De-risking the risk business
How technology is reshaping the insurance experience
UK insurers face seismic shifts
Unprecedented change, from regulation to modern lifestyles, is challenging UK insurers, distorting and disrupting every aspect of their operations.
Traditional insurance is a mature business in an industry that has suffered from lack of customer engagement. Business models based on centuries of historical data no longer reflect today’s lifestyles, businesses, or digital native consumers. Firms with a “manufacturer” mindset meet very few opportunities to differentiate from competitors and are subject to industry-wide margin pressures.
Add to this increasingly complex regulation and the potential for stricter solvency requirements, the impact of the COVID-19 pandemic, and continued UK/EU political and economic uncertainty, it’s easy to see how traditional UK insurers have been hit hard. In 2020, many reported shrinking revenue,1 unprecedented pay-outs,2 and plummeting profits.3 Combined operating ratios (where costs are higher than premiums) came in well over 100%.4
Insurance is behind the digital investment curve
According to McKinsey,5 insurance companies’ investments have lagged behind other ‘trust-based’ industries such as banking.
Insurance leaders are aware of the change that is underway; the majority now have a dedicated in-house team for digital innovation, and 40% expect to increase their investment in direct online sales.6 However, the pace of digital transformation is still too slow and reactive.
Technology is already reshaping the insurance industry
- Insurance buying behavior has permanently changed
The Covid-19 crisis has clearly rewritten the rules for customer engagement and the benchmark for what is considered ‘good’ keeps rising. Policyholders now have plenty of choices from whom they can buy their insurance, and loyalty is no longer a given.
These buyers expect a digital self-service experience that is in real-time and in context, like online shopping or banking. In an increasingly commoditized insurance market, there is a danger of a race to the bottom on price. Value needs to be delivered in new ways with improved customer engagement, personalized products and services offered at the moment they are most relevant. This enables insurance firms to differentiate, attract or retain customers, and generate new sources of revenue.
- Agility is vital in a world of continuous change
Insurers have always had to deal with change, but the speed of that change is now turbocharged. Covid-19 has shown just how fast unforeseen events can overtake industries, leaving insurers’ models (and profits) in tatters. When the pandemic hit, insurers relied on automated services, digital infrastructure and cloud-based operations to keep their businesses running and policyholders supported. But, according to Deloitte,8 48% of insurance executives agreed that the pandemic “showed how unprepared our business was to weather this economic storm.”
- The insurance landscape is undergoing its most fundamental transformation in decades
Industry lines are blurring. Just like other industries, digital connectedness is providing new opportunities for insurers, such as white-label provisioning through Open Insurance and Insurance-as-a-Service platforms. The challenge with these opportunities is that the insurer becomes disintermediated from the end client. If you are the low-cost provider in the market—and can capture market share to scale your operational efficiencies into an annuity—then that’s a solid way forward. However, if your strategic approach is to continue to ‘own’ your customer relationships, you must rethink your role and the value you deliver within an expanding insurance ecosystem, including your relationships with insurtechs and big techs, like Amazon and Google.
- The pain of decades of underinvestment in technology is acute
Is your insurance company struggling with internal system incompatibility and data silos? If so, you are not alone. Almost half of insurers (47%) identify lack of systems integration and poor IT collaboration as obstacles to achieving desired results from technology investment. More than a third (37%) are finding it hard to deal with changing compliance and almost one third (30%) face regular disruption during IT updates6. There is obviously much work to be done. They are being held back by data that is in inaccessible legacy systems, hindered by API bottlenecks, poor visibility, duplication, rising maintenance costs, and integration complexity—both internally and within ever-expanding service ecosystems.
Urgent need to commit to digital transformation
UK insurers that fail to accelerate their digitalization from the app to the back office, and to deliver new value by collaborating within the new insurance ecosystem, may find themselves marginalized and unintentionally disintermediated from their client base. The time to transform is now.
Improve Customer Experience
Actuaries are arguably the first data scientists. Data is paramount in controlling risk and delivering value. This same principle is true for your insurance enterprise. Imagine if your insurance company was able to access and share the right data at the right time, both internally and externally—in a controlled fashion. You could:
- Enhance analytical capabilities and move from traditional business intelligence (BI) toward a fast consumable data layer for real-time customer data access with predictive modeling capabilities.
- Aggregate current metadata structures and remove data inconsistencies to achieve a better and unified Customer 360.
- Structure existing data and combine the data with additional (external) data sources, both structured and unstructured (like social media), to better assess customer needs.
- Develop an open plug and play API strategy to ease the onboarding and offboarding of new partners and channels, and integration with them.
- Prepare for the IoT, and partner with IoT companies to get additional insights into customer habits.
The value of becoming a truly connected insurance company would be realized across your enterprise.
Reduce IT complexity and control costs
To achieve those benefits from a strategic integration program, you need to reduce transformational risks by understanding when, where, how and why to make changes in the IT portfolio. However, your IT landscape might have become unmanageable due to its increasing size and complexity. It is challenging to see the linkages between the independent perspectives of IT, business, finance and risk that could otherwise provide a ‘whole view’ analysis of business-IT change.
The complexity makes it impossible for insurance companies to optimize individual portfolios—claims and underwriting applications, technologies, projects, services, APIs, digital products—and to plan and orchestrate strategic business and IT transformation with an understanding of the impact of change. It’s hard to know where to start. Using spreadsheets and modeling solutions to manage the IT portfolio cannot not show the whole picture. The challenge can seem insurmountable, so often nothing happens.
With CIOs admitting that they spend up to 81% of their IT budget on maintenance and incremental change9, the opportunity to focus resources on innovation is constrained. What if you had the ability to put a pane of glass over your enterprise architecture? What if you could achieve overall organizational alignment between strategic goals, tactical actions and IT support? You would need to:
- Streamline IT portfolios
- Increase agility in developing and implementing more initiatives faster
- Create a data-rich repository of interdependencies and redundancies of applications and data
The value of this investment would be profound: This transparency would ensure well-directed IT spend, faster decisions on IT change and resource usage, and the ability to realize digital transformation in a scalable, cost-minimized manner. You would be able to minimize the risk of project delays, cost overruns, and impact from major business disruptions. You could rationalize your existing IT portfolio and move IT budget from maintenance to investment.
Ensure business process excellence and compliance
Over the next 12 months, insurers can expect higher levels of accountability and enforcement—especially from the Financial Conduct Authority (FCA) over policy and claims management from during the Covid-19 pandemic.10 Privacy laws (DPA in the UK and GDPR in EU) already require insurers to protect customer data, and the FCA and The Prudential Regulation Authority (PRA) have gone one step further by asking insurers to prove operational resilience add to the actions necessitated.
Although there will be a three-year transition period, this is a very short timeframe and as many insurers will know from implementing Solvency II and IFRS regulations; this is not a tick-box exercise. Insurers should start considering how the likely regulatory requirements will apply to themselves and outsourced partners, with a focus on what are their important business services and maximum tolerable levels of disruption.
Key Initiatives in the Regulatory Landscape
Regulatory Initiatives Grid, FCA, 2021
Insurers will require an operational resilience framework that allows them to make fast and accurate decisions and give clarity to regulators and internal stakeholders. Having the ability to understand customer experience will reduce the risk of penalties from the regulators, reduce costs and give the board confidence to sign off the assessments. The value to you extends beyond achieving regulatory compliance.
Research reveals that investing in automation and digitalized processes can result in savings of up to 80% for individual processes, and many can be fully automated or phased out completely.7 With the right tools and processes, insurers can accelerate digital transformation and eliminate unnecessary manual processes, allowing modern and legacy platforms to work together—seamlessly—and de-risk the UK risk business. Insurers will require an operational resilience framework that allows them to make fast and accurate decisions and give clarity to regulators and internal stakeholders. Having the ability to understand customer experience will reduce the risk of penalties from the regulators, reduce costs and give the board confidence to sign off the assessments. The value to you extends beyond achieving regulatory compliance.
Incoherent processes and lack of insight in data and task management makes it difficult to provide a seamless experience across channels. Wherever, whenever, and however the customer engages, the customer journey should be determined and guided automatically to improve the efficiency of their journey and the quality of the experience.
Innovation is transforming insurance inside and out. The greatest threat to insurers is doing nothing.
Stopping digitalization to save money is as effective as stopping a watch to save time.
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