Digital Transformation: The Way It Innovates The Insurance Industry

The conservative, brand and product-centric insurance industry is confronting a massive transformation in the way it does business. New players, new business models and heightened customer expectations are forcing the industry to respond to the digital disruption by providing a digitized, omnichannel experience for customers.

This is no easy transformation. Traditionally built on a model where products are sold by agents and where the business is transaction-oriented, insurers are moving to an environment that is customer-needs driven. Today’s always-on consumers expect products and solutions that adapt to their lifestyles and stages of life. They expect clarity and transparency. Gone are the days of 30-page application forms with reams of fine print that few customers read or understand.

A changing insurance marketplace

To compete in today’s market, where large disruptive players, as well as smaller niche players, are exploring opportunities, insurance products need to be simplified and personalized. Instead of agents pushing products based on commission, the focus needs to be one of the trusted advisors providing product awareness and customer education.

If we look at mature Asia-Pacific markets — such as Australia, Japan, Singapore, and Hong Kong — agents today are mostly independent financial advisors, known as IFAs, whose role is to educate customers and evaluate their needs. These agents and advisors need to be ready to respond to the new direct-to-consumer digital business models that are gaining ground. Indeed, some markets, such as Singapore, have mandated that a certain percentage of insurance products be sold directly to the consumer online.

Insurers now also need to be able to launch innovative products more frequently, based on the different demands of the marketplace. Most important, insurers need to know their customers and respond to their expectations.

Understanding the digital customer

Today’s customers or prospective customers have come to expect the digital experience they enjoy with the fast-moving consumer goods industry. They expect to get a policy serviced or a claim managed efficiently and effectively.

Millennials and emerging consumers from Generation Z want a different experience in their transactions. They expect feedback from social media about what they are buying, they want offerings to be simple to understand and buy yet personalized to their requirements. They expect to have an omnichannel experience, meaning that they might start looking at a product at their desktop, continue the journey of signing up while on the move using a smartphone and perhaps pay from their tablet. Therefore, the user interface needs to be standardized and mobility enabled.

Customers expect to be able to leverage newer technologies such as chatbots to ask questions and get answers. And because they are used to a service-oriented experience, they aren’t willing to wait 2 weeks to get a policy mailed to them. They want an email sent immediately with properly encrypted information.

Loyalty has also become a key consideration. Only a few years ago, as the Asia-Pacific insurance market began to grow, the cost of acquiring a new customer wasn’t high. Today that has changed. Now insurers not only want to hang onto existing customers but are looking to expand the business by cross-selling to those customers based on their changing lives as they get married, have children, purchase homes, and so on. Product-personalized, life cycle-generated cross-selling depends on having a completely automated environment that tracks the customer’s experience over a lifetime and positions relevant products.

A digital imperative for insurance

Given the demands of customers and an increasingly fractured and competitive landscape, insurance companies need to be able to leverage data and knowledge quickly and effectively to stay ahead. The fact is that most insurers are sitting on terabytes of decades-old data.

While companies have conducted basic metrics and reporting, they have largely been unsure how to leverage this data. Now, they are looking to build predictive analytics capabilities to determine customer behavior and expectations. In Australia, for example, the focus is on savings with an emphasis on income protection. Japan, meanwhile, must adjust its policies to a rapidly aging population, while India’s young economy has quite different needs and demands.

With these regional differences in mind, the journey from concept to market needs to be rapid and relevant. The ability to perform detailed analytics for better business decision making depends on having a digital platform that can access enterprise-wide data and take advantage of cloud-first capabilities such as machine learning and artificial intelligence.

Cost is another driver for digital transformation in the industry. The insurance industry has battled with legacy systems, resulting in higher costs related to maintenance and system upgrades. And since IT is one of the first departments to face cuts during downturns, it’s often a struggle to get the budget needed to keep mainframes and other technologies running smoothly.

Cloud-based digital platforms, however, move companies away from a capital expenditure (or CAPEX) model and toward operational expenditure (OPEX) or consumption-based model, which means IT is less dependent on C-level and board approvals for infrastructure. Instead, an insurance-as-a-service platform lets the business pay only for what it needs, adding capacity as required.

A progressive journey

Digital transformation is not a simple, overnight process and shouldn’t be equated with replacing an entire legacy system. For example, regulators in some countries require that certain critical data remain on-premises. Furthermore, it might not make sense to move pure back-end operations from a legacy system to a cloud platform.

A transformational digital journey, rather, implies a hybrid approach that combines legacy solutions and digital technologies. For example, as an insurer starts launching new digital products, it would make sense to use a digital platform to deploy those products. Over time, the use of the legacy system would gradually be reduced, allowing companies to eventually move entirely to a digital platform.

Perhaps not surprisingly, Asia is embracing the digital transformation faster than many developed economies, partly because these are growing, young markets, and partly because of the sheer size of their populations. Another factor is that insurance penetration in a lot of these markets is lower than in developed markets such as the United States, so there are avenues and growth opportunities available, especially for the more progressive players.

Insurance companies, however, must walk a fine line as they transform, so they do not disrupt their main bread-and-butter businesses.

Reaping the rewards of digital transformation

Insurance companies in Asia that are first adopters and willing to embrace a digital transformation will realize several key benefits.

The first is cost competitiveness by leveraging a cloud-based platform and paying based on consumption rather than paying for software licenses and infrastructure maintenance. The second is greater speed to market, which allows companies to conceptualize and launch products more rapidly, and thereby see a return on their ideas and investment sooner. The third is greater agility, which means that consumers can purchase products through any channel without disruption, making the journey from research to purchase more seamless.

A fourth and crucial benefit is the ability to connect with various partners in the ecosystem. Consider life insurance linked to wellness incentives, where customers are incentivized via discounts to their premiums to use fitness centers or health programs to stay well. By using digital technologies, some of the customer’s data — subject to data-privacy laws — can be shared with partners within those programs to provide benefits to the customer. Without a digital platform, such a program would be complex and cost-prohibitive.

A new type of player

As barriers to entry fall, niche companies are attracted to the industry. Like us here at Inmediate, which is an insurtech startup from Singapore, is using the latest technology such as Artificial intelligence, Distributed Ledger and NLP, so that we can provide an insurance processing that is fast, cheap and flexible. That makes for better processes, lower costs, improved time to market and new revenue opportunities.

Our extensive experience in insurance and technology positions us as the best to run your flexible new technology solutions. While you focus on the business we have your back so you can be competitive and successful.

Niche players will also start to gain greater traction in Asia, and while it’s unlikely they will expand as widely or offer as broad a portfolio as established companies, what they offer will attract customers who expect a digital experience. Furthermore, scale in a digital environment may not matter and may even be a limiting factor to business transformation.

While the approach and solution will vary from market to market, the business and customer needs are the same. Customers are digitally connected, they are shopping around, and they are aware of what new players are offering. Traditional insurers need to move to digital to stay relevant.