Digital transformation is affecting most industries today, but in a highly regulated environment, how do executives keep delivering and exploring how to change the business at the same time? Recent research by McKinsey explored this question for the insurance industry and explained the key strategies that executives can use to change for the future without discarding the past.
This is important because the core business of insurance has proved to be resilient for hundreds of years. People want to buy insurance against risk, but customer expectations are becoming more closely aligned with the digital communication tools they now take for granted. How can insurance companies embrace the digital opportunities, but maintain the customer trust they have established over many decades, or even longer?
The first question to explore is: which area of your business is changing? Insurance companies need to be on top of various aspects of their business, and digital transformation may be moving at different speeds in different parts of the business. In any case, there is consumer-led transformation where the customer is demanding change and transformation led by the company, where the brand wants to change how the service is delivered to encourage new business, loyalty from existing customers, or just to reduce churn at renewal time. Aspects worth considering are:
- Product: what new types of insurance business are being created or should be explored? Examples include autonomous vehicles and drones. How will all these new types of transportation be insured?
- Marketing: brands are relying less on traditional TV advertising today and much more on personal responses to search engines and social networks.
- Pricing: quotes can be far more accurate today with modern telematics and detailed customer information providing a much easier way to price risk.
- Distribution: start-up players (such as Lemonade) have made a big impact in property insurance in the US, yet they only exist as an app. Can you find entirely new ways to reach your customer?
- Service: you should no longer compare your customer service function to other insurers; you need to compare your service to Amazon because that’s what your customer is doing. Any less and you are letting them down.
- Claims: automation, data analytics, and knowledge of the customer should all be helping you to process claims inside seconds, not days.
This is a major challenge for the industry. Your products are evolving. Your customer service team needs to be operating 24/7 across all channels and your distribution channels may have entirely changed. In this environment, your competition may come from anywhere and you can’t stay confidently ahead of the market just by being better than other insurance companies.
Forbes magazine recently claimed that some insurers have reduced their cost of operation by as much as 65% just by automating parts of the claims process. That’s an astonishing claim. Even if you can achieve half the suggested savings then you are looking at a digital transformation that will slash your cost of doing business.
The Forbes feature suggests that no insurance company can avoid this march towards a digital future. There are too many industry trends that are all driving companies towards transformation:
- Self-service dashboards to manage policies
- Claims immediately processed from apps
- Price comparison and easy online purchasing
- Seamless customer handling across all channels
- Insurance as a service, buying insurance that only applies when an item is used
The big picture is that these trends are transforming the insurance industry and meeting these customer expectations for both product and service levels requires a dramatic change when compared to the traditional way of delivering policies. Insurance is changing fast and customers expect more. When they see digital start-ups paying claims in seconds and handling customer questions direct from apps it is difficult for the traditional brands to avoid change, they need to compete and competing today requires digital transformation.
Let me know what you think about the digital transformation that is taking place in the insurance industry today by leaving a comment here or get in touch via my LinkedIn.