This article from guest authors, Sathyanarayanan Sethuraman and Krishna Sathyananarayanan argue that a strategic approach to digital transformation is necessary to drive significant business results – but what does this really mean? They look at this in detail and identify what they believe are the five key components for successful digital transformation.
Recently, the word ‘Digital’ has gained so much momentum that every analyst has been writing about it, every IT solution provider has been tying their products around it and every insurer has started embarking on a ‘Digital Strategy’ journey. Insurance has always been an information based business and it can be argued that its digitization started as early as 1950s when insurers started reading, storing and retrieving information using magnetic tapes (moving from tabulator and punch card). Since then, insurers have been adapting to changes in the digital space, although at a slower pace than other industries. Nowadays, the impact of digital is seen everywhere and it has created this euphoria of everybody jumping onto the digital bandwagon.
The euphoria has also created disruption and chaos across the entire insurance industry including customer expectations, operations, product, risk management and distribution. Insurers must accept the disruption and shift the needle from chaos to opportunity by developing and executing structured digital strategies in order to reap the rewards of digital. However, through much of our research, discussions and conducting workshops with insurance executives, it is clear that there is not one standard definition of ‘digital strategy’. In addition, views on the components of a digital strategy are also fragmented. Some present strategy as the technical view of social media, mobility, cloud, big data and analytics. Others articulate the strategy as the integration and exchange of information – the orchestration of business process such as marketing, distribution, servicing, claims across channels.
Each view point is so compelling on its own but not complete in itself as, based on our experience, silos can rarely deliver comprehensive business results. For example an online life insurance quote application without electronic signature capability will deliver less impact on reducing operational costs. In the P&C context, an electronic insurance ID card by itself will not improve operational efficiency when the customers are going to call the contact centre for all other transactions. A strategic approach to digital transformation is required in order to deliver comprehensive business results. In our experience, a strategic approach to digital encompasses the following five core components:
- Business process optimization
- Actionable insight
- Innovation culture
- Information security
Let’s look at each of these in turn.
1. Customer centricity
It is crucial that insurers build business and technical capabilities that are woven around customer engagement as this will increase adoption, experience and advocacy. Insurers should identify the customer segments that are aligned with their target market (based on demographics, behaviour and social background) and devise their digital strategy around them. The ultimate aim of the insurer should be to use digital strategy to deliver the ‘brand promise’ through relevant business capabilities.
Insurers must bear in mind that building business capabilities for price-sensitive direct contact customers is different to building those for advice-centric agent contact customers. Similarly, the business functionalities and technical capabilities would differ between the ways a Millennial customer would interact and transact versus a Baby Boomer. Many insurers, who have provided cutting-edge business functions (for example, mobility, telematics and social media), have been struggling to drive adoption. Without customer adoption, the investment made in building the features is money flushed down the drain. A customer-centric approach drives adoption and therefore the success of the program.
To summarise, customer segmentation is the first step towards the customer-centric approach. The next step is to create customer journey maps based on the customer segmentation. The final step is to define and standardize the experience across the customer journey and to build the relevant business functionalities to achieve the experience.
2. Business Process Optimization
Insurers can increase operational efficiency and effectiveness by integrating and automating business processes across products, channels and operations. Business process optimization goes hand-in-hand with customer-centricity – they are two sides of the same coin. On one side, customer-centricity improves customer retention, advocacy and wallet share; on the other side business process optimization helps insurers to stay viable and continue to serve their customers.
In many instances, we have seen companies that apply Lean and Six Sigma principles for business process optimization are often less successful. The main reason being they often optimize processes that customers don’t value and therefore the customers do not adopt. The key to success here is to implement process integration and automation across channels and products that help customers to complete their business transaction smoothly, and for insurers, increase closure rates. Delta Airlines did this successfully during the 2010 winter storm by providing customer service through twitter when their telephones and internet were down due to the catastrophe.
Those insurers who have understood their customers’ core requirement, for example, of advice-touch have been very successful. In this example, they provided online quote functionality but connected the customers with agents for policy issue. Recently, insurers have been trying to tactically bundle products with lesser success (Covered in the article “The Right Way to Think About Bundling”).
3. Actionable Insight
The aggregation of information for actionable insight helps to achieve personalized and deeper relationship with the customer. To quote from an Economist Intelligence Unit Report, “The Way Forward: Insurance in the Age of Customer Intimacy and The Internet of Things“, “86 percent of insurers confirmed they are more effectively utilizing big data and analytics. This consisted of 82 percent obtaining more data from external sources, 80 percent making greater use of predictive analytics, 75 percent using data to better price products, 76 percent making data analytics readily accessible to more people in their organization and 51 percent identifying customer targeting as the most frequent benefit from leveraging analytics. Insurers are showing a real commitment in using analytics to boost their core competencies in risk, pricing and underwriting”.
It is promising to see that insurers are moving from pure business intelligence and dashboards (that often leave the decision making subjective) to using predictive analytics to drive objective action. Greater access to data, better economics of storage and improved precision in analysis have created greater automation and shifted the focus from simple underwriting to complex risk management.
When data is used on its own without orchestrating it with the process, the result will be disappointing as insights fail to be turned into action. For example, reactive insurers will predict a catastrophe through “Big Data” (Climatic Info) combined with location and risk data for pricing and underwriting. On the other hand, proactive insurers move one step further to estimate the loss and get ready for the claims servicing. In this example, insurers with a strong focus on actionable insight strive for preventable claims by continuously monitoring the weather conditions and engaging with customers. The Internet of Things, which includes capabilities such as telematics, expands the universe of actionable insight further by enabling insurers to trigger action such as automatically calling security services or the fire services. Though much research is going on in this space, with for example the connected car and the connected home, customer adoption is currently ultra-low due to information security and privacy concerns. Within this context, a comprehensive digital strategy would need to show value, build trust and alleviate concerns to drive-up adoption.
4. Innovation culture
It is critical to have executive commitment and buy in supporting innovation and agility. This must be backed up with a business case-driven approach in order to realise measurable benefits. In today’s digital world new technologies emerge and become obsolete as fast as daily. To be successful, a Darwinian approach of ‘survival of those adaptable to change’ is necessary which promotes a culture of change and innovation but understands that a degree of failure is not a bad thing as it teaches us important lessons. A‘Test-and-Learn’ methodology rather than building at once is often more effective as it mitigates the risk of failure but promotes innovation.
In relation to organizational structure, business and IT executives need to have clear ownership and accountability for the successful delivery of a digital strategy. In addition, the digital strategy lead should be enabled with structured investment and risk tolerance. It’s important to commit a percentage of IT budget or revenue for the strategy. Investment in individual initiatives will vary based on the business case and benefit projections. Often initiatives are cut due to the lack of available data to support the business case. In these cases, the organisation should consider building the required capability to capture the data and place the initiative on hold until sufficient data is captured rather than dropping the idea altogether.
Initiatives with more mature technology will often provide better results. However, continuous innovation is a must for keeping-up with emerging technologies that may become mainstream in the near future such as robotics, virtualization, gamification etc. Even for an insurer that has a structured innovation program, data proves that 8 out of 10 initiatives fail. In many cases, the successful 2 initiatives not only paid for the cost of the failed initiatives, but realised much higher benefits. Organisations that take an incremental approach as opposed to a ‘big bang’ approach to implementing digital strategy, will often be more successful as it minimises risk and helps to make employees more supportive of the change agenda. In addition, a nimble team with a core-flex model is crucial for success.
5. Information Security
Proactive Enterprise Risk Management that demonstrates an unrelenting commitment to information security and privacy reduces the cost of compliance and builds trust with the customers. Recent financial and personal information breaches has resulted in billions of dollars of losses to the Financial Industry. These incidents have increased customer aversion to share personal data digitally.
Industry data proves that there is no significant difference between security breaches in storing data privately versus in the cloud. But customers and the industry alike are still coming to terms about the dependability and security of storing their data in the cloud. The interchange of data through the ‘Internet of Things’ makes personal data security and privacy much more vulnerable. This puts pressure on the cost of information management and can slow down the implementation of successful digital strategies. Therefore, it is critical to have a clear Enterprise Risk Management strategy and implementation plan which delivers the highest security standards.
Five components for successful digital transformation
In summary, the implementation of the above five components should be built from two different perspectives. The first three (namely customer centricity, business process optimization and actionable insights) form the operational pillars and the last two (namely innovation culture and information security) are the enterprise foundations that run across the operational pillars. Aside from the governance, processes and tools, creating a culture of collaboration and knowledge sharing across the organisation through consistent employee engagement will make digital disruption a sustainable ecosystem.
About the authors:
Krishna Sathyananarayanan has over 28 years of global experience in insurance operations, IT and consulting in P&C and Life. He has led consulting and transformational programs for global insurers including AIG, Zurich, Aviva, Allstate, Prudential and CI across multiple geographies, with most of his time spent in the North American region. He has experience of ideating and conceptualising solutions, developing online business models, transforming policy administration systems and life insurance claims transformation.
Sathyanarayanan Sethuraman (Sathya) has over 20 years of global experience in strategy advisory, solution architecture and innovation incubation for insurance and financial services conglomerates. He has led business and IT strategy consulting, business case creation and requirements management for solution implementation and road map development. In addition, Sathya has managed the web and mobile program delivery for a USD 150 million business transformation program on customer experience focus for a top 5 North American insurer. In the last 5 years he has delivered business and IT strategy consulting in the areas of digital and omni-channel Strategy, product agility, information architecture and business analytics.