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Digital disruption has been with us now for years, and has turned many sectors upside down already. Following the banking sector, technological innovation is now forcing the insurance sector to face up to some new challenges. The main innovations are coming from insurtechs, innovative start-ups who have created a business model around either one strong idea or a well-defined insurance process. Total customer experience is the key word here. Insurers are feeling the pressure and understand that they need to accelerate.
But ageing legacy systems, with the inaccurate manual processes that have grown up around them, often put a spoke in their wheels and prevent them picking up any speed. It often appears simpler or cheaper to just leave everything as it is, but in reality nothing could be further from the truth. In order to survive, more and more organizations are taking a step towards digitization, a step that, if they leave it too late, will all too often become a synonym for restructuring or even failing. But is it all bad news, or can the new technologies also represent an opportunity for the insurance sector? We turned for enlightenment, to Martin Smit, Sales and CRM Partner Manager and a source of inspiration for unique customer experiences in the insurance business.
Thinking outside existing frameworks in order to accelerate towards insurer 2.0
Martin: “To sathaty insurance organizations are facing challenging times is an understatement. They are being bombarded on all fronts, but they appear, partly because of the legacy systems which they are still using, to have backed themselves into a dead end or a stalemate. In and of itself, it is not really surprising that insurers are reticent about replacing their legacy systems. These kind of systems are extremely robust, relatively stable and reliable, they paid a great deal of money for them, and they do what they need to do.
At least, they do what they were designed to do years ago, supporting and processing financial transactions. To oversimplify: money for premiums comes in, and money for claims goes out. In the meantime, the systems have outgrown their usefulness and they are instead a drag factor on digitization of the insurance industry, the more so because customer expectations are changing in the areas of services and communication."
According to Martin, insurance organizations are themselves well aware of this, and systems modernization is one of the items near the top of their agenda. "When I talk to insurers or organize workshops with them, it is very clear to me that they really want to move forwards and also want to get ahead of the fast-changing circumstances in which they find themselves. They just don't really know how to bridge the gap to where the insurance market is heading or what the most appropriate action is in order to get themselves out of the dead end. There are many different paths that can be taken in that respect, including technologically, but each situation is of course different."
For him, it comes down to learning how to think outside the existing frameworks and getting past certain conclusions. Yes, the fact is that legacy systems are a factor that is hampering digitization and modernization in a company, but how do you then move on from that conclusion? He sees that what insurers need above all in this respect is "guidance", a partner who does not think in terms of limitations or threats, but of opportunities so that they can again focus on their own core expertise of insurance, but in its 2.0 version, as an insurer for the future
Cauliflower as a strategy?
Of course, insurers have not been sitting idle. "Over the last few years, they got to work with what we sometimes refer to as the "cauliflower strategy" - or the ICT patchwork. Mini-solutions have been thought up or bought in, like an app or a portal, in order to satisfy a particular problem or expectation. And there is nothing wrong with this as such, except that there is no cohesion, no symbiosis. There are a lot of small, separate "cauliflower florets" growing off a chunky stem. Any one of these solutions may well be connected to one of the others, but there is no overall connection with the whole. For an insurer, this whole very quickly consists of a sizable network of systems", says Martin. "For the customer, it is now all about the total experience. So, doing one little bit well, but not looking at the overall picture is not really a solution, or at least not a durable one. Niche solutions, in other words, are no longer enough. You must therefore always ensure that you keep the bigger picture in mind and that the approach you select falls in line with the wider goals that you have as an organization."
The same applies to process optimization, he believes. "Insurers are rightly wondering how they can become more efficient as businesses. Digitizing paper, for example, is an excellent idea, but if the optimization remains locked in the back end and the customer still has to fill out a paper form, then that is a missed opportunity. The question then arises, whether you as a business have been focusing on your own organization or your customers. You need to open up as a business in order to change this "inside out" thinking and start optimizing the total customer experience from the "outside in". Insurers can play a role at numerous points in their customers' lives, and create added value. This is their strength and they must exploit it."
Because prevention is cheaper than cure, isn't it?
He also notes that the emphasis is shifting among insurers. New insurers are moving away from seeing insurance as a purely financial transaction. They are shifting toward the real core of insurance: from risk management to prevention, from paying out after the event, to advice up front. They realize that, in the end, prevention will cost less than the cure. "Think, for example, about an insurer who sends you a reminder to bring in the garden furniture when there is a storm on the way. Or warns you if you drive your car into a region with a high level of car break-ins, and suggests a route to a safe parking place. This creates as yet uncharted opportunities for both parties. In any case, there is a new generation coming along for whom insurance will have a different effect; one which will be living in a collaborative economy far more than in the past. This then requires a different mentality from the insurer."
Insurance policies will then become more and more integrated into the product or service that a customer buys. "Nobody actually wants to buy insurance. What we do want is to not have to worry, and that is exactly what embedded insurance delivers", explains Martin. "An obvious comparison is Uber, where the amount that you have to pay for a ride is known in advance, and the payment itself is so deeply embedded in the app, that you don't actually have the feeling you are paying for the service. An experience that you generally don't have if you take a regular taxi, and you spend the time with your eyes glued to the meter. With Uber, the customer experience is quite different."
"One of our customers in America, CoachNet, is actually finding good ways to benefit from the win-win situation of embedded insurance. They sell their insurance through the dealers for mobile homes, selling a "hassle-free journey" at the time of purchase, in a way that the client finds pleasant and is less confrontational for him – because who actually enjoys paying for an insurance policy? The dealers act as insurance brokers, and this enables them to offer a full mobility solution, while the insurer has now vastly expanded their sales network, while the policy and the claims processing still remain in their hands."
About ecosystems and partnerships
This kind of integration between companies is only possible if you have an open platform or ecosystem where communication and information exchange can take place really easily, Martin informs us: "Collaborations and partnerships are the way of the future, because it's becoming clear that you can no longer seek innovation just within the walls of your own company. By reviewing customer interests jointly with other organizations and technology partners, you can develop new initiatives and deliver modern services to end users. Always with a single goal in mind: the customer and their ultimate experience. You may even find ideas bubbling up that no-one has thought of yet."
"If we are talking about ecosystems, then I think Inguard is a very nice example", he continues. Inguard is originally an American insurtech that brings together insurance companies, technology businesses and startups in a single ecosystem. In this way, the company can offer unprecedented "out of the box" ideas, products and services to their partners and policyholders in the US and the rest of the world.
“Their value proposition really brings it all together, in my view,” he says enthusiastically. “‘The primary value that guides our company's ethos is that the needs of the community come first; it is our understanding that the community includes not only our clients, but also our employees, society as a whole, and the natural environment.’ In other words, they are not just focusing on their customers, but also on the whole community, which includes employees. And rightly so. Because those insurers who are either choosing or having to work today with ageing legacy systems will sooner or later run into problems in their "war for talent". New modern platforms will ensure that IT and other specialists with updated skills - such as digital experience expertise, for example - and tools will be able to use them, which will not only increase their commitment, but also their retention in the end. All the more reason to be open to change, I would say."
Pain or gain – choose carefully
"When you are talking about change, there are two very simple basic motivations: pain or gain", he says. "People either change to avoid pain or to achieve something that gives them a lot of pleasure. The same principles apply in my view to companies. What we really don't want is for insurers to be stuck in the status quo, and only accept the need for change once things go wrong and they find themselves in the pain zone, because at its most extreme, this can mean the end of the organization. What we want to do is to show them the other end of the spectrum, that change can be very positive and bring "gain". We want to show which doors can open up a new horizon to them, and which new opportunities may be available there. You need to stop thinking about shortcomings or handicaps, as is so often the case when discussing legacy systems, for example, and instead talk about opportunities. I am convinced that if you want your company and your people to change, you need to help them see the benefits that a new approach can offer."
If the need to change has finally been accepted, the question still remains: now what? Big bang or a phased approach? In-house development or purchase packaged software? Maybe a combination? Because more than one way leads to Rome. Martin: "There are specific routes that insurers can take, and they really are not up at a holistic level that is unachievable. Each business needs to select its own way forward, depending on its own situation and timescale. I really must emphasize and confirm that companies who started working in the past on digital transformation are more successful today than the companies that did not do so."
IT must of course be reliable, and the systems have to perform well, he adds. But in addition, the IT strategy must aim at becoming sufficiently agile to allow systems to evolve easily, driven by the needs of the financial markets. Agility, the ability to react very rapidly to change, has become one of the most important skills, although it was less important in the past.
"The digitization of the insurance sector is in fact already well underway, but there is more work to be done", he concludes. "Insurance companies know this themselves only too well. Therefore they not only need to get to work, but need to start talking with their partners. Companies that can do this and can extend their control of it, can look forward to a sunny future. I want to join them in facing this challenge. New challenges, new ideas; that is what we are all about here. We are also about AND-AND thinking, about linking together various solutions and technologies into a single connected vision, attuned to both today and tomorrow.”