David Kuhn, Insurance Solutions Director at Mendix
What is digital transformation? This is a term that countless CTO’s have battled with in every industry.
Essentially, it can be viewed as the process in which you capitalise on the power of technology to enhance your business model, acquire customers, and most importantly, create meaningful experiences. For insurance companies, digital transformation is also a response to new competitive threats, aging technology, evolving regulatory requirements, and emerging service-based product offerings. Today, digital transformation holds the key to a radical change in the industry, which will enable carriers to roll out products faster, respond to customer needs, and enable its employees to stay productive.
Changing dynamics within insurance
The insurance sector is under huge pressure to offer its customers the kind of services that they want. This includes a wide portfolio of products, a high level of personalisation and pricing transparency, combined with the need to know what factors are under consideration for the premiums being quoted to prospects. Unless an insurer is matching those expectations, there is nothing that will sway a prospect in the first place. But not reaching prospects isn’t the only challenge insurers face. Existing customers also expect this level of transparency. If it’s not met, they will switch providers without a second thought. Insurance has been ranked as the hardest to gain new customers so if current customers are also leaving, this is a serious challenge.
But this is only the tip of the iceberg. Insurance companies have always had a large amount of claims. This has been amplified by the current coronavirus pandemic, which has led to a surge in claims that clog insurers inboxes. These new claims, arrive in such volume that customers find themselves waiting for hours, if not days, to speak directly with someone who can explain how the outbreak affects their policy. If smaller claims are not automated, this forces the claims team to spend time on claims that do not require the human interaction. Agents are overwhelmed; and it has become clear that the industry needs to automate processes to mitigate loss to revenue growth and improve experience.
But that is not all. In addition, market leaders are coming head-to-head with new entrants that are planning to transform insurance in much the same way Uber has changed ride-hailing or Amazon has taken over ecommerce. The combination of data-driven technology features with insurance products, called “Insurtech” has become successful because the capability enables companies to diversifying their offerings. Some of them are even offering data services and moving away from traditional insurance methods. This is changing the rulebook for large carriers who are looking at their own strategies to keep existing customers, attract new ones and provide them with the experience they demand.
With this, it quickly becomes apparent that digital transformation isn’t something that the sector can afford to wait on – it needs to happen now. So why is it not commonplace yet?
Inhibitors to innovation
The first culprit in insurance’s slow rate of adoption of innovation is the large footprint of legacy systems. These rigid, cumbersome enterprise systems plague the insurance industry more than any other economic sector. Due to this, adopting a radical approach is rarely possible. Instead, insurance companies prefer to incorporate new solutions that integrate easily with core and legacy systems. This approach doesn’t continue to push the enterprise forward, it is just adding technical debt.
This is an area where large carriers can take a leaf from the “insuretech” book, where microservices architecture is the norm. This type of distributed computing enables IT professionals to update and deploy one application of function at a time, without any impact on the wider business. Luckily for large carriers, they don’t have to choose between their legacy infrastructure and this more agile take on operations management. Using the right kind of technology, they can combine both to offer the best level of service, regardless of their internal challenges.
Then there is the age-old issue that all industries face: a lack of appropriate resources. Too often, businesses have the willingness to innovate, but their limited talent pool prevents them from turning their ideas into real-world solutions. Whether it’s a limited number of developers in the IT team or a lack of communications between the divisions coming up with new services and improved solutions to their business challenges, important projects often end up being pushed back simply because the company doesn’t have the right people to deliver them.
Betting on low-code – it’s a no-brainer
So how do insurance companies get themselves out of this conundrum?
First, the industry needs to change the way it looks at digital transformation. Too often, insurers focus on speed when it comes to digital transformation. But that need for speed is not a goal in itself. Being able to process information faster and deliver a better service to customers at speed is simply an outcome of successful digital transformation. Instead of focusing on pace, insurers need to assess what the objectives of their digital transformation really is. Do they want to compete with new entrants? Do they want to arm their staff with modern data-driven tools to attract tech-savvy talent and find new customers? Do they want to automate manual or paper-based processes to increase the productivity of their staff?
Once they’ve identified their objective, they will be able implement the biggest mindset shift associated with digital transformation: that it is not the sole responsibility of the IT team, because the IT team is seldom on the frontlines when it comes to assessing the needs of customers and staff. Instead, insurers will benefit from greater collaboration between IT and the various business divisions. Insurance companies that are already embarking on this mindset change have an ace in the hole: low-code, a technology that enables employees who have little to no technical experience to turn their ideas into real-world applications. This is a tremendous benefit when it comes to experimenting with ideas that could have a significant digital impact on the business. Paired with traditional software engineers, these teams can challenge market differentiation at a pace envied by others. By empowering employees across the whole business with tools to collaborate on software development, insurers can tap into huge creative potential to turn ideas into applications that support the business’ long-term ambitions.
Crucially, the real problem isn’t that there is a lack of digital skills in the insurance sector; what we truly lack is activating digital mindsets across all employees. Today, every graduate coming out of university is tech-savvy and has the technical ability to code. They only need to be given the right tools in order to significantly contribute to the business.
This also helps ease the burden on the IT team, which often starts working on projects without full visibility of the implications for the business and any governance issues. For an industry that is wary of risks and keen to mitigate them, this may come as a surprise. Fortunately, with low-code, this problem can be eradicated. To ensure the highest level of transparency, low-code is a way of self-document everything IT is working on, providing a holistic view of every project within the business. This means that compliance with regulation becomes a whole lot easier, especially in an industry where changes occur frequently, and audits are commonplace.
The insurance industry is already embracing digital transformation – it just needs the right tools and mindset to ensure it empowers all employees to participate in this major change for the industry.
