Insurers positioning better for digital transformation

Zainab Iwayemi

Over time, insurance providers have transformed in terms of their products, culture, and organisational structure through a gradual and time-consuming process owing to institutional reluctance to take risks and embrace the pace of change in adopting new technology and ways of working.

However, the pandemic forced the industry to accelerate digital readiness programmes through a shift in mindset from established processes rooted in legacy systems, to a more flexible, open and digital mindset having customer first as its guiding principle.

Insurers are getting along well
Companies and customers are already thinking in terms of digital-first through using digital technology, platforms and apps in all areas – from home tech such as smart meters, NEST thermostats, Ring doorbells and smart speakers, to mobile apps, to do their banking and shopping, as well as wearables, and monitor their health.

Insurers, as well, are not left out as they are building their businesses to put the customer experience first through constantly re-thinking the business structure, based on agile principles. In contrast to a silo model – defined as unwillingness to share information – agile enterprise uses a business-oriented operating model instead, with an interdisciplinary team taking full responsibility for the product right from its design to its retirement.

Insurance firms are constantly designing products and delivery terms around the customer need, re-designing the business to be agile enough to bring new and innovative products to market quickly, enable instant decision-making for things like claims, structuring and using data to create products, offers and rewards that are individually tailored to customers, and partnering with other providers to share information and data that can benefit the customer.

Structuring teams around products focuses the teams on business delivery and outcomes, rather than tasks to enable businesses to deliver products at speed, whilst also improving standardisation and service levels, and fosters collaboration,. This allows for focus on creating teams around product delivery and support to allow insurers rebuild their businesses and also focus on agility and the customer-first mindset.

Analytics-to-value; the new digital technique insurers need to adopt
Over time, organisations have adopted Design-to-value (DtV) programme – a product cost management tool to optimize product cost and value at the same time. While this can account for up to 50 percent of a manufacturer’s cost-based on managing the costs of components and raw materials, the pandemic’s economic impact is likely to be deep in many sectors; hence, companies are under intense pressure to drive a new level of material-cost efficiency.

McKinsey proposes Analytics-to-Value (AtV) as one of the most promising new digital and analytics-based that enables drastic increases in product cost and portfolio-optimization efficiency. This is achieved through exploiting product and procurement data – enriched with a wide range of internal and external data sources – and applying a digital version of traditional material-cost-management practices.

AtV generates more insights in a shorter timeframe – often within a few days or weeks – at scale and across the entire portfolio through leveraging the power of data and analytics. In addition, it uses a broader range of cost-optimization tools and approaches than DtV, as it covers everything from portfolio, product, and component design to sourcing.

The AtV approach can help insurance companies focus on solving for specific, business-generated use cases rather than becoming attracted to the newest technologies. Too often, companies lead with technology – starting with an answer in search of a problem instead of a problem in search of an answer.

For instance, companies often choose a new IT solution, such as an add-on to an existing Enterprise Resource Planning (ERP) system that promises to unlock data silo across the enterprise. But by itself, unlocking data may not achieve much without an understanding of what the data are to be used for or without understanding the specific business use case.

The pillars of analytics-to-value
Analytics-to-value comprises four pillars that can help insurers combine a use-case orientation with greater sustainability and rigor.

Customer value and product design: Having a solid understanding of customers is needed in order to optimize products. In other words, companies must collect the right data to make quantified trade-offs between adding customer value and reducing cost.

Portfolio and modularity: Through the use of modules, platforms, and standardization to reduce internal complexity, companies can optimize their product portfolios to increase margins.

Technical specs and solution engineering: An optimization effort such as benchmarking with competitors’ offerings can have a significant cost impact because excessive technical specifications so often drive product costs.

Components and supply: A company should be focused on optimizing component costs when identifying and securing the best cost point for product and service components.

Insurance providers can apply the pillars of AtV either individually or in combination to create impact at scale. While the first two will fundamentally align a company’s product portfolio with customer preferences by finding the best trade-off between portfolio complexity and internal efficiency, the last two cross-functional project for a given product portfolio can result in a large-scale commercial and technical optimization of direct spend.

Meanwhile, several companies have linked all four AtV pillars in a holistic AtV transformation, establishing an entirely new way of working for product optimization, including building AtV capabilities in organizations and establishing the necessary tools and systems, as well as governance.