigger goal. These bites do not require years or a hefty budget.
Imagine an insurer wants to modernize its core policy administration platform. There are two routes. The first sees the insurer spending unreasonable amounts of time and money, creating a cumbersome, clunky system. This process takes so long that by the time the system is built and switched on, it is already outdated.
The second route sees that same insurer apply creative thinking. By seeking out cloud-native platforms that can be built with speed and configured on the fly, insurers can create a system that is customer-centric, frictionless and API-friendly in a matter of weeks or months. There is no hefty price tag and more agility and flexibility than any legacy system could falsely promise. While Rome was not built in a day, the best policy administration platforms are not necessarily built in five years.
2. Digital transformation is all about technology
There are a couple of nuances to unpick here. The first is that insurers are currently taking a “technology-led” approach to digital transformation. That might make sense on paper, but it is counterintuitive to the business.
Digital transformation in insurance is quite complicated. This complexity comes from a general reluctance to break away from “tried and tested” legacy technology and old-school thinking. Insurers will “buy what they know,” which is often a cumbersome core system that is expected to solve all business problems. But the solution was not designed that way. The problem is that insurers are thinking “technology first” rather than business first. They are buying solutions to problems they may not fully understand or be aware of at the time. So, the digital transformation strategy becomes all about technology rather than realizing the growth ambitions or solving the operational challenges of the organization.
The second nuance is that historically, insurers have built their core systems from the back-end forward. This back-end to front-end approach is antiquated thinking. Instead, insurers need to identify and frame the business problem first and then take a clear leadership role on how to tackle it with technology. By focusing on the business challenge (frictionless user experience, more distribution channels or new products to market) and finding technologies such as cloud-native systems to support those goals, insurers can unlock true innovation and transformation.
3. Technology is the hardest part
There is a myriad of digital tools available today to help insurers become bigger, better and bolder. Contrary to popular belief, adopting technologies into business is not the hardest part of digital transformation. Selecting the right tool for the job, however, is. The ability to do so comes down to the people leading the transformation and their understanding of the organization’s goals. The wrong mindset and wrong focus can stifle and impair change.
True transformation can only be achieved when you deeply understand the pain points, ambitions and motivations of the business. Without this clarity, insurers can fumble around in the digital dark. Before embarking on a digital transformation journey, some insurers can visualize a clear end goal but are not prepared for the journey ahead. Similarly, other insurers will have an idea of the road they wish to walk, with technology in support, but are unsure where that road will lead.
Digital transformation is a discovery of the business — an exploration of the aims and ambitions of the organization. Technology acts in a supporting infrastructure role. Without the right leadership, vision and roadmap, technology adoption becomes redundant or misguided.
Right mindset, optimal transformation
There are lots of assorted flavors to digital transformation. The key for insurers is to discern which flavor tastes best according to specific business objectives and challenges. Do not be distracted by the myths. There are several powerful cloud-native technology platforms available to help insurers grow with breakneck speed. The intention behind deployment, however, needs to come from a place of deep understanding of both the business and the customer. Technology’s power can only be unleashed with the right mentality and a fresh perspective on modern-day insurance.
Greg Murphy (Greg.Murphy@Instanda.com) is executive vice president of North America for INSTANDA.
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