Our Wired World

The Seven Year Itch

Changes in insurer strategic priorities defined through three ‘digital eras’

A groundbreaking study from industry technology consultants Majesco examines how the emergence of new technologies, and InsureTech, has accelerated the process of change within legacy systems that once took decades to install changes. Excerpts are presented below. Access the full report here.

The seven-year itch. It was made famous in the Marilyn Monroe movie. But the underlying concept about a seven year itch is change.

For decades, the creation and evolution of insurance markets, products, channels, technology, and customers unfolded at a slow and steady pace. It took months if not years to launch a new product. Core business technology was replaced only every 20-30 years and the projects took many years and multi-millions to implement. Customers were the Baby Boomers and Gen X who followed similar life stages and had similar needs and expectations. Companies managed and lived with slow transformation because everyone was in a similar position.

But change picked up in a disruptive way by the mid-2010’s with the emergence of new technologies and InsurTech. The pace changed. The market changed. Technology changed. Competition changed. And change changed. New and constantly changing risks, customer behaviors and expectations, technology-driven capabilities, sources of data, channels, partners, influx of capital to the market for InsurTech and M&A, and a pandemic added fuel to change, resulting in three different eras of change in a short seven-year period.

Seven years ago, we began the strategic priorities research. We wanted to focus on the challenges facing insurers and their current and planned strategic initiatives for growing their businesses. Looking back at the beginning to
this year’s results, the impact of these three distinct eras becomes clear.

  • Digital Disruption Era – In 2015 and the first era, InsurTech was new and booming, causing some hesitance
    and a wait-and-see attitude in the industry regarding technology and business investments.
  • Digital Transformation Era – A couple of years later the second era began with the industry’s outlook shifting
    and optimistic, driving a wave of technology and business model digital transformation.
  • Digital Acceleration Era – We are now entering the third era due to COVID disruption and adaptation,
    reflecting strong signs of resurgence and resilience by insurers.

Throughout these seven years, the rising importance and adoption of advances such as platform technologies, APIs, microservices, digital capabilities, new/non-traditional data sources and advanced analytics capabilities are now crucial to industry leadership. Market trends like the gig/sharing economy and the rise of ecosystems and partnerships, and much more, are driving innovations in new products, services, and distribution channels.

However, the different levels of awareness of these developments and the strategic responses to them have in many cases redefined industry players into three categories: Leaders, Followers and Laggards. Gaps between them remain, but the size of the gaps continue to change. Yet one thing has remained the same … Leaders continue to accelerate the pace that sets them apart from Followers and Laggards.

Is your company a Leader, Follower or Laggard in the future of insurance? How do companies position themselves as Leaders and strong innovators? How do they strengthen their operations to achieve strong business results?

What differentiates Leaders from Followers and Laggards? This report, based on the results of the survey, answers these questions and more and provides a view into the three eras over the last seven years that have reshaped companies and insurers for the future of insurance.

State of the Business

The insurance industry’s outlook for 2022 is one of continued growth due to the economic recovery, the increased awareness of the need for insurance, and the emergence of a new dominant buyer in Millennials and Gen Z, who have vastly different insurance needs and expectations than the previous generations for whom insurance products, channels, and business models were built. At the same time, there is a continued battle with COVID, fight for talent, regulation demands, increased inflation, focus on sustainability (ESG), new or increased risks, greater awareness of climate change challenges, and intense cat events for the industry.

As a result, the future of insurance is picking up steam and continuing to evolve, driving strategic discussions on how insurers will prepare and manage the changes needed in their business models, products, channels, and technology. Technology debt, from legacy or non-cloud core, digital, data and analytics, loss control or distribution hinder the industry’s ability to improve operations, let alone innovate, while also straining profitability, customer acquisition and retention, and distribution relationships.

the future of insurance is picking up steam and continuing to evolve, driving strategic discussions on how insurers will prepare and manage the changes needed in their business models, products, channels, and technology...

Emphasizing this perspective, insurers across the industry noted in their survey responses that growth remained the top focus of their business activities and performance over the past year, driven by changing or introducing new products (58% impact) and expanding channels (24% impact). This focus was further highlighted with the reallocation of resources to change how they do business, which will be reflected further in future business results. The strong correlation between changing/new business models and growth (r=0.65) indicates deeper structural changes to traditional ways of doing business and investment in the future of the

Seven-Year Trends Define Three Digital Eras

Looking at the previous year’s business activities and performance and our last seven years of those survey results, the trends reflect the three digital eras defined in the executive summary. In the Digital Disruption Era, we saw a decline in the average assessments of company performance and strategic activities. This quickly led to the realization that legacy systems were holding insurers back and limiting their ability to compete with the new InsurTech business models, products, channels, and technology capabilities, resulting in a refocus on replacing legacy during the Digital Transformation Era. As legacy began to be replaced, channel expansion, new business models and new product development began to rise and converge.

They dropped significantly in 2020 as the full effect of the pandemic was felt. But as we now enter the Digital Acceleration Era, they are all rising again, reflecting the demand for digital capabilities by customers due to the experiences of the pandemic. As we accelerate our digital transformation, insurers are once again experiencing rapid growth as the top strategic factor, signaling that insurers are successfully adapting to the new conditions created by the pandemic, and have turned them into growth opportunities.

Leaders, Followers, Laggards

This years’ survey data continues to distinguish between insurance Leaders, Followers and Laggards based on their strategic outlooks. Surprisingly, Laggards made significant progress in closing their gap from 64% to only 20% as compared to Leaders last year, reflecting an increased focus on digital transformation acceleration due to the pandemic. However, Laggards still have sizable gaps of 25% – 30% in reallocating resources to change how they do business, channel expansion, or offering new products and developing new business models.

In contrast, Followers remain treading water with a 13% gap to Leaders compared to 12% last year. Two of the Followers’ biggest weaknesses, reallocating resources, and channel expansion are consistent with Laggards. These two factors are crucial for future growth, recognizing that customers’ rapidly changing needs and expectations will demand insurers to adapt to new products, business models and channels to meet them on their terms. Evaluating the results by insurer tiers, breaking them into large (tier 1-2) and mid-small (3-5), yields interesting insights on key differences in performance and strategic outlooks. Small insurers make up 75% of the Laggards. Leaders and Followers are more equally represented bythe small-mid and large tiers. Large insurers outpaced smaller insurers in growth and expansion of channels by 7% and 9%, respectively. While not substantial, over time these gaps have a multiplier effect on long-term results.

Challenges Facing Insurers

Insurers have made technology investments over the years, but most have been incremental and with limited overall impact. In fact, insurers’ annual investment in technology continues to remain relatively stable at an average around 3%-4% of DWP annually as reported by various industry analysts. Unfortunately, this investment approach is not sufficient to differentiate themselves from the competition as the industry experiences tectonic shifts in market demographics, customer needs and expectations, rapid adoption of technology, and shifting market boundaries. The digital future is today, and high performance is expected of the industry.

Given the pace and multi-faceted nature of digital transformation, insurers must truthfully assess and shift their business strategy and investments to adapt to the multitude of changes – changing customer demographics and behaviors, an expanding distribution channel environment, regulatory innovation requirements, maturing technologies and changing market boundaries with new competitors – either directly or through partnerships entering the market. Finding the right balance between managing today’s business while creating the future business is more important than ever and key in the AM Best Innovation Rating, let alone in maintaining a competitive market position.

Access the full report here.


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