Building a digital foundation in the insurance industry
Insurers today face a host of digital to-dos if they want to stay competitive—much less gain an advantage. These undertakings include digitizing the customer experience, building digital offerings and business models, and constructing in-house digital capabilities. Underpinning them all is the question of how to adapt legacy IT systems and architectures to the needs of digital business models. This challenge can require new front-end architectures to mimic the mobile-first customer experience of digital natives. It can also necessitate a fundamental overhaul of core insurance systems to digitize end-to-end customer journeys and automate decision making in basic functions such as underwriting and claims handling. The prospects are daunting.
Most insurers need to overcome significant constraints in their current IT landscape. For example, BCG research shows that about 35% of all applications in the industry run on legacy technology stacks that are not “cloud ready” and that a similar percentage of incumbents still rely on static HTML-based digital channels that do not work well on mobile devices—the consumer’s digital device of choice.
We recently understood the readiness of insurers to go to digital transformation. We interviewed CIOs and IT architects at leading insurance companies and we analyzed the main IT trends on the basis of four years of architecture benchmarking with top insurers in the market.
Insurance CIOs and other IT executives will not be surprised to learn that we found multiple pain points at all levels of IT architecture. For example, only 36% of insurers use a central customer-data repository or CRM application to engage with clients, and only 64% have mobile apps. Such shortcomings limit insurers’ ability to gain a full view of client needs and to provide omni-channel interactions. The average age of core insurance systems in the companies we interviewed and benchmarked was 13 years.
KEY TRENDS, DEVELOPMENTS, AND BUILDING BLOCKS
The complexity of the digital IT challenge is due to the sheer number of technology trends and developments that have an impact on IT. There are following trends including social media and mobile technology, the Internet of Things (IoT), open ecosystems, big data and advanced analytics, and cloud computing.The combination of these digital developments affects the entire IT landscape, which leads many insurers to go beyond building digital channel functionality and undertake an integrated front-to-back overhaul of the IT landscape.
This layer provides device-, location-, and context-aware customer interfaces and enables digital companies to deliver tailored advice and recommendations, as well as a rich multichannel, multi-device digital customer experience. More than $4 billion of venture capital is backing innovation in omni-channel user-experience platforms, social-network listening tools, and IoT and telematics platforms.
By using RPA based decision engines and artificial intelligence, this layer offers tailored customer-centric services based on segments and personalized risk profiles. In contrast, legacy systems, in which core business processes (such as pricing and underwriting) are “hard coded,” allow for only static decision making based on broad customer segments and statistical patterns.
Core Insurance Systems
This layer contains all systems of record for the core insurance business (the policy-administration, claims, and billing functions) and its support (risk management and finance, for example). Digital platforms integrate modular product architectures and “zero touch” processes.
This layer allows for scalable high-performance digital services and rapid time to market for new digital solutions. Cloud solutions replace on-premises legacy systems that depend on (expensive) self-owned data centers and a central team to manage the IT infrastructure and provide IT services.
This layer manages these two functions by decoupling front-end from back-end platforms, integrating applications with external parties on the basis of open application programming interfaces (APIs), and managing security and privacy across the IT landscape.
Four factors substantially determine the suitability of each approach for a particular company: speed of change, investment required, implementation flexibility, and appetite for risk. A customer-centric-package approach is the best option for insurers that are looking for mature mainstream digital functionality and don’t see a need to establish a digital competitive edge.
The extent of any insurer’s digital IT task is a factor of its digital business strategy. Insurers should focus on three considerations. First, digital affects the entire IT landscape. Many successful companies take an integrated front-to-back approach that goes beyond mere digital-channel functionality. For those that choose to focus more narrowly, at least initially, the smart-process and decision-management layer is key to offering customer-centric tailored services and maximizing lifetime value.
Second, digital architectural strategy should extend beyond the solutions offered by mainstream software. Most digital functionality today is available through ready-to-go SaaS platforms or open-source software. Third, implementation pathways (such as build or buy) should be carefully designed because they pose radically different investment and risk profiles. Insurers that aspire to radical innovation typically invest in building an internal engineering capability, while those with less extensive goals can rely on mainstream commercial software. Insurers with major legacy IT constraints should take an end-to-end transformation approach. Others have the option of a front-end focus.
The complexity can be confounding, but companies should not be put off. The range of solutions available today, both tailored and off the shelf, vary widely, but they make it possible for every company to determine how best to address its particular circumstances.