Digital transformation of the insurance industry following COVID-19: Ecosystems and InsurTechs
COVID-19 created a world crisis that is challenging our way of life because the pandemic restricted mobility and interactions among people, and that changes everything; the way of work, the way of going to school, and the way to buy products and services. Many industries will have to modify their way of doing business to respond to the new market conditions. Thanks to technology, some industries have been transforming and evolving to offer online products and services to their clients, but not all the industries have adopted the change and they are not ready for the challenge. The majority will need to accelerate digital transformation. For example, the insurance industry in LatAm is lacking behind in the race of transforming their business and offering a better, faster and transparent experience to their customers.
Several cities around the world have mandatory lockdowns or shelter in place policies to try to prevent a further spread of the virus. This situation limits how people interact, work, and use products and services; from buying groceries to accessing their financial services. Thus, people are shifting and adapting faster to online services such as online delivery apps (Rappy, Merqueo, Amazon), online payments and banking apps, work from home apps (Zoom, Slack, Microsoft Team), and apps to interact with family and friends (House Party) to try to continue a “normal” life. This situation, as difficult as it can be, also creates an opportunity to rethink the products and services and becomes an excuse to accelerate digital transformation and develop new channels of communication to keep in touch with customers and provide new services and products.
For example, the insurance industry in LatAm has an opportunity to grow the digital ecosystem by implementing technology to continue to serve its clients and provide better products and services. In a paper from Mckinsey called “Insurance beyond digital: The Rise of ecosystems and platforms,” it is mentioned that “Insurance companies have the opportunity to create new sources of revenue by rethinking their traditional roles and adopting an ecosystem mindset.” This phrase is more relevant today, under the current conditions than ever before. The insurance companies in LatAm have to accelerate their digital transformation, and change gears from planning to execution.
Insurers in LatAm have been thinking and planning for a while on how to implement digital transformation inside their organization, but in practice, they have not performed the changes needed or they are doing it too slow. Nevertheless, it was a nice surprise to see how in a few days after the pandemic started to alter our lives, many insurers took action and were able to adjust processes and make their products and services available through digital channels; apparently, they just needed the right incentive. Within weeks, insurers launched digital forms, virtual inspections, video conferences, and implemented work from home contingencies to maintain business as usual. Many of these services have been available for a while, but have not been implemented. I hope they maintain these services and capabilities available in the future and not only as a result of the emergency. The current situation is an opportunity to evaluate and test these capabilities.
Maintaining those services is going to be key to boost the digital transformation because it allows the companies to evaluate efficiencies and cost.lso, it harvests innovation and the design of digital services and products to have a closer relationship with partners and customers. Furthermore, insurers need to adopt an ecosystem mindset and use platform business partners to evolve the business. This means that they need to allow the customers to fulfill a variety of needs in one integrated experience. For example, if a customer wants to buy car insurance online, the insurer should be able to provide a complete online experience. From the insurance quote to the adjustment and payment of the claim, and all the steps in between (inspection of the car, filing of documents, issuance, and payment of the policy). But how can they provide those kinds of experiences without expending more time and money resources?
The answer to the question is that insurers need to learn the capabilities of the ecosystem landscape and take advantage of it. Also, they need to identify insurtechs with platform models to help them in the process. First, they have to take a deep look at their traditional role and become more proactive instead of reactive. Second, they need to start to evaluate partnerships with the new players (Insurtechs) that can provide services and innovation faster and efficiently, and that can also develop new products and services to innovate in the insurance industry.
Digital Insurance LatAm developed an Insurtech ecosystem map in LatAm that can serve as a tool to begin to understand how the ecosystem is developing.
According to Mckinsey, ecosystems typically provide three types of effects:
- Act as gateways, reduce friction as customers switch across related services.
- Harness network effects, allows carriers to build product features that create a differentiated and unique value proposition to all users.
- Integrate data across a series of services, give new and valuable information to carriers to evolve to a more proactive role.
Insurers should take advantage of the ecosystem that is rising in the insurance industry to find ways to add value to their products and services. They should act as the enablers of the ecosystem and allow it to develop in their benefit, shift their mindset and become more open to partnerships, and implement a try-and-error approach to problem-solving.
I hope we can go back to business soon, but I also hope that this experience allows industries to evolve to a new era of digital services that match the needs of modern customers looking for digital products that accommodate their needs and expectations.