What an Insurer’s Digital Transformation Is Really About (And It’s Not What IT Consultants Are Pitching)

By Paul Wilson

For several years insurers have been sold on the fact they need to digitally transform. It’s considered good business — especially for IT consultants. Just look at the top firms like Accenture, KPMG, Ernst & Young, PwC, Cognizant, and my own employer Capgemini and you’ll quickly see that they all aggressively push it.

Sales consultants from all these companies pitch a long list of reasons of why insurers should pull out their checkbooks (or in a digitally transformed world their bank accounts and routing numbers). All the logical rational offered to get the sale is mostly good, but ultimately none of them are the right reason for a digital transformation, not even close.

Yet, before I share the right reason let’s look at the top two most common sales pitches insurers are given (and often accepted) to undergo a digital transformation. Both reasons shared below are compelling, and as you’ll see well founded, but again, miss the mark for why a digital transformation is important.

Sale Pitch 1: A digital transformation will increase insurer’s overall bottom line

What better way to make an insurer’s heart go pitter-patter than by talking dollars and cents. In fact, this is probably the easiest point to make because there is so much data backing up that companies who digital transform make more money.

Case in point, Gartner shows that in just 3 years digitally progressive insurers outgrew those not investing in digital capabilities by 36%.

Capgemini’s and MIT’s report, “The Digital Advantage: How digital leaders outperform their peers in every industry,” also show that digitally-mature companies achieve better financial performance overall.

This data and much, much more makes it easier to justify the cost and pain insurers have by changing a cumbersome, if not awkward, infrastructure and process. Still, the whole ordeal is quite tedious, and an insurer may still need some more convincing.

Sales Pitch 2: A digital transformation improves the customer experience

The angle of improving the whole customer journey is particularly useful if a CMO is sitting in on the sales presentations. With the advancement of technology, improving engagement with customers and prospects is becoming a more prominent issue.

This shouldn’t be too much of a surprise since one study found that 83% of C-Level insurance executives feel that digital technologies will transform the way they interact with their customers, which will obviously impact how marketing will be done.

In fact, we are seeing more and more that insurance customers are expecting their insurer to be technically savvy, this is particularly true with the younger consumers. The below video highlighting the World Insurance Report 2016 put out by Capgemini and Efma, shows how the first generation to be born into a digital world (Gen Y) is the least satisfied insurance customer due to the technology gap between them and insurers.

All of this of course will lead a sales rep back to the first point — increasing insurer’s bottom line. The World Insurance Report 2014 analyzed responses from over 15,500 insurance customers and found a strong connection between improved customer experiences and customer behaviors that lead to greater profitability such as additional purchases and customer referrals.

In a different report it showed that insurers with a robust digital presence and customer focus are, on average, 26% more profitable than other insurers.

So yeah, at the end of the day it all leads back to the mighty dollar.

However, the mighty dollar or customer experience should not be the ultimate reason for a digitally transform. They are great when justifying to the decision makers (a.k.a. bean counters) that there is a need, but if they stepped back from the money they would see what should be the ultimate sales pitch.

The Real Reason: A true digital transformation is not about the company, bottom line, or customer journey but rather the individuals that make up the insurer

We have a choice, we can transcend technology, and let it do our work, or we can continue to be the technology — either way the work will get done. The simple truth is that much of the current work being done by people can/will, and should be, automated, digitized, or handed over to artificial intelligence (AI). This may sound whimsical, and maybe even a bit philosophical, but there is strong data proving this point.

The increase of technology in the workforce will impact all aspects of insurance including workers’ compensation, liability, accident, health, and life. The Wall Street Journal reported that the use of industrial robots will increase by 163% in China and 44% in North America through 2018. Many are anticipating a significant fall out from the labor pool as technology supplants people from their jobs.

Gartner predicts that by 2030, smart machines will replace 90 percent of jobs as we know them today.

Another Gartner study predicts that AI will power 85% of all customer service interactions by the year 2020.

It is easy to dismiss what may or may not happen in the future. However, we can turn to history to see a pattern that supports these predictions. What may seem like rudimentary improvements now, the Industrial Revolution has brought technology changes that have dramatically changed the face of the workforce.

For example, in 1900, almost half (41%) of Americans worked in agriculture. Yet, with 100 years of technology improvement we see that by year 2000, only at 2% of Americans worked in agriculture. Similarly, we see that the amount of Americans working in the manufacturing industry has gone from 30% to 10% in 70 years. This is partly due to automation being introduced to the industry, especially during the 1980s.

Strategy Meets Action, an insurance market research firm state in their report, “The Top 10 Ways Emerging Tech Will Transform Insurance,” that “It is unlikely and undesirable for automation to replace all human experts, but it is feasible that automation will allow the smaller number of true experts to multiply their impact and capitalize on their expertise and relationships.”

Many may look at this surmounting research and fail to see why this is the most important reason for insurers to digitally transform being that it seems less jobs will be available. On the surface this may look like doom and gloom for the individual in insurance companies, but it’s actually not.

A comprehensive study done by Deloitte in the United Kingdom found that technology has also in the last almost 150 years done the following things:

  • Created more jobs than it has destroyed
  • Saved people from doing simple, monotonous, and dangerous work
  • Shielded more individuals from being deployed as sources of muscle power
  • Provided more jobs involving improving and enhancing human life
  • Boosted employment in knowledge-intensive sectors such as medicine, accounting, and professional services
  • Lowered the cost of the cost of living, while at the same time, raising disposable incomes

This report has looked at long-term historical trends relating to new technology and its impact on employment and society, and found that in almost all instances the effect is positive in the long term.

How does all of this connect to  insurers who undergo a digital transformation?

Another study by Deloitte connects everything by showing that digitally maturing organizations were consistently refining their company’s culture. Almost 80% of the survey respondents from digitally maturing companies stated that their companies were actively engaged in efforts to support risk taking, agility, and collaboration.

The same study also found that digitally maturing organizations had organizational cultures that shared common attributes. The main characteristics included: rapid experimentation, heavy investment in talent, and recruiting and developing leaders who excelled at “soft” skills.

In a future of binary-biological synergy the real battery to disruption and change for insurers will be whatever can’t be automated or digitized. Technology allows us to improve our current existence, but it is our individuality that allows us to perpetually evolve, imagine, and create a better future.

I think the best quote that summarizes this entire point is this:

“We’ve come a long way in a short time. Companies no longer just serve customers; they collaborate with them. They no longer just compete with rivals; they partner with them. They’re no longer limited by industry boundaries; they ignore them. The connecting tissue for all this may be digital, but the defining factor is people.”

Insurers will always lag behind if they do not understand that it is the individual who is at the heart of any digital transformation. No matter what sales pitch insurance companies are given, if the improvement and enrichment of individual lives is not the true driving force behind a digital transformation than the insurer won’t ever evolve.

By | 2017-02-15T18:56:07+00:00 January 31st, 2017|Categories: All Articles|Tags: , , |0 Comments

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