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Only in Insurance: Can Analog be Accommodated in Digital?

Becoming digital is the holy grail these days.  Insurers look with envy at the likes of Uber and Amazon, which use digital to completely disrupt complex business by introducing digital platforms that suck up consumers with the elegance of  a finely tuned Dyson.  So why, then, is digital taking so long to catch on with us?

An easy way to scratch the digital itch …

A number of insurers and brokers realize that digital is the trend du jour and believe that wearing the digital cloth will help attract and retain customers.   It is easy enough to feel internally successful with this.  Put up a quote app that is mobile friendly, and you are in the game.

The problem is that if there is no second step, this looks a lot like a reprise of the dot com days.  Everyone knows that we need to embrace digital in order to innovate and engage the new consumer.  We all know that consumers buy based on price, so let’s make it easy for them to get our price.

The problem during the early internet days, and the problem now, is that the quotation field gets very crowded, very quickly and consumers will tire of downloading apps and gravitate to sources that aggregate quotes from multiple insurers.

Not much competitive advantage, and pretty low on the disruption scale.

Suppose you want to get beneath the surface…

Going deeper, insurers are realizing that digital can reduce many of the friction points that have bedeviled the insurance industry since Edward Lloyd put up his first chalkboard.  Amazon sells product, but carries minimal inventory.  Uber moves people without owning vehicles or employing drivers (well, there is a question about this).

Digital facilitates the aggregation of data that are required to make decisions and trigger other processes with minimal intervention.  Data are the blood cells of insurance, and streamlining its flow enhances the productivity of the whole body.   The immediate challenges are where to focus digital and how to get started.

Problem: insurance doesn’t sell books

Bain & Company recently wrote in its Global Digital Insurance Benchmarking Report 2015:

Most insurance executives realize they have to step up their digital investments. Yet many remain unclear about exactly where to start and how to proceed in organizing for digital innovation and redesigning their processes. … (based on a survey of 70 insurers) Almost half of the companies do not believe they have set up an achievable plan, because they are missing some key elements for the journey, such as a clear vision, or compliance and risk processes.

This is non-trivial.  Insurance is an intangible product that relies upon, and influences both tangible and intangible objects.  Further, while the primary revenue source is underwriting risk, expertise in risk management and settlement management has allowed us to introduce a variety of profit centres that are outside of the core mandate.

As we have seen with Uber and Airbnb, disrupting business models is frequently a by-product of digital innovation.  We could be facing a Pogo moment with the introduction of digital; viz.,  “We have met the enemy, and he is us.”

Can we square this circle?

In general terms?  Probably not.  However, as I noted in a previous post, we will likely muddle through as we are wont to do.  Bain & Company  has a construct  that might be helpful:  combining the best of Digital with the best of physical.  Bain refers to this as Digical® .  In a recent report on leading a digital transformation, Bain says:

Leading companies such as Progressive, USAA, Allianz, Direct Line and AXA are starting to realize the promise of the Digical transformation. Some are improving customers’ overall experience by developing advanced analytics capabilities to better understand customers’ priorities. Others are building out digital channels for faster, easier transactions and communications, such as mobile applications for auto and health claims processing. And some are reducing cost, error rates and rework by shifting from repeated manual data entry to electronic straight-through processing.

 What do you think?

I’d be interested in your experiences trying to introduce digital and your thoughts on this middle ground.

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