The digital transformation of insurance – getting fit for digital
Editorial by Simon Phipps
Welcome to the ‘Digital Transformation’ edition of InsurTech Insights, focusing on how to get fit for digital.
The terms ‘digital’ and ‘transformation’ have been banded around the industry for quite a while, yet it’s still hard to think of an incumbent global insurer that’s truly transformed itself into a digital insurer through a consumer lens, when compared to what’s going on outside the industry and our experiences with companies like Amazon, Airbnb and WeChat. The good news is that most industry leaders now get the need to change, and have various efforts underway. But transforming an existing business isn’t easy, as I wrote on this topic with some colleagues at KPMG last year.
This month, KPMG’s article is authored by Chia Tek Yew and considers how the role of insurance is changing, and how its relevance and integration into our daily lives will increase through the power of technology. Introducing KPMG’s ‘Three Levels of Innovation’ model, Tek Yew notes that today, most insurers are still focusing much of their resource on Level 1 (Basic Innovation), through things like process automation and chatbots. Level 2 (Transformative Innovation) is starting to enable insurers to shift from product-centric to customer-centric business models, resulting in new propositions such as ‘on-demand’ through the application of advanced data analytics and AI. Level 3 (Disruptive Innovation) is positioned as new insurance business models, built from the ground-up – customer-centric, digitally-enabled, yet undoubtedly the hardest to achieve for existing insurers, with incumbent positions, a myriad of legacy systems and internal trade-offs to navigate.
It’s clear that Tek Yew is a strong advocate for industry change and his pragmatic article concludes by highlighting four areas that all insurers need to address as they ramp-up their transformation journeys. His underlying message to insurers is clear – no one can afford to stand still or tinker with the edges of their business anymore.
Rick’s article considers whether it’s possible to achieve innovation and transformation whilst living with legacy systems, through application of the ‘2-speed approach’ to getting fit for digital. Tony Tarquini, of Pegasystems, shares his insights on how the team at Pega achieve their primary goal of improving profitability for insurers by enabling them to focus on running the business and changing the business through smaller, frequent steps – avoiding the ‘everything stops until the new system is in’ syndrome which has been the Achilles heel of many IT-led ‘insurance transformations’ over the years – and making the point that such change-efforts should be business-led and IT-enabled, not the other way around.
The article also draws out the distinction between incumbents focusing on InsurTech partnerships / investments vs evolution of existing IT platforms – in reality I suspect that we will see deal-flow increasingly moving from the disruptive InsurTech insurance models to those focused on working with incumbents to help them accelerate the evolution and transformation of what they’ve got, in far more agile ways than we have seen to date.
Please do browse the wide range of articles and white-papers we have collated below in this edition – and don’t forget to share with your colleagues. And a quick plug for our next webinar, focusing on ‘on-demand’ insurance – a topic of real interest to many of us as on-demand models seem to be gaining traction globally with both consumers and investors.
Many insurers are tied to core policy admin systems originated in the last century. They remain constrained by the legacy of a pre-Internet, analogue way of working. Whilst around them, new technology enabled insurance firms (InsurTech) are hitting the news every day.
KPMG Perspective - The digital transformation of insurance: Getting fit for digital - By Chia Tek Yew
The insurer of the future looks drastically different than today’s incumbent model.Technology has the potential to fundamentally change not only the way that consumers perceive and interact with their insurers, but also the role of insurance in everyday life.