The range of technologies used to allow for the inevitable digital services have varying business impacts on the insurer. When we look at the potential of digital innovation, we can group it into three levels: basic, transformative, and disruptive.
Basic innovation is where insurers are focusing much of their time and attention today. Largely defined as using digital means to replace or simplify existing processes. Examples usually seen today include process automation, chatbots, cloud computing, artificial intelligence that are triaging high-volume, low-value claims. These areas represent incremental improvements that can deliver benefits in the short term.
In contrast, transformative innovation changes the way insurers interact with their customers. Key to this transformation is a shift from a product-centric to a customer-centric approach to insurance, in which AI, big data and analytics are used to understand customers and provide data to allow decision makers to act quickly. This approach not only helps insurers understand how to better reach potential markets and through what channels, but also provides the ability to design products for customers based on their needs. On-demand coverage is an important first step on this transformative journey.
In addition, Internet of Things (IoT) and mobile technology, more widely, has prompted insurers to shift from protection to prevention. For example, one insurer in Singapore introduced a program that provides affordable insurance to diabetics while assisting individuals in managing their condition. Using mobile technology to track health information such as blood sugar, heart rate and weight, the insurer is able to lower their risk profile and expand coverage to an underserved market. Other examples range from mobile risk alerts based on a consumer’s location to health trackers that notify a woman of potential issues with her pregnancy before the unborn child is at risk.
Disruptive innovation however, is both the most meaningful and most challenging to achieve. Instead of looking at specific technologies, disruptive innovation is about creating a vision for a new model, underpinned by technology. Today’s business models will not survive in tomorrow’s digital landscape — insurers must evolve to survive. To achieve the vision of an insurer being at the front end of a customer’s daily transactions, such as new purchases, travel, or trips to the doctor, the way that an insurer operates needs to be reconsidered from the ground up. Use of technology thus becomes the means to achieving that clear and specific vision for the business rather than a goal in and of itself.
Insurers are understandably mired in immediate issues. Challenges surrounding legacy IT systems, changing regulations, rising competition and low consumer trust, all loom large in the traditional insurer’s windshield. As a result, many incumbents fail to create a clear digital vision to guide activities, or to make day-to-day decisions to move the organisation toward the achievement of that vision. Creation of such a vision, as well as a roadmap of the way forward, is a critical first step.
Insurers need to address four key components of their business:
As part of an inherently risk-adverse industry, many insurers have been approaching digital innovation with hesitance. Traditional means of addressing innovation, though the basic, step-by-step approach embodied in pilot programs and discrete innovation groups, will achieve one result: being left behind.
Disruptive change is already occurring within the industry, driven by new and developing technologies. Digital insurers, fintechs and insurtechs unencumbered by legacy systems, processes and people; are already pushing the boundaries and are at the forefront of the industry. This change will only accelerate. Embracing disruptive innovation at a cultural level is a significant challenge—but it is better than the inevitable alternative.