Insurance for a Digital Age
Insurance for a Digital Age by Edward Hadley
This is the fifth in a five-part series that looks at how some specific industries are tackling Digital Mastery. In this post, we explore the insurance industry.
Like many of the industries we have studied as part of this blog, insurance is facing an interesting quandary—although digital is transforming consumer expectations for how businesses operate and engage with them across all industries, insurance companies have been slow to respond. Despite some providers creating new and interesting digital experiences that bring them closer to customers, true digital transformation has largely been a dream rather than a reality.
At the root of the failure to transform, though, isn’t a lack of technology. Insurance companies have a bevy of options at their fingertips for not only digitizing their business operations but even reinventing their business model. George Westerman, in his book Leading Digital, captures it succinctly:
Digital Masters spend time understanding customer behavior and designing the customer experience from the outside in. A Digital Master figures out what customers do and why, where, and how they do it. The company then works out where and how the experience can be digitally enhanced across channels.
As Westerman masterfully identifies, the transformative process isn’t about imagining what an insurance company of the future might look like; it’s analyzing how customers are changing, building an experience to suit them, and then evolving the way the business operates (even the business model itself) to support that new experience. Doing so requires a culture that puts the customer at the heart of the business and embraces fail small and learn fast approaches. And for most insurance providers, that is far from the case.
Is It All Just a Question of Culture?
In 2013, Ernst and Young published a ground-breaking study of the insurance industry’s “digital maturity.” Surveying 100 key industry players, the study revealed a startling finding—the insurance industry is ill-equipped to deal with the changing consumer expectations resulting from digital technologies:
Insurers acknowledge their current low levels of digital maturity and the need to take action. Insurers trail the entire digital spectrum: customer engagement, use of analytics and adoption of mobile and social media. Almost 80% of respondents do not see themselves as digital leaders, believing instead they “only play the digital game” or are “still learning to use digital capabilities for a competitive advantage.”
But that’s not to say that the insurers don’t want to transform digitally. In fact, some are already evolving on one of the major axes of Digital Mastery—the customer experience. These insurers, like Esurance and State Farm, have implemented Web and mobile applications to make it easier for customers to not only purchase services but make claims as well. Yet, on Westerman’s other two axes—internal processes and business model—these same insurers are sorely lacking. As Ernst and Young discovered,
By their own admission, more than two-thirds feel they have delivered some easy quick wins, but they have not made transformational progress to realize their ambitious digital objectives.
That new, shiny, fancy web and mobile software is just that—a quick win. What remains largely untouched under the veneer of an easier customer experience is the organization itself. The question, of course, is “what’s holding insurance companies back?”
Past Mistakes Are Haunting the Future
Building off Ernst and Young’s work, KPMG published a study in 2014 that found a remarkably similar situation a year later:
What we found was not surprising: an industry struggling to resolve decades-old infrastructure choices and make meaning of potentially game-changing and disruptive technologies. Many players face complex technology crossroads, without confidence that their decision will reap the desired benefits.
Even in 2014, many insurance companies were still struggling with how to evolve, with how to transform the very nature of their business to take advantage of disruptive digital technologies—they still don’t understand the relationship between the changing customer experience and their core business. It would seem that the heart of the insurance industry’s quandary isn’t a lack of technology. It’s a cultural problem. Insurance providers need to embrace a culture of “customer first” and use that to drive change throughout the organization. Only then will they be able to “reap the desired benefits” of digital transformation.
Insurance for a Digital World?
Perhaps the question to ask isn’t what’s holding them back, but, “what does a digital insurance company look like?” Without a clear picture of how an insurance organization should look in a customer-centric world, it’s very difficult to enact any meaningful change beyond the surface veneer of web and mobile apps that many providers have launched to date. Insurance companies need to dig into their operations and business models and reimagine themselves as digital companies. Below are a few ideas of how the insurance industry might benefit from digital transformation:
- Personalization—right now, consumers are aligned to insurance products based on a number of different variables. The insurance product is cookie cutter, modifying rates and premiums based on those variables. But just as digital is changing the automotive industry, so too will it reshape insurance. For example, in-car technology (telematics, location awareness, etc.) will make it possible to offer one-on-one personalized car insuranceinstead of premiums based on industry wide statistics.
- The sharing economy—social networking and other peer-focused business models have radically altered the landscape of a number of different industries. Insurance is no different. Friendsurance and Guevara are two examples of social insurance services where friends can pool their premiums so that any unused cash at the end of the year goes towards lowering renewals the following year.
- Usage-based insurance—right now, insurance is offered on an annual basis. But what if a consumer only needs insurance for a few hours, say for an expensive rental car or boat? Insurers operating within a truly digital framework would be able to easily offer services according to time (or other usage factors) rather than the model employed today.
Vision: The Key to Transforming Culture
It’s clear that insurance companies need to change and they recognize how digital technologies are disrupting their business. But being able to transform digitally along those three axes—customer experience, business operations, and business model—starts first with an achievable vision. Insurance providers must be able to see how their company will operate digitally if they ever expect to transform it to operate as such.
 Ernst and Young. Insurance in a Digital World: The Time is Now. 2013.
 As identified by George Westerman in his book Leading Digital.
 KPMG. Transforming Insurance: Securing Competitive Advantage. 2014.