Incumbent insurers must become more digital and explore new business models and offer new products to meet new customer needs
By Denise GarthMs. Garth is senior vice-president of marketing for Majesco, industry consultants with over two decades of experience in providing technology solutions, products and services for the insurance industry across lines of business – Property & Casualty (General Insurance), Life, Annuity, Health, Pensions, and Group & Worksite Benefits insurance. Reprinted with permission. Visit here.
February 27, 2020 — It takes three legs to hold up a table; four, if you want to give it added security and keep it from tipping over. Yet insurers find themselves struggling to keep three of their foundational assets from lagging behind industry standards. Which three are in danger of causing insurers to tip?
Talent, technology, and data.
When it comes to building a foundation for the future, insurers need to be looking for solutions that will give them real strength for these three operational pillars. If they are strong, the organization will thrive (see more on that below). If they are weak, the organization will fall behind. Together, they can make or break strategies and platforms for growth.
For the past two months, we’ve been looking at the future of insurance through two of our recent thought-leadership reports, Future Trends: Looking Back and Leaping Forward, and Strategic Priorities 2019-2020: Insurance Transformation Gains Momentum. What we have discovered is that even though the state of the insurance industry is in flux and the future is yet to be redefined, insurers that are preparing for the future have a lot to be excited about. The latest technologies and capabilities (combined with certain consumer and SMB trends) are opening the doors of opportunity within new products, channels and markets. All of this is good news for proactive insurers.
However, all insurers have some concerns in common. “What are we going to do about our talent shortage?” “Is there a right or wrong road to technology transformation?” And, “Are we looking at data as a strategic asset and its ability to impact insurance?” Let’s look briefly at these questions and see how each answer contributes to an insurer’s ability to compete.
Future Foundation #1: Tapping (and Keeping) Valuable Talent
The insurance industry is facing a talent crisis.
A major driver is the ongoing wave of retirements in the U.S. workforce, as 10,000 Baby Boomers have reached 65 each day since 2011.[i] This has serious implications for all insurance functions. Two examples, distribution and IT are among the most acute. A 2016 AM Best study found that among life/annuity insurers, 62.5% of productive agents were over 50 years old, while just 3.1% were under 35.[ii] On the IT side, the retirement trend jeopardizes insurers that rely on long-term employees with years of tacit knowledge of their companies’ aging legacy systems, data and business processes.[iii] Add to this that younger IT employees want to work for companies that are “cool and sexy” in the use of new and emerging technologies – a topic in my Industry Influencers Podcast with Nigel Walsh, another Top 50 InsurTech Influencer.
An even more significant driver of the shortage of talent is increased digital engagement expectations of customers. As customer expectations rise, new behaviors and risks emerge. New competitors enter the industry. Incumbent insurers must become more digital and explore new business models and offer new products to meet new customer needs and expectations. The types of technology needed to do this – digital, data, AI/ML, cloud, and more – require talent that looks more and more like those employed by the high-tech, GAFA-like companies (Google, Amazon, Facebook, Apple). The insurance industry finds itself in a record low unemployment environment pitted against almost every other industry for the same talent, as they too develop new business models to meet ever-increasing customer expectations.
- A 2018 report by insurance talent consultant The Jacobson Group recommended several strategies insurers should adopt in order to be competitive in the completion for talent:[iv]
- Revisit recruiting and hiring practices to include non-traditional candidates, candidates with diverse backgrounds, thinking and skillsets, and remove geographical location requirements (i.e. consider remote workers).
- The insurance industry’s average earnings increase was 3.7 times lower than the general economy from 2017 to 2018. Insurers must be prepared to pay salaries high enough to recruit and retain talent.
- Use a blended workforce strategy that embraces the contract workers in today’s Gig Economy and ensures that they have a positive experience on par with regular company employees.
- Ensure “human skills” and emotional intelligence are not overlooked; these skills are becoming more critical as a balance to the increasing reliance on technology.
Consider offering creative employee benefits options to meet new employee values and needs, such as more flexible work-life balance or student loan repayment plans. However, these should not be offered as quick-fix programs in a piecemeal fashion. Instead, they must be part of a well though-out, holistic workplace culture.
Unfortunately, the insurance industry suffers from an image/desirability complex with Millennials and Gen Z – not viewed as innovative, cool or sexy. They will soon be the largest part of the workforce – expected to make up half of all global workers by 2020 – and the generation of digital-native workers that make up most of the GAFA-type talent needed. Various studies have quantified this perception problem: 80% of Millennials have limited awareness of the industry’s employment opportunities, 44% say that the insurance industry is boring,[v] and only 4% are drawn to insurance as a career opportunity, just ahead of utilities and wholesale trade.[vi]
Insurers must employ new tactics for enticing Millennials and Gen Z to view insurance as an attractive career option, such as demonstrating an authentic social purpose, building a strong employer brand, emphasizing and authentically valuing diversity, providing a flexible work environment, providing professional development opportunities, and embracing innovative new technologies to drive digital transformation of the business.[vii]
Insurance companies must lay the groundwork by investing in talent, just as they invest in technology and digital transformation. They may also find that certain technologies will begin to alleviate some of the talent pressure as they release the insurer from some of their legacy coding burden.
Foundation #2: Finding Technologies that Fit the Future
Imagine rebuilding a house every two or three years. The job would be made much easier if you could at least leave the foundation in place. This is what platforms are doing for insurers. How do platforms accomplish this future fit? It is helpful to think in terms of what platforms have done for other industries and how that can transform insurance.
Technology, as a pillar, must support insurance differently than it has in the past. Core insurance systems were implemented on-premise, around the traditional insurance business model. But the traditional model can’t add capabilities fast enough to meet future trends. The demands of agility, speed and innovation are completely new. There is an increasing urgency to modernize and optimize today’s business – but also to create the innovative new business of the future in order to capture a new generation of customers with significantly different needs and expectations.
Platforms make this all work. They supply the capabilities that make insurers competitive.
It is strange to consider, but in 2015 platforms weren’t even on the industry radar. In a short period of 4 years, insurers are now redefining their strategies around “next gen” platforms. Next gen platforms are most often enabled by cloud, open API, microservices, data, AI and ecosystems. Platform technologies replace the former core system pillar with a new foundation of infrastructure, data and applications, rather than trying to leverage what exists. They fit the future by often providing digital experience platforms that have no-code/low-code functionality, such as the kind found within Majesco Digital1st Insurance®. The “right” road to transformation most often includes a two-speed plan to optimize and innovate with a next gen platform as the end state.
Once a next gen foundation is in place, insurers will find themselves ready to compete in a whole new way. When change occurs, they will be ready to draw upon the power of the platform to make rapid course corrections.
Foundation #3: Achieving Competitive Dominance with Data
Data continues to be a key driver of change and disruption. Unfortunately, many insurers are struggling to become data-driven companies, and the pressure is only getting more intense.
While insurers collect a wealth of core data, few have found a way to capture, analyze and monetize it. Its competitive value goes untapped. As more insurance customers interact online, the volume of data, both structured and unstructured, is increasing exponentially. At the same time, new analytics technologies are emerging to help insurers use data in innovative new ways. Fueling this shift are customers and their willingness to share new sources of data with insurers so that they get a personalized experience, customized products, tailored pricing, relevant services and meaningful, personal interactions. In particular, the ability to support continuous underwriting and service from real-time data will be crucial.
From a financial perspective, data-driven organizations are seeing improvements of up to 20% to 30% in EBITDA due to unlocked efficiencies and more granular financial insight.[viii] Leveraging this foundation, insurers must rapidly expand data sources from internal, transactional and historical data to new sources of data from emerging technologies and market sources.
Competitive dominance is no longer achieved by operational efficiency, lower prices, massive advertising, large internal systems, or channel loyalty. It is achieved by anticipating trends and pivoting quickly to create and capture the economic and competitive opportunity through a new business model built on data. Insurers that succeed in capturing the opportunity will be those that show strategic courage and forward-thinking to redefine their business models, processes, products, services and channels by leveraging data and analytics in innovative ways, laying the foundation for the future of insurance.
A holistic approach to strengthening talent resources, technology choices and data use will place insurers on a firm (and flexible) foundation for the future.
For a comprehensive look at what the future holds and how insurers are preparing to meet it, be sure to download both of Majesco’s recent thought-leadership reports, Future Trends: Looking Back and Leaping Forward, and Strategic Priorities 2019-2020: Insurance Transformation Gains Momentum.
[i] Heimlich, Russell, “Baby Boomers Retire,” Pew Research Center, December 29, 2010, https://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/
[ii] “A.M. Best Special Report: Shifting Dynamics Could Lead to Distribution Channel Innovation,” Best’s News Service, December 9, 2016
[iii] Weldon, David, “Departing Employees Greatest Threat to Data Protection,” Insurance Networking News, January 11, 2017
[iv] “2019 Talent Trends Guide,” The Jacobson Group, 2018, https://jacobsononline.com/uploadfiles/2019talenttrendsguide.pdf
[v] Tortorello, Marguerite, “Tomorrow’s Talent Challenge,” Insurance Journal, February 9, 2015
[vi] Faw, Larissa, “Millennials Just Don’t Want To Be Insurance Agents,” Forbes, November 30, 2015
[vii] “6 Strategies For the Insurance Industry to Attract and Retain Millennials,” eightfold.ai blog, July 23, 2019, https://eightfold.ai/blog/insurance-industry-millennials/
[viii] Gleeson, Brent, “The Benefits Of Leading Data-Driven Organizational Change,” Forbes, September 28, 2017, https://www.forbes. com/sites/brentgleeson/2017/09/28/the-benefits-of-leading-data-driven-organizational-change/#4550c4c35e09