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Digital agility for insurers: the key to future readiness

Shane Cassidy

After decades of operating on risk-transfer and risk-pool principles, the foundation of the insurance industry is now being threatened by a variety of game-changing new technologies. And, that’s forcing what was typically a slowly-evolving industry to quickly face numerous possibilities, all of which could have profound implications for how insurance will operate in the future.

For example, as robotic process automation (RPA) and artificial intelligence (AI) enable automated, real-time transactions, insurance could shift to on-demand, micro-duration coverage for risk pools of one. What’s more, the adoption of blockchain may significantly alter operating models, and the internet of things (IoT) and telematics could drive new revenue streams based on risk mitigation instead of risk transfer.

Equally important, insurers must consider a range of external factors – from regulations to generational preferences, and new consumer trends that may also significantly impact how tomorrow’s insurance lines are designed. For instance, widespread adoption of driverless cars would require auto insurers to rethink the nature of customer relationships, policy coverage, and core processes such as underwriting and claims.

How are insurers to prepare?

The best way for insurers to become future-ready is by improving their agility or the ability to comprehensively respond to the challenges of rapidly changing, continually fragmenting markets. In a world where customers operate by the second, only agility – built on a strong digital foundation – will equip insurers to respond effectively.

In the near term, the industry faces disruption on many fronts. The preferences of customers are evolving as they sample new products and services in other aspects of their lives and begin to expect similar innovation from insurers. At the same time, increased competition and lower interest income are forcing insurers to deal with rising margin pressures.

Furthermore, market developments such as the sharing economy or peer-to-peer models are driving new profit-generation formulas in insurance, and market dynamics are changing as digitally agile BigTech and InsurTech players tap into industry opportunities.

Political, technological, and environmental shifts across the globe are changing the nature of risk, making it critical for insurers to identify and account for new types of risks in their products.

To meet the pace of change in the insurance industry and to develop the newly required competencies, digital capabilities will be more and more critical for insurers so as to be able to respond promptly.

When surveyed for the recently-launched World Insurance Report 2018 (WIR), insurers across subsectors unanimously agreed that evolving customer preferences were the most critical factors driving the need for digital agility.

Key factors driving the need to enhance digital agility: insurers’ view (%), 2018

Source: Capgemini Financial Services Analysis, 2018; WIR 2018 Executive Interviews.

What is digital agility and how can an organization effectively build it?

Digital agility includes practical development of digital capabilities for use within a nimble digital infrastructure that allows speedy insights and action. The WIR 2018 proposes a holistic framework for insurers to enhance their digital agility though synergistic InsurTech capabilities.

Insurers must develop InsurTech capabilities at all operational layers – real-time data capture at the customer interface supported by advanced analytics tools – to enable real-time insights and digital execution to allow streamlined operations.

Digital agility – a key to long-term success

Source: Capgemini Financial Services Analysis, 2018.

Real-time data capture can help insurers build a rich database of customer information and deep insights critical to the development of innovative, timely, and personalized offerings.

However, for real-time data to be beneficial, it must be supported at the data layer with advanced analytics tools that can process it and extract actionable insights.

Finally, digital execution and automation ensure that the real-time insights are acted upon promptly, as even small delays can have substantial consequences in today’s dynamic and competitive marketplace.

Where does the insurance industry stand today?

In the quest for digital agility, the majority of insurers surveyed said they are allocating budget and making investments to build real-time data capturing capability. However, less than 20% said they were ready with a complete front-end and back-end infrastructure.

When it comes to real-time analytics, the majority of insurers said that they use advanced analytics on static data at more granular levels, while more than 25% across subsectors said they are also ready to analyze real-time data.

Insurers across subsectors were most prepared for digital core transformation, with more than 25% already at the highest level of readiness, such as using RPA and AI to design smart core processes.

Our framework identified two key enablers for building InsurTech capabilities – collaboration with InsurTech firms and a cloud-native approach. Collaboration offers incumbents access to agile, innovative, and cost-efficient operating models that InsurTech firms – unconstrained by legacy infrastructure – can implement quickly. A cloud-native approach can provide the required scalability and speed.

The WIR 2018 explores how improved digital agility can empower insurers to build future-ready operating models via a digitally-integrated ecosystem that ensures enhanced customer engagement and operational efficiencies.

With a future ripe with possibilities yet riddled with challenges, digital agility will hold exceptional value in the quest for a competitive edge.