Building Your Insurance Software Strategy
“Let’s build an app for that” is not the answer!
By Martin Stewart : 9th of September 2019
As an insurance company, technology has probably been a function within your organization rather than the driving force behind it. Software decisions are often made in reaction to something rather than as part of a long-term strategy. For example, as one of our clients recently experienced, new regulations may trigger the need for system changes to make it fully compliant within a few weeks, rather than having the time to thoughtfully integrate the changes as of an overall insurance software strategy.
Unfortunately, “let’s build a new system or app” is not only used as the solution in moments of urgency but is often the response to dealing with less urgent requests resulting in a host of disconnected or poorly integrated systems.
Exacerbating this situation is that many organizations fail to test and properly incorporate these new developments into the entire operational system. Ultimately this lack of planning actually ends up making the overall solution worse not better.
The roadmap is unpredictable. But to compete, you need a plan.
To compete in the digital age, insurers need to take an adaptable, long-term perspective when it comes to their software decisions. Not only are you facing rapidly changing customer expectations, but you also need to absorb new technology and increasingly deal with unpredictable environments. There is also the unavoidable reality that you will be competing with fast moving and often well-funded Insurtechs. These nimble competitors have a customer-first, technology-led approach to designing and delivering their offerings and will target your more profitable market segments. collections.
With technology advancing rapidly, no business is safe from competitors attacking with better solutions:
- Marketing: Consumers are demanding more personaliZed experiences, which Insurtechs are meeting, using responsive user interfaces, big data, and analytics.
- Products and technologies: Innovations such as the Internet of Things (IoT), the sharing economy, and streaming services are shaping what we insure, and how it’s insured. They have enabled new entrants to disrupt the motor, home, and health insurance markets with engaging offers that build loyalty and drive retention.
- Premiums: Telematics and big data are allowing innovative insurers to offer behaviour-based premium pricing.
- Relationships: Digital insurers are bypassing brokers and agents to deal directly with the customers.
- Claims: Automated algorithms and artificial intelligence are allowing claims to be fast-tracked, while omnichannel service means consumers can lodge a claim and receive a payout from any device, anywhere.
A solid, agile digital capability sits behind every one of these advancements. The reason many of the Insurtechs are continuing to be so successful is because their platforms and software are engineered to be nimble so they can react to opportunities quickly.
To compete, incumbents must take a strategic view of their software.
It’s no secret that insurance companies need to invest a lot more in technology, but they also need to be clever how they go about it. To compete, incumbents need to take a strategic view of their software.
The idea of creating a fully digital insurance software environment so you can compete with Insurtechs and be ready to take advantage of any new opportunities as they arise may sound daunting. But while the technology is new, the experience required to navigate it is timeless. Here are five steps that you can take to develop your insurance software strategy.
1. Start with the business strategy and vision
Every strategy begins with a clear vision. Ask: how does your organization intend to respond to the evolving needs of your customers? What position are you planning to take? Is it important for you that you lead the market, or are you intending to milk the status quo as long as possible?
Regardless of the end outcome you want, in today’s environment you can’t keep up if you have a slow Capex process and fixed annual budget. This means moving the entire business to an agile way of working is important. For this you must ensure every executive within the business is united behind this vision. Cascading down the vision means that your IT plans must mirror the business strategy. This reduces the risk that departments are working in silos.
2. Invest in business efficiency
Look to shift your focus from just sales and growth. Most businesses focus their IT efforts on these two areas at the expense of the core processing areas that comprise the bulk of the work done (both IT and staff). There is no point expanding revenue if the back office can’t keep up or the new sales are losing money. Selling a policy for $90 if it costs you $100 to provide is not smart.
3. Develop a transformation plan to update technology
The “work” technology needs to do is different to what was needed just a few years ago. Your systems should be on a similar technology base so they can seamlessly integrate with each other and remove the need for “special teams” to look after the interface layers and the legacy components. In simple terms, you simply can’t afford to rely on old technology to compete today.
When considering any new platform or software options, it’s crucial they are carefully integrated with your existing systems. This is challenging and is further complicated by the need to continue to meet existing business demand while you are progressively replacing your ageing legacy systems during your transformation.
It’s tempting to try to modernize or replace components one by one and plug the new elements into the existing platform. This usually creates more issues than it solves because it preserves the old ‘best of breed’ architecture that was designed in the days of different technology and business demands.
Another approach some try is to create a fully digital and modernized system in the background and then shift over the entire customer base in one go. This can be expensive and risky. Besides, while you build the new solution over say 2 or 3 years you will effectively need to freeze any significant change in the existing systems, compromising the business.
Instead, we recommend an approach that shifts legacy capabilities over to modern systems sequentially. Identify which of your capabilities can be simplified or improved and then selectively decommission them as you shift them to a new platform. You’ll be able to try options and learn from your decisions as you go while keeping the disruption to your core business to a minimum.
4. Don’t worry too much about fads like blockchain, micro-services and ecosystems.
You read that correctly. Don’t expect blockchain, microservices or ecosystems to drastically change the world. Your software strategy needs to focus on how to serve customers in the best way, rather than with what is considered ‘best of breed’ at that time or the latest new fad.
Selecting the technology first will lead to a lot of components that all need to be likely reconfigured and reconnected. Unfortunately, none of the latest fads come with a magic wand to zap away data concerns and make legacy systems disappear. If an organization can’t do the basics and get their back office in order, blockchain and the rest are just going to cause more trouble than they are worth.
Instead, focus on what is the best way to get the job done to make your customers lives easier. That’s the bottom line. Consider how you can simplify and automate everything for your customers.
Yes, it’s not as glamorous as rolling out JavaScript front or developing a leading edge blockchain solution. But in my opinion there needs to be some old-fashioned time and motion studies to identify the biggest bottlenecks and start with those that are easiest to fix. Look to see where you can invest money to reduce FTE, speed processing, and improve customer service. As you roll out the improvements, you’ll generate returns to make the program self-funding.
5. Hire for the system you want, not the one you’ve got
An effective insurance software strategy must consider the talent that you need to implement it. The best system in the world is useless without skilled operators to drive it.
Hiring the right talent helps drive transformation and really committing to the transformation, in turn, helps attract that talent. Developing a robust insurance software strategy allows you to show your dynamism and customer-centric focus and can help you get talent through the door.
Conclusion
Finally, always work on the assumption there will be more change ahead. You can no longer choose software and technology on the basis that it will be in place as is for the next 5 or 10 years. You need to assume everything could – and will – change. So, select flexibility over functionality because what you think you’ll need today will likely be different to what you will need in the near future.
In the end, a successful insurance software strategy comes back to a business vision founded on being able to change quickly and requires genuine commitment from the leadership to transform your organization from the ground up. It’s not for the faint-hearted, but taken step by step, it will ensure your business thrives in the digital age.