It’s the relay runner’s nightmare: You just can't seem to catch up. Maybe you're in the lead, but you can't shake the person on your shoulder. How do you get ahead and stay ahead?
In insurance, whether you're looking over your shoulder or trying to catch up, you need to know as much as possible about the market and the competition. That’s why Majesco helps insurers assess their technology positioning with our Strategic Priorities surveys. Here are some highlights from this year's report:
Competitive Position — Recognizing Leaders, Followers and Laggards
Too often, strategic planning does not yield the bold changes needed because insurers do not rapidly move into a leading position by going from knowing to doing. This year’s research shows an ever-widening gap that is defining a new era of leaders.
The June 2019 McKinsey article, “How to win in insurance: Climbing the power curve,” emphasizes the gap between leaders and followers or laggards. McKinsey’s research shows that the capital allocated to each business unit from one year to the next is nearly identical – rather than reallocating capital to make bold changes for the future.
Capital shifts indicate priority shifts. They also point to investment strategies. This is consistent with the growing Knowing-Doing Gap emerging in the industry, highlighted by our Strategic Priorities research over the last five years, a gap that is putting some companies at risk given the pace of change and limited resources. Investments aren’t necessarily being made where they are most needed. Many insurers still aren’t recognizing that investments today may result in long-term reductions in the need for technology investments due to platform efficiencies.
See also: Insurance Innovation’s Growth Challenge
Taking decisive action around strategy is crucial, particularly with the pace of change and rapidly evolving competitive landscape. As the McKinsey article points out, strategy is about playing the odds, increasing the amount of “doing,” even if some plans fail, to ensure overall success. Insurers must focus on both optimizing today’s business and boldly creating tomorrow’s business – a two-speed strategy.
Strategic Priorities Report Highlights
This year’s research highlights how leaders have replaced legacy, expanded their channels, introduced products and business models and produced higher growth. Even more important, they see greater growth over the next three years.
If your organization isn’t currently in the leadership position, you CAN catch up. If you know where leaders' investments have been paying off, you have a guide for transformation, optimization, innovation and growth.
Here are some key insights from this year’s report:
- When we asked insurers about the state of their business (growth, systems, products, models and channels), last year was challenging for laggards, which had a 41% gap to leaders, and for followers, which had a 15% gap.
- Leaders are laser-focused on both speed of operations and on speed of innovation. This is reflected in their work on legacy replacement, channel expansion, new products and new business models; followers and laggards are primarily concerned with speed of operations.
- Leaders’ replacement of legacy core is greater by 75% than laggards, and by 20% than followers – putting leaders at a clear advantage.
- Leaders are creating products and business models nearly 55% faster than laggards and 20% than followers – enabling leaders to capture market share and revenue more quickly.
- Leaders are expanding channels at a staggering rate of 19% higher than followers and 88% higher than laggards – expanding leaders' market reach and their ability to acquire and retain customers and revenue.
- Over the next three years, laggards and followers will drop even further behind leaders.
Bold moves to optimize today’s business and create the future business substantially increase an insurer’s potential for success. Leaders are blazing trails with new business models, channel expansion, new products and core system replacement while followers are attempting to do a few things and laggards are primarily watching.
Platforms, Production and Products
One of the most fascinating portions of the Strategic Priorities report is what Majesco found regarding platform planning, development and use. We wanted to understand where insurers were in their core system transformation, defining four answers within two simple concepts: Platform and Non-Platform.
- Platform was defined as cloud-enabled, API and SaaS-based solutions or next-gen that were cloud-native, API and microservices solutions.
- Non-Platform was defined as old, monolithic, legacy and modern on-premise solutions.
Consider these two, related findings.
- P&C and L&A and group insurers are operating with Non-Platform core solutions at a staggering 60%, affecting their ability for innovation, speed and agility.
- Insurers introducing new products and services are more likely using Platform-based solutions in the range of 60%-70%, a complete flip from the existing business and reflecting the growing focus on greenfields and startups.
So, many insurers are missing out on agile product development processes that can be found through platform vs. traditional core systems.
Response to Regulatory and Rating Agency Developments
This year, Majesco added an area of focus to cover insurer responses to the rapid advancements in the regulatory arena during 2019. The adoption of the AM Best innovation rating and the introduction of sandboxes by state regulators to test new products in a more rapid, managed manner, are certain to have a growing impact on insurers' innovation timelines. The question we asked was, “How actively is your company responding to these recent regulatory developments?”
For the most part, we found a lack of understanding and planning around these highly important changes within certain market segments. For example, L&A and group insurers lag significantly behind P&C and multi-line insurers in preparation for the AM Best innovation rating, with a gap of nearly 30%. Multi-line insurers outpace both P&C and L&A and group insurers by upward of 35% in the use of sandboxes. For more insight, check out the replay of this webinar, titled, “The Future of Insurance and Regulation: Optimization, Growth and Innovation” that features individuals from AM Best, Ohio Insurance Department of Insurance and a former first deputy commissioner for Iowa. Their insights highlight the growing need for insurers to be innovating.
See also: How to Innovate With an Agency Partner
In Summary
Insurers must gain clarity on how to succeed in the future of insurance, which is coming faster than most realize. Insurers must lay the groundwork of a new digital insurance business model that embraces customer, technology and market boundary changes with vision, energy and speed.
How do your strategies align to what leaders are doing? What specific plans can you take to improve your odds of success? How can you rapidly move from knowing to doing?
Your answers will determine your readiness in a new decade and the future of insurance.
