Digital is Disrupting Insurance

Transform Your Infrastructure to Win in the Digital World

Customer obsession is the driving force for digital transformation in every industry. However, some industries, such as finance/insurance, have decades of legacy technology they must evolve to become more agile and customer-engaged. Third parties can assist these efforts with significant experience and expertise. In 2017, Ensono commissioned Forrester Consulting to evaluate the status of digital transformation in the insurance industry. Forrester conducted an on-line survey with insurance decision makers responsible for technology infrastructure to explore this topic.

KEY FINDINGS

•The insurance industry is well on its way to going digital. Digital transformation has become the norm for companies across all industries, and insurance is no different. Nearly 70% of insurers in our study reported that their company is on the journey to digitally transform their infrastructure. Their top goals in this process are to better meet rising customer expectations and to derive greater insights through data.

• Digital transformation is essential but challenging and expensive. Insurers understand the necessity to transform their infrastructure, but this process comes with significant challenges. Each stage presents its own difficulties, but the largest challenge faced across the board is cost: Nearly all insurers surveyed (99%) face challenges funding digital initiatives, controlling rising costs of software licenses, and addressing rising support and maintenance costs for infrastructure and software.

• Insurers need help transforming. The insurance industry faces unique challenges when it comes to digital transformation, and they can’t — and should not need to — go through this process without help. Over three quarters of our respondents said they would get value from consulting services (80%), licensing expertise (80%), managed cloud services (78%), and migration services (78%) in aiding their digital transformation acceleration. Getting assistance from key partners is crucial to success in the transformation process.

Insurers Feel Pressure To Go Digital

Digital touchpoints permeate every aspect of your customers’ lives, resetting their expectations to a higher level each time they are exposed to a better digital experience. These expectations come from other industries that do a better job delivering great customer experiences, such as traditional retail banks, direct banks, and credit card providers. As a result, digitally savvy customers increasingly expect insurers to meet their real-time information needs whenever, wherever, and on whatever device that’s convenient to them.

The processes of most traditional insurers languish in today’s digital world. They struggle across the board with claims processing, billing and payments, underwriting, and more, which in turn affects insurers’ ability to process, update, and report transactions in real time. Combined with the growing expectations that consumers have from digital disruptors, this is forcing insurance technology teams to re-engineer their current IT infrastructure mix, data, and skills to create a more dynamic, flexible, and efficient hybrid IT environment—one with the right balance of legacy platforms and emerging cloud and analytics platforms. The solution: Use digital to get more from existing investments.

Insurers are responding: Nearly 70% of insurance decision makers in this study report that their company is somewhere along the journey to digitally transform their infrastructure. While meeting rising customer expectations is the primary driver of these transformation efforts, insurance decision makers are also driven by a need to advance internal processes that ultimately touch customer experience, including deriving better data insights from their customers, streamlining business processes like claims or underwriting, and improving customer satisfaction metrics (see Figure 1). This is evident in the goals of the transformation, all aiming to boost customer experience though self-service capabilities; improve interactions between policyholders and agents, advisors, or brokers; and give customers the choice on how they want to engage (though an agent, call center, or on-line).

But going digital also plays a big role in cutting costs, critical for all insurers. In particular, property and casualty insurers are in a world of hurt right now because of claims frequency. Investing in digital will help them keep down software license costs and control support and maintenance costs for infrastructure and software.

So what have insurers done to meet rising customer expectations? Their efforts have been a mix of improving existing capabilities and implementing new platforms. Most insurers have modernized the platforms or data center environments they own. Almost 60% innovated front-end customer applications and started to use more cloud-capable infrastructure. These changes are a testament to the reality of digital transformation today: It’s not about throwing away all existing systems and starting fresh, but rather finding a balance between legacy technology and emerging cloud and analytics platforms.

Because of their focus on digital, insurers have changed a variety of business capabilities. Customer onboarding and new business processing top the list of these changes, while payments, billing, and underwriting are least affected by the transformation efforts. This suggests two things:

• First, insurers are concentrating on the low-hanging fruit: Customer onboarding is one of the easiest areas to innovate in as it’s typically right before customer information moves into a system of record. The real difficulty (and impact of digital transformation) comes with massaging the data to be put into systems of record. Insurers fall short here. In today’s digital world, insurers can’t afford to be shortsighted; they must improve the entire customer life cycle.

• Second, effective customer onboarding means that customers will self-serve on-line, therefore reducing insurer costs. Yet, findings from this study indicate that insurers struggle to control rising costs.

Insurers Face Challenges

Transforming infrastructure to be more digital is no easy task, but it is a necessary one to meet customer expectations and improve business performance in the digital world.

• Delivering high-quality digital experiences. If the goal of transforming infrastructure is to be better prepared to meet rising customer needs, delivering high-quality experiences is an important part of that goal. However, insurers struggle to deliver great digital experiences across many business areas:

– In customer portals, insurers struggle to extract quality data and insights, integrate legacy systems, and get compliance and legal teams on board with digital transformation. While insurers are oversaturated with customer data, they experience difficulty extracting actionable business insights from data stored on legacy systems.

– In agent portals, insurance technology teams grapple with their legacy systems, as well as persuading agents, brokers, compliance, and legal teams to be open to change. Obstacles like these demonstrate not only the inherent technical challenges with digital transformation, but the significant updates to business processes that also need to be made to deliver success. It comes down to providing portals that offer integrated and real-time access to data, which ultimately improves agent loyalty.

– In digital marketing, most insurers’ top challenge is still integrating legacy systems. They also must confront resistance to change from actuarial and underwriting teams and find the right digital technology providers. Again, processes need to transform outside as well as inside IT to deliver the maximum impact of digital transformation.

– In digitizing and enabling straight-through processing, the main issues insurers face are around integrating legacy systems, standardizing key performance indicators (KPIs) across departments, regaining credibility from previous poor executions, and managing tension between IT and business units. This is an indication that IT is undergoing digital transformation without talking to the business as much as it should. Everything IT does impacts business processes, and clear communication is crucial to meet internal needs.

– In operations, insurers are challenged by conflicting KPIs between departments, difficulty integrating legacy systems, and an inability to extract quality customer insights due to poor data. KPI conflicts indicate the lack of an enterprise-wide governance strategy for digital initiatives.

– In analytics, insurance technology teams face a talent shortage: They’re competing for data science talent with industries that are more advanced in the role that data and analytics play in their strategies; in the mainframe environment, they can’t find the right digital technology providers and lack funding to advance customer experience initiatives. This clearly demonstrates the challenges of aging technology skill sets; many insurers are managing legacy environments written in languages that they no longer teach in schools.

• Controlling infrastructure and software costs. Despite their confidence in their ability to control costs, virtually all (99%) of the insurers surveyed insurers face challenges with funding digital initiatives, as well as controlling rising costs of software licenses and support and maintenance costs for infrastructure and software. When asked about the reasons behind these rising costs, insurance decision makers report that they have too many commercial software licenses; they’re locked in to long-term contracts; and they face high costs when hiring knowledgeable staff to support their legacy systems or developers to update custom-built applications.

• Creating value and insights from customer data. Improving customer experience requires insurers to make data-driven business decisions to provide relevant services at the moment of need. But doing so is hard when companies can’t cull data for insights that drive business outcomes. Every insurer surveyed stated that it struggles at some level with distributing data due to security concerns, accessing data in legacy systems, lacking expertise with advanced analytics, or managing modern database platforms.

The long and the short of it: The same monolithic technology and practices that have kept insurers relatively stable for decades are now holding them back when it comes to digital transformation. Customer experience and improved business performance is hindered not only by reticence to update business processes, but by an infrastructure underpinning that must be selectively modernized to best take advantage of it.

Digitize Your Infrastructure

Infrastructure is the backbone of any business, but the tremors from digital technology is shaking that foundation. To keep up with the pace of change, insurers must take a mixed and nuanced approach with their infrastructure by:

Enhancing or upgrading existing mainframe applications that are essential to the digital experience. Many companies rely on mainframe applications to run their business but struggle to deliver improvements at digital business speed, therefore failing to meet growing customer expectations and necessitating too many manual — and costly —workarounds to meet them. While going digital is a necessity, moving all applications to the cloud is not realistic. Insurers must focus on upgrading only the applications that are critical to customer experiences. These are the applications that “provide essential data to customer journeys; that define and manage the products customers buy; or that manage the processes that guide the customer journey.”  Forty-six percent of insurers in this study say improving application performance is the most important IT change their company could make to improve customer interactions.

Expanding use of emerging cloud technologies. To ensure a better digital customer experience, insurers are making IT changes that increasingly leverage hybrid cloud. Almost half of insurance decision makers in this study use cloud platforms for advanced data analytics. About 40% believe it’s important to expand their use of emerging cloud technologies like mobile or internet-of-things (IoT) and increase reliance on public cloud platforms for systems of engagement. Relying on cloud technology for analytics allows insurers to make data more accessible and cull insights in real time.

Moving applications to the cloud. At the core of the digital business is the ability to adapt quickly. Insurers must invest in hybrid cloud because it fuels business agility by increasing the speed of service delivery, empowering users with self-service capabilities, and improving transparency and flexibility — all helping insurers respond faster to customer needs and while lowering operational costs.

Key Recommendations

Forrester’s in-depth survey of insurance technology teams about digital transformation yielded several important recommendations:

Complacency is not an option. Maintaining the status quo of legacy technology and processes can no longer be relied upon to deliver the experience insurance customers are demanding today. Aging skill sets, inflexible infrastructure, and outdated application license agreements hold insurers back, forcing them to spend more time running their business instead of growing it. Staying this course is not economically feasible.

Take an intelligent approach to the talent supporting analytics. The most valuable asset insurers possess right now is data, but that data is only valuable if you can efficiently garner actionable insights from it to better inform strategies and decisions about customers, agents, and overall business operations. These insights play a large role in creating competitive advantage and differentiating your business in the future. Getting the most value from your data demands specific technology skill sets that are in high demand and hard to come by, a challenge further complicated by an aging mainframe workforce. Instead of spending resources trying to find talented individuals, many businesses are opting to leverage third-party solution providers to fill their analytics skills gap and gain the benefits of the latest best practices and cross-industry analytics innovations.

Bridge the gap with trusted solution partners. While many insurers know they must migrate off older technologies, they often struggle with the effort. Service companies are increasingly being relied on to migrate applications, maintain legacy infrastructure, and renegotiate software contracts. These companies are well-versed in these practices and deliver greater process efficiencies and economies of scale than an insurer could achieve alone. Partnering with experts who understand your business streamlines this critical transition and enables you to allocate resources and focus toward core business goals.

Build agent loyalty through better technology. Many of your digital projects have potential to improve the overall agent experience, driving critical agent loyalty in the process. Agents expect carrier systems to be easy to use and highly reliable. When agency staff can’t get access to carrier systems or the systems are clunky, the staff can’t meet their end customer expectations and will eventually turn to carriers with systems that better align with their business objectives. Implementing a proactive technology strategy that optimizes and better integrates your entire technology infrastructure, across legacy systems and the cloud environment, is an essential step to strengthen the critical agent link. Facilitating ways for agents to accelerate customer service and meet their customers on the channels where they wish to transact helps cultivate higher levels of commitment across valuable agent networks and greatly impacts your overall profitability and performance.

 

Project Director: Andia Vokshi,
Market Impact Consultant

Contributing Research: Forrester’s

Infrastructure & Operations research

group and eBusiness and Channel
Strategy research group

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