In the last few years, agile insurtech startups, unencumbered by legacy IT platforms, brand heritage, and industry orthodoxy have pursued new approaches to insurance, often with a superior customer experience as a central proposition.
Some insurers have been slow to acknowledge this latent threat and are realizing, only now, their creaking IT systems will not allow them to respond quickly enough to new standards that insurtechs are demonstrating.
However, this inertia might not simply be about complacency or a refusal to face the future.
Many businesses are suffering from operational “lock-in”. They are trying to adapt to the contemporary digital preferences of their customers but, because of the perceived cost or complexity of wholesale change, believe moving from the operating models of the past to be a challenge.
Are you at the Tipping Point?
McKinsey reminds us that there is a limited window for insurance businesses who have not faced up to the challenges posed by their insurtech rivals to respond with a business-saving digital strategy. In the US, some sections of the industry are fast approaching the point where laggard incumbents could realistically respond..
So what are the considerations that should be driving your decision making about your legacy systems? How can you tell if the tipping point has arrived?
Are Your Customers Satisfied?
What do your customers think about your digital offering? Have you made it easy for them to find you and stay with you?
Are your customers and potential customers enjoying a seamless digital experience? Are you omnichannel and ‘always on’? Can customers contact you whenever they need and where ever they are. Are you exploiting all the channels and all the digital platforms where your customers are active and where prospects might be present? Do all of your IT systems ‘talk’ to each other. Is your IT function truly ‘joined up’?
Do you have digital self-service tools that makes doing business with you paperless? Can customers make a claim online or acquire real time quotations on their mobile?
If your legacy systems are making it impossible to engineer a simplified customer experience, you may stand to lose business to competitors.
Traditional Product Push?
New insurtech firms are introducing more interesting ways for customers to interact. They are pioneering Gamification strategies that encourage data sharing, and have approaches that reward certain customer behaviours.
Ingenious technologies around machine learning and the Internet of Things (IoT) are short-cutting traditional methods of assessing risk. They are using new data sets to personalize quotes and create deep and enduring relationships with customers.
If your legacy systems are unable to integrate and store new kinds of data streams from remote devices or external partner, they will almost certainly need to do so in the future.
The lesson from Insurtech competitors and incumbent insurers who have made the leap is that digitisation of a business can create significant efficiencies.
McKinsey estimates corrective measures to the digital customer journey could lead to huge profit improvements, with a large incumbent potentially doubling profits over the course of five years with the right changes in place.
Given the shifts in the insurance market that are promising to erode profit margins significantly, those who are not able to streamline their processes through digital efficiencies are likely to lose out.
How Quickly Can You Change?
What is your approach to IT? Do you see IT merely as a cost centre or a strategic function in your business? New approaches to old business problems are being pioneered every day by upstart innovators and hyperscale competitors.
Is your infrastructure and approach flexible enough to compete with them? It might just be that the non-agile development processes that exist within old corporate structures are holding back your digital transformation. In a market place defined by change, for example, it shouldn’t take weeks or months to add a single line of code to an app to accommodate social media integration. But it might also be that you feel your hands are being tied by an inflexible legacy IT system.
Is There Value in Your Legacy?
Some businesses may still see value in their legacy assets, or at least regard them as too expensive to change.
In these cases, a bimodal approach may be considered to manage change, where digital IT is treated differently from foundational IT. This approach prioritises the agile development of customer facing apps and cutting-edge functionality, while risk management, fraud management, and accounting projects are given longer release cycles.
But those institutions dealing with ageing batch processing systems written in increasingly obsolete language may never able to bring the right new products to market quickly enough to make an impact. Incumbent insurers might now be realising the competitive value of the ‘big data’ they possess, but if they cannot unlock this data from the back end and use it to drive innovation it may be useless to them
If not now - when?
The message emerging from McKinsey and others is that only those incumbents whose mindset, processes and systems can support rapid and decisive innovation will be able to face down the threats that are to come.
In the face of nimble start-ups who can undermine your business, or big data giants whose intervention in your sector can destroy your entire business model, flexibility will be key.
If your current process infrastructure is holding you back, it should be a key priority.
Insurers who are seizing the initiative and replacing their legacy systems with process platforms that are agile, responsive and easy to integrate with new technologies, will be best placed to dominate their served markets
Written by Boyko Kotchev
A seasoned professional with over 30 years of industry expertise, Boyko is a true guru in the field of automation of the insurance business, also known as ‘digitalization’. Throughout his extensive career, Boyko has been involved in over 500 customer meetings, over 50 POCs, and countless demos across four continents. He is familiar with every corner of the insurance business and technology to him is like a second language.