The role of the Chief Information Officer in the insurance industry is unrecognisable compared to 10 years ago. The pressures, expectations and scope of the position have increased at a significant rate, to the point where today’s CIOs within our sector are expected not simply to provide state-of-the-art tech that enables business to be done effectively, but also tangible business benefits of the technology they oversee, in the form of profitable growth.
The rise of the digital business model
Much of this has come around as a result of a change in technology’s place within the business model. Traditionally the business model would be defined by the ‘business people’, i.e. Finance, Sales and Operations. IT would then serve this operational framework, facilitating revenue making schemes.
Conversely in the most successful firms of today, IT sits at the very heart of the business model. 20 years ago the world leaders in the retail, taxi, film rental and hotel industries built their success upon their stock of physical capital; today Amazon, Uber, Netflix and Airbnb are winning due to their technology assets. Whilst traditional retailers made money through elaborate window displays, Amazon now leads the market thanks to digital advertising, ordering and distribution processes; technology is at the very heart of Amazon’s business model.
“Every company is a software company. You have to start thinking and operating like a digital company. It’s no longer just about procuring one solution and deploying one. It’s not about one simple software solution. It’s really you yourself thinking of your own future as a digital company.”
— Satya Nadella, CEO Microsoft
Digital Transformation in Insurance
As the business world changes, so too has the world of insurance – albeit with a slight delay. The industry is now in the midst of full-blown digital transformation. Business models are being flipped on their heads, spearheaded by the entrance of InsurTechs.
In fact, there are three major driving forces behind this industry rush to digitalise:
- Changing insurance market: InsurTech disruption and innovative insurers are forcing technology laggards to react or risk losing business
- Changing customer expectations: customers increasingly expect low effort purchasing, personalised products and omni-channel interaction with their policy provider (as so comprehensively described by my colleague Rachel in her blog on buying insurance)
- New opportunities created by technology: technology enables insurers to operate in ways that they previously could not. In an increasingly competitive market, those that adapt will survive; any competitive advantage will be seized in order to win.
‘Digital transformation’ can, however, be a buzz-phrase which holds very little real substance. The response to the question “are you in the midst of digital transformation?” is invariably positive, however there is often less clarity to the follow-up question of “what form is your digitalisation project taking?”
With all of the digital possibilities – the mass of new tech available, alongside a host of problems caused by legacy systems and inefficient processes – it can be difficult to see the wood for the trees when it comes to transforming a business into a truly digital company. There are, however, a few areas which seem to provide the best return on investment for insurance CIOs, encompassed by the umbrella heading of ‘simplification’.
The KISS Principle: Keep It Simple, Stupid
There is a growing focus on the simplification of business operations, especially in the insurance industry. Importantly, simplification initiatives can return big wins quickly.
There are many ways in which insurers can simplify, spanning across the entire value chain. Five key areas are:
- Simplification of products: insurers are seeking to win new business by making products more simple, easier to understand and tailoring them to specific customer needs
- Simplification of business portfolio: insurers are carefully considering the markets in which they are operating, ruthlessly exiting unprofitable sectors and regions
- Simplification of processes: insurers are looking to standardise their internal processes, automating where possible in order to maximise operational efficiency
- Simplification of decision making: insurers are moving towards a culture of business rule-driven decisions, ensuring consistency and (through data enrichment) improved accuracy
- Simplification of technology ecosystem: insurers want to simplify their technology architecture by ensuring that all systems seamlessly interact with each other, improving process efficiency and reducing the need for keying the same information multiple times
In order to simplify, insurers will have to embrace new digital technology solutions. Three key initiatives that will enable simplification are discussed below:
1. Legacy Transformation
Legacy transformation has been talked about for years, so I will only briefly touch upon this.
Ultimately, the replacement of legacy technology provides no actual return on investment; rather by upgrading core systems to modern technology other digital ventures become possible. It is important to note that whilst core technology remains dated, the benefits achieved as a result of other digital ventures will be limited.
Should an insurer want to simplify their software ecosystem, automate processes, personalise their product offerings or use business rules to drive decision making, legacy technology will act as a significant barrier to the success of these projects.
Modern core systems, however, are developed with open APIs and in-built business rules engines, acting as a catalyst for simplification ventures.
2. The use of Data
The view of insurance CIOs seems overwhelmingly to be that data and analytics will be the game changers in the next few years. I heard a stat that in 2017 more data was collected than in the entire rest of human history prior to that year. So if 2017 was the year of big data, the years 2018 onwards are inevitably going to be focussed on big data analytics. According to a 2019 Gartner survey, 54% of insurance CIOs are planning increased spending on BI and analytics for 2019.
The use of data certainly won’t be restricted to management information; new use cases are emerging which combine data with other technologies in order to automate business processes.
Some areas where data will generate a return on investment for the insurer include:
- Ability to see and respond to segmental analysis of business performance; many insurers are leaving underperforming markets as a result of problems highlighted by data
- Increased customer retention through better customer service (self-service automation, no-touch claims processing etc.)
- Improved underwriting result through data-driven pricing and rating
- Reduction in fraud through the use of data, both at application stage and at point of claim
- Operational efficiency gains through data driven automation
3. Digital Cost Optimisation
Insurers with less of a technology culture and those operating in more stable and less competitive markets find the biggest return on technology investment is through combining traditional business cost optimisation with digital process automation.
Digital cost optimisation is about:
- Using technology to improve a process
- Cutting out steps to make a process more efficient
- Taking an automation-first approach where possible
CIOs are enhancing process efficiency, reducing transaction costs and driving profitability through the use of technologies such as Business Rules Engines, Artificial Intelligence and Robotic Process Automation.
Digital cost optimisation and customer experience improvement aren’t mutually exclusive; more efficient processes can, for example, be less frustrating for customers. Better customer experience inevitably leads to higher retention rates and thus increased profitability gains.
Is it really that simple?
These ventures are not all easy; they require high levels of planning, investment and cultural change – the latter of which is often the hardest barrier to overcome. They are, however, necessary to remain competitive in an over saturated market.
Whilst not as glamorous as some digital initiatives, activities such as streamlining processes, simplifying the customer experience and using data to improve operations are helping insurers achieve genuine return on their investment. These upturns can take the form of cost saving, increased revenue and profitable growth – all of which are undoubtedly high on the priority list for any business-savvy CIO.
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