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Skills to succeed in the digital future of insurance

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TDI News Correspondent for Germany Uli Kleber In interview with Dr. Moritz Finkelnburg (Academic Director Insurance – Frankfurt Goethe Business School) and Dr. Christoph Peter (Executive Director Digital Insurance – University of St. Gallen)

 

 

(left to right) Dr. Christoph Peter & Dr. Moritz Finkelnburg

Moritz, Christoph, before we get started, are there any statements that you came across recently regarding digitalisation that surprised you?

Moritz: Yes, I actually heard the statement “Digital is only another fashion, which will come and go like a seasonal license plate.” To me that was pretty mind-boggling!

Christoph: I had received a good and insightful feedback from an insurance tied-agent after one of our workshops. He said: “I have not learned anything about digitalisation. There is nothing of that stuff that I can put into action right away.” I think that this highlights why digitalisation is such a scary thing for many people. It is not really tangible and may mean different things to different people depending on where you are in the organization – not only in terms of hierarchy but also in terms of job function. Of course, your view on the opportunities and risks of digitalisation will be strongly influenced by where you stand. So, there is tremendous need for education and change management support.

From your perspectives, what is the current state of the insurance industry in terms of digital culture?

Moritz: In my opinion we are at around 20-30% of the way. There was a lot of activity in the last 3-4 years. Right now, I see three different types of groups:

  1. There is the top group of the 6-8 leading global insurers: They have set up a large number of activities, new ventures as well as labs in Silicon Valley, London, Paris, etc. The challenge they face right now is that there is little in terms of coordination and some of them struggle to align their initiatives.
  2. The challenger group, which consists of some leading national insurers: Quite a number of them are strong drivers of digitalisation initiatives. They have a good portfolio size and refrain from overburdening their organizations with too much activity. This is actually the most exciting group in my opinion.
  3. The followers, which make up the final 70-75% of the market: These are the smaller insurers that often do not have the breadth and resources and therefore struggle to keep up. They sometimes band together with others for joint initiatives, but mostly have no proprietary agenda.

Christoph: M&A is a big topic, especially for large and mid-sized Swiss insurers. The big difference is that before it was always about acquiring other insurers. Now, we see them go after InsurTechs, tech companies and even HR service organisations. The large and mid-sized insurers have definitely managed a successful repositioning, while many of the smaller insurers are left behind.

Interestingly, a study by Bakbasel which looked at insurers and banks in Zurich and the rest of Switzerland (www.bak-economics.comFinanzplatz Zurich 2016/2017) found two things:

  1. Both banks and insurers have done their homework and improved their productivity a lot, especially in their support processes during phase A. Phase B is now all about InsurTechs and focus on the customer.
  2. Also, they came to the conclusion that insurers now have a higher gross value-add than banks in Switzerland, which I found quite remarkable!

Moritz: Yes, if we look at the InsurTechs, they have brought a lot of client focus along, which is influencing the whole industry. Now, a lot more thought goes into making client interactions simpler and more convenient, whether it’s about daily cancellation, self-service, smart ident, payment methods or online policy issuance (which does not just mean producing a pdf to be signed and sent back).

All this helps to reduce the number of pain points for a product that is not really considered high up in the hierarchy of consumer love.

Christoph: Yes, we see how the industry is reinventing the way it is interacting with its customers. Even compared to five years ago, the frequency and level of customer engagement are completely redefined. Mobile first, customer journeys and customer experience no longer draw blank looks with insurers.

The insurance business model places a heavy emphasis on risk-aversion, which can be a roadblock for innovating with new business models in an uncertain environment. How aware are insurers of this bias and how do they address it?

Moritz: Actually, we should consider that the basic function of insurance is to assume risk and not to reduce it. Of course, risk reduction and prevention is something that comes along with the field but typically only at a later stage. Instead, we should not forget that insurers have historically been at the forefront of new commercial exploits, for example by bearing the financial risks of losing a ship and its cargo or the risk of fire in a factory.

So, helping people and companies venture into new territories, by assuming risks even when there is no historical experience, like we currently see in the area of cyber risk, is something that should actually come naturally to insurers.

Christoph: Insurers are certainly caught between the lines of their own rather cautious risk cultures and the aggressive risk-taking culture that we see for example with some US technology companies. This is a fine line that insurance CEOs have to walk when addressing the gap of old and new company culture.

One approach that I have seen to be working quite well is for companies to focus their efforts on three areas:

  1. Give attention to your core business which probably includes 80% of your employees and is still the main driver of your balance sheet.
  2. Expand your business model by setting up partnerships and acquiring companies within the larger ecosystem
  3. Take care of your customers by maintaining, deepening and expanding your customer relationships

How willing and able are insurers to invest in upskilling their workforce?

Christoph: I see a slight increase in the spending for employee education. However, most money is spent on acquiring new skills through the purchase of InsurTech companies.

A large part of the employee population will be scared by the new developments while a handful of people will be thrilled and actively welcome the change. So, you have to be aware of where you stand in terms of digital culture and how much you can expect from your people.

Here, it is important to think long-term, but also not to forget where the next step will take you. This may range from baby steps like handing out laptops to managers, up to deciding to move your whole business into the cloud.

Moritz: In my view, a systematic approach to digital education for the larger employee population is still missing in most companies. Also, I am not only talking about the older, experienced employees. Even when we look at apprentices and trainees, in most companies there is not really a structured approach to provide a basic digital education. So, the challenge is two-fold: engaging employees to come along on your digital journey and ensuring that they have the necessary skills.

What are successful insurers doing right now in addressing this cultural change and bringing employees along on the journey?

Christoph: A key challenge to me is the fact that middle managers are way overburdened with operational tasks, managing their teams and additional projects. This leaves hardly any time and opportunity for training.

The issue is that these middle managers are essential in the cultural transformation. They need to be equipped with the right skill set to handle and manage change for themselves and for their employees. If you can establish a culture that thrives on change and innovation, it will not matter, if it is about learning to deal with social media or managing a digitalisation effort. At the same time, if you are not able to ingrain a basic level of joy in your employees when dealing with change, then resistance will always come back up.

Moritz: I agree that middle managers are key to a successful change. You not only have to ensure that they feel valued and taken seriously, but also that they are part of the journey. Unfortunately, the buy-in from top management to support the middle management is often missing.

What does all this mean for your academic offerings – how did you have to change to adapt to the new realities?

Christoph: In St. Gallen we have extended our research and educational scope to digital insurance and InsurTech with our educational offer focusing on insurance managers, general agents and brokers.

Also, we have been looking a lot into the health ecosystem for which digitalisation is one of the main drivers. I am convinced that connected ecosystems, whether they are about mobility, living or health will be one of the big topics going forward.

Here the question is: who will be driving the ecosystem and what will be the role of insurers? Different skills are needed for different ecosystems and we see that not only insurers but also reinsurers are entering the game.

Moritz: A big step at Goethe Business School in Frankfurt has been the set up of the digital MBA which was created as an interdisciplinary study approach. That means that students come from different industries and we make sure that the impact of digitalisation is looked at from angles with a number of varying approaches and methods.

Another point is that we saw the need from insurers to get help in looking at their value chain and understanding the different developments going on within it. So, we assist them in deciding how they can bring in outside partners from the digital and InsurTech space to simplify their processes.

As a final point, what would you like to see more of from insurers in these times of change?

Moritz: One movement in academia is the trend towards more collaboration and cooperation among universities. Challenges can be overcome so much easier and with much more fun, if you work together with a partner that you trust. This is why insurers should continue their process of opening up and welcoming new partners in their value chains.

Christoph: Andy Grove from Intel once said that there are two ways to increase productivity: either through motivation or training. I think employees are motivated enough to move forward. At the same time, you need to give them space and time for training. So, instead of being hyperactive, I would recommend reducing the number of new projects and instead investing the time and resources in your employees. Give them, and particularly the middle managers, the time needed to learn and adapt to this new world. Because even in a digital future, it is the human component that makes the difference.

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