The insurance sector is undergoing radical changes, and insurance companies are struggling to cope with an increase in competition and a decrease in profit margins. To add to their woes, insurers are experiencing high customer abandonment rates as customers are constantly on a lookout for competitive pricing and attractive policy plans. More customers are relying on social media and other digital channels to make an informed buying decision than ever before.
The present-day customers are more empowered than ever, and they are demanding companies to be more responsive. Insurers have begun to undergo a digital transformation with a view to gain a definite advantage over competitors. However, many insurance companies have not been able to embrace the digital future completely due to a number of challenges; the main challenge being the inability of the company to align its digital strategy with values that are preferred by the customers.
Lack of strategic alignment: The key problem
The insurance sector has always been a laggard as far as technological adoption is concerned. In contrast, other service sectors like retail, banking, hospitality and health have been quick to adopt strategies for undergoing a digital transformation.
One of the main reasons that have prevented insurance companies from undergoing rapid digital transformation is their age-old perception that technology is mainly deployed for lowering costs and improving productivity. Moreover, the slow legacy systems, resistant culture and inflexible workflows have always prohibited the insurance companies from taking drastic steps for driving the desired change. Additionally, many insurance companies find it difficult to be innovative while complying with the regulatory stipulations at the same time.
According to McKinsey, insurance companies have never been data-driven. Most of the insurers have believed that they have enough data about their customers and hence they never felt the need to have a customer-centered digital strategy. These organizations never realized the importance of investing additional time and resources that will help to generate customer value.
The existing workforce culture within the insurance companies is quite rigid, and the insurers still depend on the legions of agents to drive their business. These companies have failed to leverage on their IT landscape as the legacy systems were never designed to integrate the data that is stored in the different silos of the organization.
Need for a paradigm shift
It is clear that the digital strategy of many insurance companies is not aligned with the business strategy as the IT landscape has been developed around its workforce rather customers. Insurance companies need to undergo drastic paradigm shift if they want to survive by achieving sustainable growth.
McKinsey reports that only those insurance companies will survive whose digital transformation initiatives focus on generating customer value. Realizing that only the fit will survive, insurance company’s need to make efforts to harness the value of digital data by accurately understanding the lifestyles, preferences, behaviors and psychographics of various customers.
CIOs will need to formulate customer-centric digital frameworks that will help to define the scope of the transformation exercise. The organization must also take into consideration the skills and strengths of its workforce and other stakeholders while formulating the strategy. The strategy must be implemented in slow and incremental steps to achieve success and to build confidence amongst various stakeholders.
Evolving Trends
McKinsey suggests that insurance companies need to focus on the following 5 key areas while generating customer value using digital technologies:
1. Developing Self-Service Dashboards
The data insights generated by digital channels can help the customers to select the right policy, to make claims and to track the damage assessment as well as the repairs process from any location.
2. Speedier processing of claims
Policy owners have to entirely depend on their respective agents for following the cumbersome methods of claims processing. The opening of digital channels will enable the customer to report an incident as soon it occurs, and the speedy flow of information will help to process claims in a faster manner.
3. Offering seamless experience
Insurance companies can gather and share the customer data to relevant delivery channels so that the customer has the flexibility of interacting with multiple channel members while consuming the services. The convenience offered by digital platform particularly helps those customers who often relocate from one region to another.
4. Personalization of services
Personalization is undoubtedly the mass effect without exceptions. Data analytics will help insurers to get a holistic view of their customers and personalize the offering. The digital platform will help the customers to compare and evaluate various options while purchasing a policy. Insurance solutions offered by the technology partners and cloud service providers are enabling insurance firms to reduce their time to market and create new differentiated assets.
The digital initiative will reduce the dependence of the customers on the agent and empower them to make informed decisions that will truly help them. Companies like Nationwide, Grange Insurance and Safeco have partnered with Amazon to use its cloud services for helping their customers find local agents and for offering them valuable tips. Additionally, companies like MassMutual are using analytics for identifying various customer segments.
5. Providing an Insurance-as-a-Service platform
Until recently, the reimbursement of policy claims was considered as the main function of an insurance company. The adoption of digital technologies, has enabled insurance companies to come up with new business models. Emerging technologies like IoT, big data analytics and cloud technologies can be utilized and used together to calculate and predict risks accurately. Now, an insurer can pre-calculate risks and prevent any untoward incident that may harm their life, health, property and vehicles.
According to Deloitte, The advent of IoT will give the insurer an opportunity to gather the data from sensors that are embedded in intelligent wearables, cars, consumer durables, building management systems and industrial automation systems. Alerts can be sent if risks are detected with regard to health, property damage or a probable car accident based on the data analysis. Apart from analyzing various risk classes, the risk analysis will help insurers to determine the prices for various policies. Insurance-as-a-service is going to be the way of the future, and it will be key differentiator while delivering services to the customer.
Conclusion
With rapidly changing customer demographics, insurance companies are finding it difficult to align their services with customer’s evolving preferences. Gone are the days when customers had to rely on a sole insurance company for catering to their insurance needs.
The evolving competitive landscape requires insurance companies to launch initiatives for adopting the digital future. Today, the best-in-class insurance services are provided by those insurers who have managed to center their digital strategies for enriching customer experiences.
Ultimately, a sustainable competitive advantage can only be achieved if the digital strategy focuses on improving customer loyalty.