Nearly half insurers worldwide say they lack plan for successful digital transformation
It might as well be the beginning of the millennium for the global retail insurance industry, which trails far behind other industry sectors – retail, media and retail banking – when it comes to adopting digital tools and business models.
Bain & Company, in its new benchmark survey of 70 life and property and casualty (P&C) insurers worldwide, Global Digital Insurance Benchmarking Report 2015: Pathways to Success in a Digital World, suggests the lag stems from a lack of confidence among insurance executives in their ability to execute the digital transition. Almost half of the companies surveyed said they don’t believe they have an achievable plan, and 60 percent are missing some key elements for the journey, such as a clear vision or compliance and risk processes. This inaction has created a vacuum that upstart disruptive companies are rushing to fill with alternative products and solutions that aim to address customers’ frustrations with traditional insurance offerings.
Consumers are setting the pace in the digital arena. A 2014 Bain survey of nearly 160,000 consumers in 18 countries found that the share of digitally active customers ranges from 35 percent to 70 percent. Over the next three to five years, 79 percent said they will use a digital channel for insurance interactions. Yet, the degree of digital adoption varies widely among insurers and across geographies. Even the insurance leaders lag far behind truly digital companies. P&C carriers have an average digital index score of just 48 out of a possible 100, and life carriers have an average of 45-
“Insurers are finding it difficult to simply keep up with the customer’s digital demands, much less imagine a digital future for themselves and the industry,” said Gunther Schwarz, head of Bain’s insurance sector globally and in Europe, the Middle East and Africa (EMEA) and co-author of the report. “As result, they’ve left the door open for a new breed of companies – mostly tech start-ups – to chip away at the insurance market.”
Bain’s research reveals that a successful digital transformation involves six key dimensions:
1. Digitally enhanced customer experiences – Only about half of insurers have specific offerings designed for their digital channels. In the next few years, both customers and insurers expect to see a major shift toward online and mobile channels, and away from contact centers and in-person meetings. Insurers will need to prepare these traditional channels for the change.
2. An omnichannel sales and distribution model – Insurers expect new premiums generated from digital channels to more than double in the next three to five years: in life, from about a 6 percent weighted average of new premiums to nearly 15 percent; in P&C from nearly 10 percent to 22.5 percent. Yet, very few insurers have complete omnichannel capabilities. In life, just over one-third of carriers allow customers to start a transaction in one channel and complete it on another; about 40 percent of P&C carriers have that capability.
3. Optimized operations using digital technologies – The use of straightthrough processing (STP) is rising across most operations, though insurers still rely on manual processing to capture most customer information. About 36 percent of P&C carriers now capture customer information electronically and process the data with STP. Over the next three to five years, insurers expect a roughly 20 percentage point rise in the share of business that will be auto-underwitten and auto-adjudicated.
4. Advanced analytics and Big Data applied throughout the business – Today, the use of advanced analytics is still not common for certain insurance activities. However, insurers anticipate annualized spending growth on Big Data analytics over the next three to five years will reach an average 24 percent in life and 27 percent in P&C.
5. Technology in place to enable a digital transformation – Many insurers expect their IT spending to grow in relative importance over the next three to five years. Life insurers expect to increase IT spending from 3.8 percent of revenues today to 5.5 percent; P&C insurers expect an increase from 3.7 percent to just over 4 percent of revenues. The most common missing systems that most insurers intend to invest in include Big Data analytics, digitally enabled customer experiences, and end-to-end CRM systems.
6. An innovation-ready organization – Insurers have had mixed results in the digital transformation: about 40 percent of transformations among life carriers and 25 percent among P&C carriers achieve fewer than half of the business objectives they set for themselves. Among the elements of change management, compliance and risk are the areas of greatest concern.
“While no one company leads in all six dimensions, certain companies do lead in one or two,” said Harshveer Singh, leader of Bain’s life insurance sector in AsiaPacific. “In the very near future, all insurers will at least have to meet a minimum threshold in each to survive.”
Based on the results of the benchmarking survey, Bain has identified four major pathways that leading insurers have taken to realize digital progress:
The largest group at about one-third percent has the advanced analytical ability to capture data points of interaction with customers. They also have an organizational culture that’s eager and skilled at promoting innovation about how Big Data can be applied.
About 20 percent of respondent companies are digital distributors that have an omnichannel offering, in which online and mobile channels are seamlessly integrated with contact centers and agents. As discussed in a previous Bain brief, “Leading a DigicalSM transformation in insurance,” there’s compelling evidence that a strong Digical offering—one that fuses the best of both digital and physical worlds—results in greater customer loyalty and advocacy.
Insurers that double down on a customer-centric model – about 6 percent of respondents – catalyze their operations around the goal of earning greater loyalty and advocacy among customers. That’s because customers who are loyal promoters of their insurers stay longer, buy more, recommend the company to friends and colleagues, and usually cost less to serve.
About 11 percent of companies maximize opportunities for STP in ways that enhance the customer experience. These effective operators work to simplify processes, using digital technology to automate where appropriate, without compromising the customer’s experience.
More than 20 percent of companies surveyed are not on a clear path and, with some of the lowest levels of digitalization, face a significant disadvantage in making a successful digital transition.
“Today’s innovations will be tomorrow’s standard practices, so there is little time for insurers to waste in stepping up their digital investments. The goal of our research is to help insurance executives understand where to start and how to execute their digital strategies,” said Harshveer Singh.
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