Insurance is about risk assessment, investment and financial provision to policyholders, all of which require robust data and strong quantitative capabilities. Accordingly, insurance companies are scrambling to effect digital transformation; indeed, 71 percent of insurance company respondents to a recent Economist Intelligence Unit survey reported implementing a digital strategy within the last 2 years.
Most survey respondents expect to make further progress in the near term. Two-thirds (67%) of insurers said they expect their organization’s investment in digital technologies to increase in the coming year. One reason: Many of them are already reaping the benefits. Slightly more than half (51%) of insurance company respondents said their digital strategy has produced greater value for stakeholders and/or a greater return on investment.
Yet insurers are not moving as rapidly as other industries to bring digital transformation to every corner of the organization. With the exception of individual business units, every part of the organization at insurance companies — from finance to research and development/innovation to management — is less likely to be using an appropriate range of advanced digital tools with a high degree of effectiveness to enhance their activities.
Starting from behind
One reason for this may be the nature of the business itself. “We start from further behind,” says Gareth Ross, head of Enterprise Technology and Experience at Massachusetts Mutual Life Insurance Company (MassMutual). “Our contracts not atypically run for 40, 50 or 60 years with our customers, and the same systems have been in place throughout many of those. We have to build digital capabilities that move us away from systems that may be older.”
Indeed, 46 percent of insurers — almost half of the survey sample — said their legacy technologies are a hindrance to their digital strategy. And they are more likely than companies in other industries to prioritize “working with clients and employees to leverage digital offerings,” 40 percent naming this as one of the three areas that will be the most critical for their digital decision making in the coming year, compared with 31 percent of respondents overall.
Some insurance companies are moving faster than others, recognizing that developing a successful digital transformation strategy is just as essential for insurance as for other industries. “We’re a digital business already — everything is captured in ones and zeros — but we have to make sure our customers see the value in that,” says James McGlennon, executive vice president and chief information officer at Liberty Mutual Insurance Company, a global Fortune 500 property and casualty insurer. “Digitalization is about making the customer’s life easier and being more transparent as to what our products and services are.”
Artificial intelligence (AI) and machine learning (ML) in particular help insurers that seek to sharpen their risk assessment capabilities, which in turn helps them to more accurately price their coverage, says Ross. This is critical, given that “the middle market has been winnowed down over the years,” making the whole field more competitive for the players that remain.
For example, Liberty Mutual Insurance leverages in-house, custom-built AI tools that identify and analyze anomalies in legal bills the insurer receives. It also uses the internet of things (IoT), which can monitor automobile operation, weather and other conditions, enabling it to produce more accurate risk scores. And Liberty Mutual’s IoT investments through its corporate venture capital fund include “smart houses” with sensors that can detect risks and thereby “help people live safer lives at home.”
Digital development in real time
At the same time, digital analytics help insurers understand their audience better and target their outreach more precisely. “There are underserved people we could reach if we knew more,” says Mr. Ross.
Using these tools to create a more personalized, efficient online environment with fewer of the time-consuming chores that attend traditional paper applications might also encourage more new clients to buy, he adds. For example, since select individuals’ medical histories are now readily available online with those customers’ consent, the insurer can gather this data itself rather than requiring the applicants to do so.
As a group, insurance companies are less likely than companies overall to see agility as a leading benefit of a well-managed digital transformation (63% vs. 75%). But MassMutual and Liberty Mutual are both creating smaller, more agile tech development teams: “two-pizza teams,” McGlennon calls them, citing the idea, credited to Jeff Bezos, that meetings are more productive when limited to the number of attendees who can be fed with two pizzas. These enable insurers to quickly develop, test and activate new digital tools that offer advantages to their clients and, in the case of Liberty Mutual, to the independent brokers it works through.
MassMutual has gone a step further. It set up a digital development and data science team five years ago that helped it create Haven Life, a purely online operation — separate from its existing structure — that sells insurance digitally to new customers.
“Rather than taking the existing workforce and evolving it, we instead built new capability layers in web and mobile environments, separate from our prior capabilities,” Ross says. This enabled MassMutual to move quickly to develop online services “on a par with modern digital companies” without disrupting its older client relationships.
New business flows through the digital unit, although data is shared back and forth with the older structure. Meanwhile, MassMutual continues to create and implement new features and services through its data science and engineering group, which now includes more than 100 people, as well as additional development groups.
These teams work on a variety of initiatives, ranging from LifeScore Labs, a data-driven risk-scoring model that it offers to life insurers, to a streamlined application process that gathers and analyzes medical and other necessary data without any assistance from the applicant, drastically reducing the amount of time it takes to go from inquiry to policy activation.
Both MassMutual and Liberty Mutual operate venture capital funds that not only invest in new digital technologies but enable them to track new developments that could help improve operations and customer service for the entire enterprise.
While not all insurers are committing the same level of resources to digital transformation, their collective development priorities resonate in the results of our survey. Nearly two-thirds of insurance respondents (64%) say their organization’s digital strategy is central to its business strategy, and the same percentage say business and digital strategy formulation are well aligned.
Perhaps most intriguingly, 25 percent say augmented or virtual reality will play a more significant role in their digital strategy 3 years from now, almost double the proportion who say it currently plays an important role. This suggests insurers are expanding their horizons in their search for better tools to model and understand risk.
Given the data-intensive nature of the business, insurers are prioritizing moving operations to the cloud to cut computing costs, while the steady migration of customers to mobile environments prompts them to develop more capabilities tailored to their demands. As a result, insurers are more likely to say that cloud computing and mobility play a significant role in their digital strategy (42% each) than any other technology or practice.
Accomplishing all of this, while frequently playing catch-up with other industries that have digitized faster, requires a large investment in infrastructure and talent, as well as commitment from the top, Ross says. Insurers cite lack of a digital-savvy workforce as the top barrier to implementing a digital strategy (39%, compared with 33% of survey respondents overall) and commitment by the board and C-suite as the key driver of success for that strategy (38%). “Data science is expensive,” Ross says. “Either you can afford to continually update — and it’s very complex — or you can’t. If not, you’ll be left behind.”