There’s plenty of evidence that insurance transformation has failed across the board.
Despite £100s of millions invested in IT, insurers have been unable to shrug off the baggage of their legacy systems. Instead of greater freedom, digitization has led to the shackles of modern legacy. This makes rapid adaptation at scale impossible, as complexity and a reliance on suppliers plague insurance infrastructure, making every change long-winded and costly.
The results are plain to see. Insurer profits have been hit by myriad headwinds, leaving them little room to maneuver, save for slapping consumers with extreme price increases. That might be forgivable if the consumer experience had improved, but tech-savvy consumers who expect the control and transparency of fintech-like experiences have been left severely wanting.
It isn’t hard to see why "transformation" has become a bit of a dirty word. Why would you want to commit more budget and resources when the promised land of your last heavy tech investments has yet to be reached?
Insurance, however, doesn’t have a choice. It must transform or fade away. The good news is the sector is only one transformation away from never having to worry about technology again.
Why Has Transformation Failed
Let’s first look at what’s led us here. Transformation and technology are often treated as synonymous, but technology isn’t where transformation begins, nor should it be.
Transformation starts with a vision for where the business wants to go. Typically, that vision is driven by a desire to leverage the latest tech to achieve greater scale, while reducing effort and costs.
While there’s nothing fundamentally wrong with this approach, it becomes problematic when the technology and the operational model you're building on no longer serve the business. This is the predicament insurers find themselves in.
Certainly, short-term efficiencies through digitization, automation and cloud adoption are there for the taking. But the drive for efficiencies hasn't alleviated the pressure to change. To truly transform, and position itself for the future, the industry must first transform its operational mindset.
This can only be done by looking outside the industry, where today’s transformations are predicated on achieving the continuous change needed to adapt quickly to the whims of the market, the economy and the consumer.
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The 2030 Insurer
When considering the insurance companies of the future, our CEO, CTO and I produced a list of characteristics that are present in industries such as ecommerce where transformations are mature. The characteristics are:
- Multiple products sold, priced and serviced together
- Access to services at every consumer touchpoint, e.g. web, mobile, car and point-of-sale
- A unified experience for sales, service, payments, etc.
- Operating at the center of a broader supply chain, e.g. hospitals, repair shops and pharmacies
- Unrestrained, unique and compelling customer experiences driving differentiation
- Absolute ownership of customer relationships
- Endless product offerings, personalized, partnered or adjacent
- Instantaneous changes without downtime
- Real-time analytics and data science
All of these characteristics come from being built around a customer core that employs sophisticated data models to make every customer moment a data-driven and intelligent outcome. The core provides the ability to change in multiple places, while the value of that change appears everywhere it needs to.
In these transformed businesses, valuable data is constantly mined, structured and treated as a perishable asset that’s used when and where it's most valuable. Critically, adaptability allows new value to be identified and monetized via an ecosystem where IT is an enabler, not an inhibitor. Partnering is straight-forward, allowing insurers to act as a modular producer.
Value is achieved by maximizing the knowledge of your customer, by your ability to act on it and by partnering effortlessly in an ever-evolving ecosystem. Happily, the dynamics at play have flipped. The technology is there, waiting for industrial mindsets to catch up.
Every modern ecosystem driver architecture operates in a similar way, whether that’s Amazon or Tesla. Yes, microservices, API-first, cloud-native SaaS and headless (MACH), but built in common ways within this. You'll often see reliable systems of record and “data stores” proliferate underpinning modern technologies, but at the core you'll need a customer and product engine capable of interacting with and creating intelligent customer and employee outcomes.
In insurance, this is complex. If we want embedded, risk-mitigating and highly human-centric insurance outcomes, this complexity has to be dealt with. Working around it, by cobbling together point solutions through APIs onto policy-centric systems, frankly hasn’t worked.
When a system is built on a modern, digital-first architecture that puts the customer at its core, it reduces IT's reliance on suppliers by removing the complexity of change. It also creates extensibility, allowing the platform to connect and interoperate with a wide ecosystem of partners. Powered by customer data fluidity, this delivers ROI fast. An API’d new partner can typically apply all of their value back to an insurer in days or weeks, not months.
Ultimately, the transformation goal is an ever-evolving ecosystem, the benefit being that there’s no need for a big-bang transformation project, constantly reliant on high-cost IT capability, bought or applied.
Instead, the minimum viable organizational change is understood and worked toward, with the outcome being ever-increasing self-sufficiency and reducing core costs.
We see cost-per-policy plummet when servicing becomes digital, and the right fix or service is applied at the right time and in the right channel. Overlay this with reduced cost in IT change and new value generation massively increases, allowing for all sorts of cross- and upselling.
See also: Why Are We Still Talking About Digital Transformation?
Taking Back Control
Control is vital in insurance. There is a balancing act between pooled books of insurance customers, their risks and the investment made with the capital earned. Maintaining this balance while driving toward adaptability requires a fundamental shift away from policy-centrism to customer-centrism.
Controlling and valuing a policy, then structuring an entire business around this idea has created unnecessary complexity. I'm not saying the concept of a policy isn’t useful. I am saying that policy as a product should be constantly evolving and that an insurer's relationship with a customer supersedes the policy. To get there, technologies mustn't be built in silos. This is what avoiding modern legacy means.
Breaking free allows more control, not less. It leads to the development of propositions that help people build back better after a catastrophe. It offers connected and intelligent products built around usage and risk mitigation, or simply embedding insurance further into people’s lives.
These new value paradigms are essential to the future of dynamic and highly adaptive insurance futures. However, to be workable, they must be built on modern technology foundations that serve these business outcomes rather than prohibit them. I believe this puts the insurer in a continuously evolving ecosystem model, and that is why Insurance is one transformation away from never worrying about tech again.
All of this may seem hard. Efficiency-driving agendas that do little to disrupt the cultural and operational status quo are easy to get behind. Fundamentally changing a core component of the business’s foundations is much harder.
However, the hardest aspect is mindset change. When that happens, the technology is ready to facilitate it.
