How will the industry survive and thrive in a post-pandemic world?
by Karl Canty and Dr. Upendra BelheMr. Canty is affiliated with EXL Service, a tech company focused on transformation, data science and change management. Connect with him at email@example.com
Mr. Belhe is the president of Belhe Analytics Advisory, helping businesses achieve business outcomes through data-driven insights. Connect with him at firstname.lastname@example.org.
What a difference a few years make. Since 2020, the insurance industry, which has historically enjoyed unfaltering predictability, has been turned on its head. In its place are accelerating waves of competitive digitization, tightening product margins threatening growth profitability, and a newly renewed hawkish private equity/activist investor pack that is motivating efficiencies faster than ever.
Looking at the industry in 2022, we see nearly all carriers racing to address these evolving market forces. Not surprisingly, carriers are leveraging a variety of middling strategies yielding an equally diverse set of mostly below average results. Only the most forward-looking carriers have been able to quickly turn the corner, evolve past disparate, incremental efforts and successfully pivot towards truly cohesive, proactive long-term strategies. So what is the difference? Why are some insurance organizations setting themselves on a path to sustained market leadership while others fall behind in the face of these challenges?
The answer, while complex, can be summarized under three major themes:
- Established insurers may still be able to outperform their emerging rivals. However, in order to remain relevant, they have to get past their outdated assumptions about what it takes to succeed.
Shifts in the insurance industry are happening from top to the bottom and posing threats to the traditional carriers. Executive leadership must have strategic agenda to elevate their organization to ensure their organizations remains relevant. They need to focus on how Technology, Value, and Identity will impact brand relevancy and their ability to face their competition.
- There is a new emphasis on digital transformation, which is reshaping the current and future state of the industry. It is providing insurers with the tools they need to give customers the required quality service without overextending their resources. The foundation that is being laid by AI, machine learning, blockchain data, data analytics, and predictive analytics will help insurers grow and adjust with new insurance technologies and capabilitiesWe’ve also seen creative responses to the new environment, including digitally enabled sales, direct-to-consumer engagement, automated advice, digital underwriting and automated claims adjudication.
- Many organizations are fundamentally reimagining what their company does well, how it should be structured, what capabilities are necessary to differentiate, and which strategic Partners will best help them accelerate progress and realize benefits more quickly. Those that fail to reimagine the organization will undoubtedly fall behind.
As the current trends indicate, we expect ecosystems will become a major business model in the relatively near future. What feels innovative today will soon become a baseline. Strong leadership from the top and a clear and executable ecosystem strategy based on current market position, capability development, and technology maturity is what is needed the most.
In order to survive and thrive, carriers will have to adapt their products, operating procedures and processes to a new reality. Over the next decade, a truly successful insurer will bear very little (if any at all) similarity to today’s organization. All executives must prepare for the impact of these technologies now and ensure their organizations are positioned to unlock their potential. Those that fail to act or simply delay action in a “wait and see” approach will find themselves losing market share and relevancy before they have time to catch up.
Incremental Is Not Good Enough Anymore
So, why is 2022 different? Incremental progress has been effective in the past, so what has changed? Up until recently, the prevailing engagement of digitization, modernization, and Fintech-led innovation has been a common enough bogeyman to motivate insurance leaders to make incremental shifts in strategy. Minor transformations deliver small roadmap wins while carriers as a whole largely stay the course and rely on a strong backbone of brand, culture, and process to sustain market position. There has been sound logic to this approach in the past. The truth is that while a few of the heralded industry-changing disruptors have been successful in establishing a beachhead, most carriers still have a competitive advantage that isn’t easily replicated. Most if not all of the Fintech-led technological doomsday scenarios once predicted have failed to upend the “old guard” attitudes that have proved useful to date.
Unfortunately, this positive spin on relative mediocrity is failing fast. New threats, baselines, and expectations have reached maturity in 2022 – and “faster, better, cheaper” approaches are shifting carrier performance expectations rapidly. The new normal means data-enabled prospect identification, accelerated applications and underwriting, rapid new business issuance, real-time self-service, automated claims adjudication and payment – all delivered digitally and easily across channels. Put simply, incremental isn’t good enough anymore because vastly enhanced market expectations for products, efficiency, and experience will define winners and losers in the coming market cycles.
New Rules for the Post-Pandemic Era
Carriers looking to jump-start or accelerate their progress towards a more competitive organization can focus first on a few new rules for navigating the new normal.
Focus On The Cloud . Most insurers are targeting to move majority of their business to the cloud in the coming years. Insurers that can move more of their business, including, data, processes, applications and infrastructure, to the cloud will transform themselves to become much more data-driven and customer-centric. To leverage their cloud investments and meet their goals of digital transformation, carriers must navigate through internal objections with respect to data security risks. Carriers that can properly tap into the unprecedented value represented by ever increasing sources of “big data” – structured, unstructured, internal, external, integrated or ad hoc – all should be strategic opportunities rather than independent challenges to the modernized insurance carrier.
Adoption of public cloud is a topic very much on the strategic agenda of senior executives in many carriers. Distributed infrastructure, particularly as relevant to the insurance industry, has come a long way in just the last several years. Insurers that can move more of their business, including, data, processes, applications and infrastructure, to the cloud will transform themselves to become much more data-driven and customer-centric. These benefits help explain why so many insurers have big plans for expanding their adoption of the public cloud. Indeed, most insurers aim to move at least 80% of their business to the cloud in the coming years
Many insurers already recognize the fact that a holistic view on cloud transformation is key to success. Cloud transformation is more than simply lift and shift of legacy systems. Previous concerns regarding security, data fidelity, accessibility and performance are now foundationally debunked. On-premise legacy data environments will not keep up with the dynamic needs of a modern carrier.
Cloud data, by comparison, is by definition flexible, virtually unlimited in its capacity, highly reliable, and lower-cost versus long-term in-house infrastructure maintenance costs. Considering this, however, cloud migration should be considered a means to an end. In tandem, purposefully designing an actionable roadmap that connects innovative business use cases, often involving advanced analytics, digital platforms, and external data integration – is critical. Many carriers are adopting hybrid cloud models by using more than one public cloud provider.
While the cost and flexibility advantages alone justify Cloud investment, simultaneously modernizing data architecture, data models and cloud-enabled digital capabilities dramatically accelerates value creation. Moreover, business benefit realization builds support, maintains momentum, and allows a more pragmatic distribution of interests to be addressed via transformation.
Real-World Case Study:
A leading global carrier sought to align its Enterprise Data platform to leading Enterprise practices leveraging cloud and advanced analytics to unlock significant business value. Data platform modernization was initially embarked upon to meet impending regulatory requirements, but rapidly expanded to encompass multiple core enterprise functions. Critical to success of the data modernization effort was incremental demonstration of value to the business and a strong ecosystem of experienced partners.
- 40%+ reduction in data infrastructure and maintenance costs – delivering short payback period for migration implementation costs
- Robust data governance, lineage, architectures, and data modelling designed to enable prioritized functional analytics solutions for the business
- $30M+ in combined annualized benefit post-migration via multi-solution enablement across Pricing, Underwriting, Claims, Marketing, Sales, Distribution, Service and Finance
Gain Process Empowerment Through Automation
It is very important to understand that digital transformation, automation and customer experience are process problems. Carriers need to revisit their concepts around automation leveraging AI, machine learning, enhanced RPA, analytics, and digital platforms – all linked together across horizontal processes with a focus on delivering end-user outcomes. In order to capitalize on new business opportunities and streamline operations, carriers must sharpen their process intelligence.
Unfortunately, only a few know where to focus without being equipped with truthful data on how their processes work. This often requires a first principles reimagining of how processes are executed in light of the superior capabilities of these multi-technology integrated ecosystems. Greater than 90% of carriers have explored artificial intelligence, RPA automation, analytics modelling, machine learning tools, and digital platforms. That said, strikingly few have been able to integrate these competencies together successfully across end-to-end processes.
True automation requires seamless orchestration of these tools and methodologies, connecting disparate capabilities solutions like links in a chain. Most carriers are not seeing enhanced customer experience or the return they expected from RPA because software bots are focused on tasks without understanding the larger processes in which they participate. Insurance carriers must offer speed, responsiveness, simplicity and seamless interactions that gather quality information. That’s the only way to compete at digitized level.
We observe that many carriers make the mistake of focusing more on internal operations instead of the customer experience because it seems to be the easy win. Designing and navigating implementation of these transformational programs can be complex – in particular because many different domain and competency areas are needed to manage the required orchestrations. As is many times the case, experience counts here – and having detailed focus on process empowerment through automation that align functions, processes and activities to appropriately configured technologies is a critical accelerator.
Real-World Case Study:
A Fortune 500 US Insurance Company sought to enhance Claims operations by implementing a suite of solutions inclusive of advanced analytics, digital platform, automation, and data integration. Based on initial success, the Enterprise subsequently broadened the strategy to target Enterprise-wise conversational AI capability.
• 30%+ OPEX savings via capacity improvements and specialist productivity increases
• 15%+ CSAT improvement established a completely revised baseline for customer experience expectations
• Dramatically faster end-to-end turnaround and claims processing times across the entire function
Hyper-personalize via Integrated Journeys Some of the insurance carriers are more customer centric than other. They are referring to personalization as ways to simplify customer interactions, develop a deeper understanding of their customers and provide them with better services as a result. The new goalposts are a carrier’s ability to flexibly deliver personalized AI-enabled digital first experiences aligning competitive market value to the variety, core expertise, and brand trust stakeholders expect.
The ecosystem and the strategy need to align, support, and sustain these targets – meaning, it doesn’t work to have fully digital front-end marketing only to then require paper applications submitted by fax. In the post-pandemic era, the entire journey must become more consistent with the experience the carrier intends to convey. Insurance is a product that is sold not bought, the old adage says.
However, to sell in the post-pandemic era requires a purposefully choreographed demonstration that addresses concerns, establishes urgency, and reinforces value. The means by which these interactions occur are highly varied – and they shift according to generation, geolocation, financial situation, gender and a host of other important demographic attributes.
What this means for Carriers is that today’s buying experiences are curated, guided, and validated across multiple channels and ultimately aligned based on individual’s choice. Some carriers view AI as the technology that will take personalization and make it ‘hyper”. A more accurate way to the think about it is that AI is a new form of automation allowing companies to provide seamless experiences to their customers.
Hyper-Personalization is a full lifecycle approach to a customer’s financial needs blurring traditional business lines and focusing on delivering what a customer needs, when they need it, how they need it, using their interaction channel of choice. To get there, executives need to both embrace and implement leading edge tools like AI successfully. In the post-pandemic era, it will be up to the industry’s data leaders to build up more complete pictures of their customers’ needs. A recent LIMRA Insurance Barometer report noted 86% of customers with both individual and group policies also have homeowners insurance.
Lookinf at it in a different way, almost 9 in 10 consumers with two of these products – potentially with the same carrier, are highly likely to be open to a competitive offer for the third. Solutions like Customer 360° leveraging data modeling, AI-enabled analytics, and insight-generating visualization steward the Customer through their optimized journey. In this way, previously obscured demand patterns are converted into actionable insights, and ultimately into top-line outcomes.
Find Great Partners
The expertise necessary to build the entirety of the above referenced ecosystem is not self-contained in any one carrier, regardless of size or market influence. Establishing relationships with experienced partners allows leading carriers to accelerate transformation momentum to velocities that are sufficient to keep up with the new pace of change. Beyond this, the outside-in perspectives often allow for interesting observations and innovative ideas to be added, further bolstering organizational flexibility and efficiency.
The scarcity of resources, a longer-running trend, has been exponentially exacerbated in a post-pandemic labor market. Even organizations that had built substantial organic competencies in data, analytics, technology, automation or operational support are struggling to adequately address their strategic program needs using internal resources alone. The reason is simple: the requirements change rapidly and highly-skilled, experienced experts have become extremely difficult to acquire. Observationally, we have noticed that this has frequently led to either substantive headcount gaps causing delays, or under-experienced, ill-fitting resource placements leading to sub-optimal outcomes. The solution is to find the right Partners.
Adhering to the above mentioned “rules of the new normal” requires outside-in perspectives offering a comprehensive combination of technical guidance, experienced delivery, market-proven solutions, and timely advisory. With rare exception, it is extremely difficult to identify the full extent of opportunities (“art of the possible”) and the associated potential pitfalls without having significant experience executing similar transformative efforts. Whether your organization works with a single relationship or establishes an ecosystem of applicable Partners, incorporating this support into your operating model is an essential element of successful modernization at speed.
Change Comes Quick
Mmarket leaders distinguish themselves not just through a strong sense of urgency, but with an understanding that modernization efforts prepare a carrier for a market where change comes quick. Reinforcing flexible foundations for dynamic capability growth means carriers can deliver where, when, and how their customers, prospects, and advisors need them to be.
Successful carriers will be led by executives focused on building cohesive strategies and fostering broad enterprise commitment to change. Such organizations will demonstrate how considerable time, effort, and commitment are needed to gain potential benefits that have become increasingly important to sustain their market leadership. The stakes are high, but so are the opportunities – and those that embrace the evolution of processes, technologies, and consumer experience will reap outsized gains as a result.