Survey data reveals an urgent need for insurers to reinvent their business and operating models.
Empowered for the future: Insurance Reinvented is a report released by KPMG International during the International Insurance Society’s Global Forum 2016. This event was held in Singapore between 12 and 15 June 2016 and during which industry leaders and executives gathered to discuss innovation and industry transformation. This report states that significant measures are needed if the insurance sector is to reinvent itself. For insurers to truly reinvent themselves, they will need to change aspects of their business if they hope to survive and thrive.
Insurers have been trying to transform their organizations for quite a long time, with the industry’s focus nowadays being digitization and customer-centricity. Insurers understand the urgent need to reinvent themselves. However, transformation is difficult, disruptive and time consuming and requires the continual evolution and alignment of:
To better understand the challenges and opportunities insurers are faced with as they work to reinvent their businesses, KPMG International, through Forbes Insights, surveyed more than 70 insurance executives from around the world. Respondents were asked about their recent transformation initiatives, their existing capabilities and their biggest risk barriers.
It was found that insurers are well aware of the challenges they face in reinventing their organizations. However many seem to admit that they are not seeing sufficient value from their change initiatives. When asked how insurers would rate their organization against an ideal transformation, 5% said they were ‘close to ideal’ and 57% admitted they were either ‘not ideal’ or far from it.
New and more stringent regulatory requirements, changing customer demands and expectations, increasing competitive pressures and disruptive technologies and business models are all combining to create an era of unprecedented change for the insurance industry. More than a third of insurance executives said that the top business model disruptor is that they need to comply with government policy or enforcement agenda. Another 30% said that they will need to change their operating models in order to balance growth against the reality of shrinking budgets.
Although the focus of many organizations is to become more ‘customer-centric’, just less than one quarter of respondents expect their operating model to be disrupted by changes in customer behavior. Mary Trussell with KPMG in Canada argued that, “Customer behavior should actually be the inspiration behind insurer’s efforts to reinvent themselves.”
Notwithstanding, the data in this report also indicates that insurers have significant capabilities and advantages that could be used to improve their transformation journey. In fact, 63% of the respondents said that they are capable or highly capable of designing a robust target operating model. Moreover, many insurers consider themselves to be ‘early adopters’ or even ‘innovators’ of business transformation, with only less than a quarter of the organizations admitting to be either part of the ‘late majority’ or ‘laggards’ when it comes to transformation.
53% of the respondents said that they were capable of achieving short-term transformation wins. However, when it comes to enterprise-wide strategic change, the type of transformations that truly leads to companies being reinvented, takes a much broader view and a much more strategic approach than most insurers have needed for past initiatives
The report shows that insurance executives view technology as both a catalyst for change and also as an enabler of transformation. “Technology has evolved to a point where new insurance organizations can be virtually ‘stood up’ in a matter of weeks using almost no physical infrastructure and renting everything from servers through to customer interfaces”, notes William Pritchett with KPMG in the UK.
47% said that new mobile platforms and apps were forcing change in their businesses and also creating new opportunities for transformation. 45% said the same about social networking and collaboration and 41% see data and analytics as both driver and enabler.
“In some cases, technology can catalyze transformation as the introduction of telematics did to usage-based insurance, but more often technology plays the role of enabler, providing more effective and efficient tools and methods for achieving the businesses transformation objectives”, noted Mary Trussell.
Around a third of respondents also noted that they were watching companies outside of their sector, and those with disruptive technologies in order to find inspiration and ideas that may help them to reinvent their organizations. Moreover given the high focus on becoming more customer centric, most insurance executives said that they were looking at customer demographics and insights to help them define their business transformation strategy.
“What’s important is to bring in lots of people with different views that take you out of your comfort zone…the point is to find ways to compete with other leading organizations, not just other insurers,” noted Paul Merrey with KPMG in the UK.
Business transformation is not a ‘one and done’ initiative. Companies must create mechanisms to be able to continuously evolve and respond to their external environment. Prevailing insurers are the ones who can anticipate what their clients’ value and harness technology to facilitate innovative opportunities and thus giving clients more of what they want.
Nine steps that insurers can use to reinvent themselves:
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