Digital insurance

Charting course to best-in-class capabilities

Digitization, marked in particular by the exploding popularity and reach of mobile devices and social media is transforming the business landscape rapidly and fundamentally. Succeeding in this environment will place significant demands on insurance companies. Insurers will need to develop individualized approaches to the digital terrain based on their particular objectives. They must be prepared and able to make changes throughout the organization in order to achieve the necessary degree of “digital fitness.” And they must be prepared to act boldly and to start today.

Opportunities & threats for Insurers

The opportunities that this landscape offers insurers are vast. Social networks and communities afford them a means of communicating directly and more effectively with customers, aiding in branding efforts and customer acquisition and retention. Web mining will deliver more and more accurate data on customers. Together with in-memory computing solutions this will support real-time analytics and much better customer segmentation, individualized products, adapted pricing and more-selective underwriting decisions. New digitization-based technologies and tools, such as tablet PCs and in-memory computing solutions, will help insurers improve process efficiency and quality and open up many new opportunities for cost reduction. New digital technologies will also allow insurers to pursue new partnerships and business opportunities with companies from other industries in areas such as offering intelligent energy management and integrated home automation.

Thus said, it should be noted that the new digitized terrain will also present challenges for many insurers. Greater use of portals and aggregators by customers, for instance, will increase product transparency and reduce the cost of switching insurers. The necessary investments in information retrieval, analytics and new-product design may be significant. Increased IT and system complexity could lead to materially higher project and operational risks. Poor customer reviews on social-networking sites could do significant damage to an insurer’s brand. And leveraging and responding to the new digital realities will place demands on the entire company, not just the functional hot spots of IT and marketing.

A number of insurers are already pushing the envelope and gaining immediate commercial benefits and potentially a longer-term competitive edge. Several insurers are actively leveraging social media, for example, to strengthen or forge ties with clients, agents, and prospects. Farmers Insurance’s “Win a Ride on the Farmer’s Airship” promotion was a major hit on FarmVille (a popular Facebook game), exposing millions of players to the company’s brand. Similarly, in the United Kingdom, Direct Line launched an ideas lab that invites customers to help design the company’s next mobile apps.

Other insurers have developed entire ecosystems that leverage digital capabilities. A major European insurer, working in partnership with two external partners, has developed a cargo-transportation insurance product that significantly reduces the risk of loss, damage and delay, which affect roughly a third of worldwide cargo shipments. The product helps the shipper and the transportation company identify risks in advance and define optimal preventive solutions. Once a shipment is on its way, telematics devices allow the transportation company to monitor the cargo throughout its entire journey and troubleshoot if a problem such as detecting above optimal temperatures in the within a cargo system. In that sense, it comes up as a collective gain for all parties to the freight.

Need for individualized strategy

Insurers need a wide range of capabilities in order to take full advantage of the opportunities provided by the digital economy and achieve a critical overarching objective: true customer-centricity. Typically, discerning customers expect their service providers to offer around the clock superior customer services, intuitive navigation and crucially the chance to offer feedback on service quality.

It is imperative for insurance companies to brace up in rising to the challenge of meeting customers, as it were, at the point of their needs.

This translates into the need for more individualized offerings, fully integrated sales and service channels, a means of monitoring social media for customer insights and strong data-mining capabilities.

When it comes to the question of operations, it is imperative to address such things as the provision of mobile access to customers, simplified and industrialized processes and potential partnerships with third parties to create new capabilities or offerings. Similarly, in IT the provision of agile and innovative delivery mechanisms, judicious use of new technologies including virtualization and open source to minimize infrastructure costs, and optimized sourcing relationships with providers is absolutely essential.

For many players, regardless of their overarching strategy gaining thorough knowledge of the customer will be a top priority. Accordingly, one of the first initiatives many insurers will need to pursue is ensuring that their store of customer information is complete and up to date. In particular, many insurers are missing key data relevant for segmentation such as household income, assets and socio-demographic profiles. In many cases closing these gaps will demand procurement and integration of outside data. It should be emphasized, though, that the relative importance of individual digital capabilities and the development path toward achieving them will depend on the insurer’s specific strategy and target market positioning.

Once an insurer has identified and addressed its top priority or priorities, it can pursue other initiatives based on its particular objectives. Such initiatives might include the following:

 Defining ground rules guiding the use of social media for the company and its sales partners

 Improving online experience for customers through steps like expanding the website’s self-service functionality, simplifying online navigation, making the log-in process easier and quicker and increasing the site’s availability

 Identifying already existing or emerging digital ecosystems that offer promising opportunities for partnering and positioning such as those utilizing telematics, eCall, and/or remote surveillance and security

For some of these initiatives, insurers will be able to develop concrete business cases. Other initiatives will have to be viewed as experiments and gauged on the basis of knowledge gained as much as cash flow.

Achieving digital fitness

Companies will have to align their digital strategies in synergy with their core business objectives by critically evaluating how customers are leveraging technology so as to inform their choice of the right platforms for their brands. They will need to build the required internal capabilities through adequate capacity building to reflect business objectives.

Such a process will basically tailor this effort to the existing organization in terms of roles and responsibilities, speed of rollout and positioning of key personnel throughout the company. It is imperative to back such a move with nurturing a culture that is supportive of the process even at its budding stage. particularly in its tolerance for experimentation. In short, an insurer’s move toward a digitized business model will engage the entire organization from top to bottom on multiple fronts. (See Exhibit 3.)

A leading U.S. life insurer’s attempts to standardize its agents’ use of social media illustrate the breadth of effort necessary to make a digitized model work. Historically, the company’s agents had engaged with sites such as Facebook, LinkedIn and Twitter largely as they saw fit with little guidance from the company. The company believed, though, that the growing reach and influence of these platforms demanded consistent positioning and a consistent voice in order to strengthen its brand through increased customer attraction. Accordingly, it launched a comprehensive initiative that included the following:

Instituting a battery of regulations regarding agents’ communications on social-media platforms, which requires agents to archive all their communications with customers

 Systematic analysis of these communications with regard to topics, feedback, and information about competitors

 Launching a platform that monitors and archives agents’ interactions on social-networking sites

 Designing and staging training programs for agents on compliance and best practices in the effective use of social media

 Linking agents’ profiles to the company’s website and sales campaign with the aim of ensuring a standard presence for the company across these platforms

 Designing a program to leverage social media creatively in a manner not directly related to life insurance for example, by encouraging Twitter chats on Halloween safety for children

The strategy was originally launched as a pilot project, then motivated by the initial gains the entire company was eventually roped into the strategy.

Our contemporary business environment is changing at a breadth taking speed, which makes it incumbent on insurers keen on thriving in to brace up for success. An important fact is that the current business environment requires a proactive disposition as a prerequisite to success.

We have seen that the more forward-thinking organizations are already plowing ahead by designing comprehensive digital strategies and building the required capabilities required to take advantage of the opportunities that on offer. They are taking new approaches, the ones that are fast, agile and don’t just build on legacy assets and thinking. These insurers are testing and learning through pilot projects across the value chain that leverage mobile, analytics and social media. And they are upgrading their skills and capabilities especially in the areas of service monitoring and delivery and security and architecture through a combination of external recruitment and internal development.

This article was contributed by Boston Consulting Group.