Digital transformation is a challenge in the insurance industry, where change and product innovation must happen without interrupting the flow of daily business. Agility is not a new concept in the industry, and insurers understand that their companies need to go digital in order to stay relevant in a world where 49 percent of P&C consumers are purchasing policies online and 41 percent of consumers use mobile devices to make their purchases.
But knowing you need to go digital is only half the battle, especially in an industry bogged down by legacy systems, process limitations, security challenges, cultural barriers and resource limitations. These are in fact the top inhibitors to insurance product innovation delivery and here’s why:
1. Legacy systems
Insurers are more steeped in legacy technology than any other industry. Insurance companies want to develop new solutions that integrate with core and legacy systems easily, but renovating their core has been an area of challenge for many insurance companies and is a long and time-consuming process. Organizations can’t put a halt on innovation and product development until they are ready to renovate the core. Instead, in order to begin the process of innovation and to test out ideas, quick fixes for integration can be the best option with the intention of proving out success and then bringing those successful products into the core systems.
2. Security & Cloud Strategy
The digital world brings the challenge of security to the insurance industry. Many insurance companies are unsure and uncomfortable with using cloud deployment, which leads them to use up time, resources and money for on premises deployment. On average, it costs $50K per environment per year to run an application on premises. One insurance company had to invest $250K for on premises infrastructure and wait three months just to provision the environment. If you have to pay that much and wait that long just to test an idea, you will kill innovation. In fact, SMA’s latest research reveals that 58% of insurers made the critical decision not to deploy new core systems on premises this year, and 36% of all core systems purchased in 2015 were deployed in the cloud.
If you’re organization is reluctant to go all-in on cloud, start with getting clearance from your security officer to do development and testing in public cloud. You will minimize time to market and the cost of failure. Another approach is the CIA (Confidentiality, Integrity and Availability) model for determining cloud usage based on the data within a specific application. For instance, at one financial services organization, if the app scores high in one of the three areas, it’s deployed on premises; otherwise it’s deployed in the cloud.
Lack of resources, a shortage of appropriate resources, or an implicit inability or unwillingness to reallocate resources is one of the biggest challenges when it comes to insurance product delivery. As mentioned before, insurers are often investing in a large-scale technology refresh to core systems. This means getting time on the agenda of the IT department is difficult, if not impossible due to competing priorities.
In order to keep the core systems operating while also delivering new and innovative products, it is important to allocate resources to both initiatives. Allocate a specific, cross-functional team dedicated to product creation and innovation.
4. Cultural Barriers
An organizations culture is made up of its values, beliefs and norms. Culture is one of the key areas limiting insurers from innovative product delivery because innovation often means embracing areas that are uncertain, with unknown outcomes, which is hard for the conventional insurance organization to accept. In order to overcome the cultural barrier, your organization needs to have the right teams, structure, people and a willingness to change the overarching governance model to alleviate bottlenecks. The role of change agents is very important in order to create a cultural shift, including investment from the C-level suite, involvement from IT leaders to implement a new style of IT, and product owners from the business who are empowered to make decisions.
5. Risk Aversion
Part of the challenge of insurance product innovation is the mindset it requires. One of the biggest barriers to making greater use of digital is the business attitude toward risk, which requires a deep overhaul. For the organization to become a digital insurer, it will mean creating entirely new services and business models. Because these ideas represent new and uncharted territory, turning them into value-driving products requires frequent iteration and close collaboration between developers and the business.
In order to adopt a process of development that allows for this rapid, low-cost experimentation, companies need to approach these projects with a willingness to fail often in order to figure out how to succeed sooner. In order to foster an environment for rapid experimentation, insurers need to use visual, model-driven development to create a common language between business and IT, and to be able to experiment rapidly at low cost.
In order to overcome these five challenges and begin delivering new and innovative insurance products, it is helpful for your organization to have a person who takes on the role of making the digital innovation initiative a reality. This role has taken many titles including Chief Digital Officer or VP of Innovation. But whatever the title, this person has the mindset to overcome these challenges, is responsible for driving revenue with new and innovative initiatives, and for creating a scalable way to get these new initiatives to market quickly.