Apr 15, 2019
I know what you are thinking, ‘Yet another article about millennials’. ‘Millennials, millennials, millennials,’ said in my best Jan Brady voice (and if you get this reference you may likely not be a millennial by birth), but perhaps there is more to the millennial mentality than what is widely promoted. Every day, in every corner of the internet, a lot gets said about millennials. A sizeable chunk of this is negative, on the lines of how entitled they are and about how they are parents’ basement dwelling, lazy, selfie-taking, anti-social, narcissists who refuse to grow up.
As R. Buckminster Fuller explained, for most of human history, available knowledge doubled every century. But with more than six billion connected things in use around the world, the duplication of knowledge now occurs in hours, not centuries. In fact, in 2006, IBM predicted that by 2010, the world’s information base would double in size every 11 hours. In 2017, it is likely that we’ve far exceeded that rate.
One doesn’t need to look far to see how the rapid acquisition of knowledge—often referred to as big data—has impacted everyday life. Rather than relying on one-size-fits-all products, companies like AirBnB, Uber and Amazon have leveraged big data, alongside artificial intelligence and machine learning technologies, to offer hyper-customized products that meet the needs of their individual customers.
But despite the explosion of connected devices—from the Amazon Echo to the Nest Learning Thermostat—insurers lag behind their hospitality, transportation and retail counterparts when it comes to leveraging subsequent customer data. As a result, carriers are largely unable to meet evolving customer needs and expectations, particularly as they relate to product customization and a seamless user experience.
What’s driving this inability to break free of the status quo? For most carriers, it’s a result of three key roadblocks: cultural differences, technology limitations and financial constraints. Fortunately, none are insurmountable hurdles, and with an adjustment in strategy, insurers will be well positioned to better serve their customers.
Thinking outside the (leadership) box
According to KPMG’s 2015 New World of Opportunity: Insurance Innovation Imperative Survey, 60 percent of respondents reported that their organization’s biggest opportunity over the next two years was to improve operational processes and the use of technology, followed by the integration of digital technology into business objectives (52 percent) and using customer data analytics to improve underwriting, pricing and marketing (48 percent). Two years later, it is safe to assume that many carriers are finding this easier said than done. Why? Simply put, many don’t have the right leadership in place to spearhead this transformation, requiring them to make a cultural change.
If carriers are serious about their technology transformation, they must look outside their current leadership team—many of whom are older, sometimes unconsciously hamstrung by institutionalized thinking and digitally out of touch—to identify a transformation lead. For organizations that have already made some technology progress, this could mean tapping their chief data scientist or chief digital officer. For others, it might mean recruiting new talent with significant data and digital skills.
Regardless of who leads the charge, they must be empowered to rethink and rebuild current processes from the ground up, especially when one considers that as much as 40 cents of each Euro of premium are spent on operations, marketing, customer acquisition and distribution costs. As carriers look to bring down costs and create new efficiencies, figuring out how their company can leverage big data, artificial intelligence and machine learning can’t be someone’s second job. Those organizations that enable their teams to focus squarely on technology transformation will not only see the best results, they’ll start benefiting from them sooner.
Technology limitations no longer apply
In and of itself, a carrier’s existing IT system cannot meet the digital needs of today’s customers. Consider the fact that a single policy administration system has an average lifespan of close to 20 years. It is inconceivable to expect that a system created two decades ago would have the capabilities to support today’s technology advancements. It simply wasn’t possible, or even thought of, at the time.
But that is not to say that a carrier’s existing technology investments have been wasted or that their legacy IT system cannot be used as a foundation for digital development. By prioritizing investments in program and capability developments—as opposed to system maintenance—carriers can layer big data, artificial intelligence and machine learning functionalities on top of their existing systems. If carriers continue to rely on today’s practice of emphasizing system maintenance, they’ll forever be stuck in the status quo and never be able to capitalize on the full power of big data.
Remaining relevant comes at a price
The question of how insurance executives prioritize IT budgets underscores a larger problem: a lack of broader insurtech-related investments.
While there is no question that the industry has seen an influx of investments earmarked for technology—a recent Accenture report found that insurtech investments in the U.K. tripled to £16.5 million in 2016—total insurtech-related investments are still relatively low. Coupled with the fact that legacy U.K. carriers spend less than two percent of turnover on technology, insurance carriers are clearly hesitant to double down on the power of big data, artificial intelligence and machine learning.
It is understandable why carriers would exercise such caution. Brexit has exacerbated growth concerns and the sector is still struggling to fully recover from the 2008 financial crisis. The industry has also recently undergone considerable consolidation. But with thousands of insurtech startups that offer customized products and a seamless user experience entering the space, failure to invest in such technologies mean legacy carriers risk ceding growth and market share. To remain relevant, carriers should conduct a holistic review of their organization and prioritize technology improvements that will reduce front-end customer friction. Starting piece by piece, rather than jumping in head first, can make a carrier’s technology evolution much more manageable.
The future awaits
While we have more data available than ever before, there is still a world of untapped information waiting to be discovered. Those that will succeed in today’s digital world are the carriers that are best able to leverage big data, artificial intelligence and machine learning to derive customer insights and in turn, offer customized products and a seamless user experience. We can assume the insurance industry will never be the same. What will you do to survive?