Growth & Operational Efficiency in the Digital Age

A 2016 survey of insurers by Celent cites that growth and retention of insureds and distribution channels is the number one priority. Operational efficiency is a close second. While the survey results are unsurprising, the drivers for these priorities can be attributed to big tectonic shifts occurring in the P/C insurance industry.

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Distribution channels are changing with innovative business models emerging – with large swaths of funding from not only traditional venture capitalists, but also by the venture arms of large global insurance carriers. Digital agencies such as The Zebra, EverQuote, Coverhound, Embroker, Insureon amonst a host of others are emerging on the scene. Technology is also paving the way for new business models.

The Internet of Things (IoT), Peer-to-peer insurance, On-demand insurance are fueling new business models with new Insuretech companies emerging on the scene such as Metromile, Bunker, Slice Labs, Lemonade, Notion, amongst others. While not all of these are assured of success, massive funding in this space is driven by two factors – there’s inefficiencies to be eliminated in the distribution process and there’s new markets to win. And all of these are adopting a “digital first” approach.

The impact of digital is getting bigger and consequently, there are major shifts underway that make it necessary for insurers to adapt. Failing to embrace the opportunities presented by digital and not moving fast enough, is a risky proposition. Take for example, Blockbuster Video – which failed to heed the challenge from Netflix with streaming video – and filed for bankruptcy. There are other cautionary tales such as Blockbuster, who became irrelevant even though they commanded dominating positions in the marketplace.

So how are MGAs, coverholders and program administrators positioned to respond to these business drivers, and not only survive, but thrive? The first step is to understand what digital truly means. According to McKinsey, for some, it’s about technology. For others, digital is a new way of engaging with customers. And for others still, it represents an entirely new way of doing business. McKinsey helps define digital as encompassing three attributes: creating value at the new frontiers of the business world, creating value in the processes that execute a vision of customer experiences, and building foundational capabilities that support the entire structure. Let’s take a look at each.


Creating value at the new frontiers of business

Consumers are making digital part of their daily lives and their daily experiences – accessing almost infinite information in their palms via mobile phones or in their cars, homes and places of work. Smart devices or apps on your phone help individuals and businesses monitor their assets – for example the NEST device which can control your home temperature remotely and also alert you in case of hazards like fires.

Insurers can help their end customers benefit from preventive maintenance – for example smart buildings are expected to bring down risk of loss. Sensors in jet engines are jumping from 250 to 5000 resulting in the ability to benefit from predictive maintenance. Similarly, monitoring weather, animal health, changes in soil, can help in taking timely action and reducing losses. These examples suggest that insurers can embrace digital to provide higher value to their customers. MGAs, coverholders and program administrators are uniquely positioned to do this since they already specialize in niche segments and can deliver such value at scale.


Creating value in core businesses

According to McKinsey, embracing digital also involves rethinking how to use new capabilities to improve how customers are served. This is grounded in an obsession with understanding each step of a customer’s purchasing journey—regardless of channel—and thinking about how digital capabilities can design and deliver the best possible experience, across all parts of the business. Let’s juxtapose this to the desire to attract and retain not just top producers, but also the new generation of producers.

These constituents simply won’t stand for the challenges presented by manual processes. They are accustomed to, in their daily lives, getting instant gratification throughout their journeys and demand the same from the insurers they partner with. No longer is it sufficient to provide prompt quotes during business hours. The agents today, are always connected and may research where to place their business at anytime from any device. And they want to be guided on the products you offer, not be knowledgeable on these products by reading your marketing literature in a static website! They expect you to support the process for winning new business and servicing existing business in the most efficient way, without having to spend their time keying in data in multiple systems. And this applies to the end insureds as well as insurers’ own employees!


Building foundational digital capabilities

According to McKinsey, the final attribute of digital involves the technological and organizational processes that allow you to be agile and fast. Such a foundation, according to McKinsey, involves two elements - mindsets and systems architecture. McKinsey advises that digital is all about making better and faster decisions, and developing iterative and rapid ways of doing things. For instance, insurers may minimize manual processes by enabling agents and/or customers to engage throughout their buying and servicing journey through an agent portal or customer portal that enable them to fulfill their work in as few keystrokes as possible by pre-filling data from third party providers, while guiding them every step of the way. In another iteration, insurers may roll out capabilities that help their end customers manage their risks and assets through new data capabilities.

Establishing foundational capabilities also involves putting in place a systems and data architecture. Such an architecture, involves creating a two-part environment that decouples systems which support critical functions and run at a slower pace, from those that support fast-moving, often customer-facing interactions. Agent portals, customer portals and related apps that engage customers, agents and other stakeholders accomplish the fast-moving customer facing interactions, while administration systems – or systems of record, address the more critical functions that require rigor in evolving them.

According to a Celent report, digital engagement facilitated by agent portals and/or customer portals are a top priority for insurers in their quest for growth and operational efficiency. Although portals are not a new concept, the requirements have changed. Here are some of the reasons:

  • Attract and retain top producers and a new generation of producers who will not stand for legacy operational inefficiencies
  • Have a slick user interface that is intuitive, easy to use and requires little or no training
  • Have self service capabilities for agents and insureds for policy life cycle transactions
  • Integrates easily to multiple back-end systems
  • Connects real time between agents and insurers
  • Provides an omni-channel experience
  • Creates value that is compelling such that the insurer becomes a market of choice by providing significantly higher value

In summary, to achieve growth and operational efficiencies, MGAs, coverholders and program administrators must acknowledge the shifting landscape fueled by digital. Responding to this changing landscape requires thinking about adding value in the frontiers of your business, in designing your systems and processes to deliver delightful agent and customer experiences and instituting foundational capabilities.

There are many choices available for the latter – ranging from vended solutions to do-it-yourself approaches. Time is of essence, though as the pace of change is rapid and presents both – tremendous opportunities and also significant risk to becoming obsolete!

Originally published in the CHART Exchange digital magazine, August, 2017

 Click below to download the white paper Digital Transformation in Insurance: The Industry Gains Momentum, based on SMA research and insights from insurer engagements, to learn about the scope of digital initiatives and transformation at insurance companies, state of digital maturity of insurance companies, challenges and lessons learned through digital transformation journeys, and opportunities of differentiation for insurers and solution providers.

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