Is Digital Disruption in Insurance a Blazing Meteor or Environmental Warming?

By Arianna Valentini, Insurance Customer Communications Management Expert, Quadient

Toronto, ON (Apr. 2, 2018) – Like every mature business enterprise, insurance companies are not blank slates—they are established companies with established ways of doing business. Those established methods are sometimes focused on price, sometimes on product or the customer experience, but all insurers have a well-determined strategy and an organization built around them.

Startups in the insurance industry look at traditional insurers and see lumbering dinosaurs. In some cases this view may be accurate, but it’s important to remember that dinosaurs roamed the earth for 180 million years because they were very good at being dinosaurs. Similarly, traditional insurers today are very good at being the kind of insurers that they are.

There is little question that understanding the ultimate impact the digital and technology revolution will have on the insurance market is the single most important question facing insurers today. But I believe that some insurers have been looking at digital disruption in the wrong way. While it may be the case that in some areas digital has the potential to radically transform the insurance market, I anticipate that in much of the market, digital will turn out to be more of a slow environmental transformation rather than a world-shattering meteor.

Each insurer must look at its own market, products and organization and decide if digital is just warming things up slowly or hitting the ground as a blazing meteor. If this change is a meteor, it may be time to look at acquisition strategies. If this change is environmental, then the considerations are different. In those cases, a digital strategy isn’t going to fundamentally change the insurer’s nature. Instead, technology and digital strategies will be used to reinforce their current strengths, not transform them into something they are not.

In other words, an insurer’s already-determined strategy and focus should set the stage for how it approaches digital technology, not the other way around.  With this in mind, let’s consider some traditional insurer structures and strategies, and ways that digital can fit into what these companies are already doing.

One common insurance strategy is to focus on price. A low price strategy is often used in personal lines, because most automobile and homeowner’s insurance products do not differ widely between companies. Innovation in personal lines tends to be more focused on creative distribution and service delivery, rather than on innovation in the insurance product itself. There is potential for disruption on the product side, most notably in the areas of autonomous cars, telematics, and “pay as you go” products. However, a company that is focused on price rather than product innovation also has some interesting digital strategies to pursue. Automation and efficiency are the traditional benefits of technology investments, and in this situation each insurer must decide which technologies have the highest potential return.

Cognitive computing is one technology to consider, as it could fundamentally transform the cost structure of an insurer by automating the routine administrative tasks that drive so much of insurers’ cost structures. What would an insurance company that fully embraced cognitive computing look like? No one really knows, but my best guess is that it would not much resemble the companies of today.

Another typical insurance strategy in personal lines is to focus on customer experience. The thinking behind this strategy is that if products do not differ between competitors, then service can be a key differentiator. Executing on a customer-focused strategy is not a new idea in insurance, but traditional distribution channels create major challenges. Direct writers sell over the web or through the phone, both of which are traditionally low-touch, low-experience channels. The major alternative distribution channel is through independent agents. In this second channel, insurers have outsourced much of the customer experience to these agencies, over whom the companies have limited control. In either case, if an insurer is focused on improving customer experience, then that insurer must have a strategy that both maximizes customer touchpoints and ensures that each of those touchpoints is positive. As a result, technology has a major role to play in this strategy.

For agency writers, building a new distribution channel is not feasible and the digital strategy has two parts. One, enable agents with technology to provide customers the digital experiences those customers want. Two, build direct contact with those customers through mobile and web. For direct writers, technology provides the only contact channel, so these companies must focus on improving what they are already doing. In either case, technology investments in customer communications are critical, because most insurance customers do not have routine contact with their insurer. Insurers must maximize the value of these outbound communications, because these communications may be the only available touchpoints.

These two approaches are far from the only viable ones available to insurers. Insurers focused on product or underwriting excellence will take advantage of the revolution in data analytics to create new kinds of insurance products and price those products more precisely. Insurers focused on distribution innovation will use digital technologies to deliver their insurance through new channels to new customers in new markets.

In all cases, insurers that are not facing complete market disruption should adapt their current structures to this new environment, rather than attempting to become something altogether new. Building an effective digital strategy will require insurers to carefully evaluate their market, their organization and their goals to decide where to invest in digital, and how best to achieve the highest return on those investments.

About the Author

Arianna Valentini is insurance customer communications management expert at Quadient, a leading provider of customer communications management software.  Prior to joining Quadient, Arianna was an analyst at top industry analyst firms, IDC and InfoTrends, where her research focus was on the impact of technology accelerators. She can be reached at [email protected].

About Quadient

Quadient helps companies deliver meaningful interactions with current and future customers. A Neopost Digital Company, the Quadient portfolio of technology enables organizations to create better experiences for their customers through timely, optimized, contextual, highly individualized, and accurate communications for all channels. Our solutions bring together and activate the entire organization in the name of customer experience, through better collaboration and visibility into the customer journey. Quadient supports thousands of clients and partners worldwide in the financial services, insurance and service provider industries in their quest to achieve customer experience excellence via mobile, digital, social media and print technologies.

SOURCE: Quadient

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