Laura Drabik, Chief Evangelist, Guidewire
How Not to Build a Digital Insurance Platform in 4 Easy Steps. Consumer digital adoption trends and disruptive service models shuffled the deck for P&C insurers in 2020. But just as in other industries, established insurance brands can rest easy. Digital-first challengers never really stand a chance against entrenched, name-brand incumbents—just ask Blockbuster, Sears, and Barnes & Noble; or do they?.
Like it or not, digital disruptors like Amazon, Google, and Netflix didn’t just transform their own industries. They also paved the way for insurance-focused digital-first challengers like Lemonade, Root, Ladder, and others aiming to do the same in ours.
As McKinsey points out, they have some killer advantages. There’s endless capital investment, like the $1.13 billion that went to just eight digital challengers during the first quarter of this year—a new record. They’ve got greenfield tech infrastructures that enable them to launch innovative new products faster than some incumbent product teams can build a PowerPoint presentation. Oh, and their convenient emphasis on growth over profits? That’s a nifty plus, too.
For traditional insurers hoping to remain competitive in this kind of environment, the question isn’t whether they should launch their own digital businesses. According to KPMG, it’s how.
Some will crack the code quickly. Others may waste an astonishing amount of time, money, and market opportunity in the process. And some won’t succeed at all. So, in the interest of helping you sidestep painful and costly lessons, here’s how not to build a digital insurance platform in four easy steps.
Step #1: Slap Lipstick on Your Pig
By all means, traditional insurers should reuse legacy systems in their newly digital businesses. After all, who doesn’t love to maximize existing investments? Yes, these systems could burden your new venture by enforcing the same inflexible processes and data models that already enable digital challengers to run circles around you. But some may ignore common sense.
Digital insurers, on the other hand, typically run all or part of their operations in the cloud. As McKinsey points out, this gives them access to leading-edge technologies without the operational overhead and capital expense. They can easily connect multiple different platforms and applications using APIs, enabling them to rapidly prototype and deploy new products and services—and scale capacity to meet changing needs—faster than most traditional insurers.
“When you want to combine new technologies with old legacy systems, you spend a lot of time in integration, and that doesn’t make you fast in delivering the product,” says Aviva Italy COO Vittorio Giusti. Giusti led the launch of AvivaPlus at Aviva Italy, a digital insurer that enables consumers to purchase and manage flexible coverage via mobile phone. “We were free to design the system we wanted, around the proposition we wanted.”
In most cases, digital insurers develop the front-end CX themselves. But the core insurance system can come from an established platform provider and then integrate additional capabilities to meet ever-evolving customer needs.
“Developing the platform ourselves is too cumbersome, ” says Thomas Erichsen, CTO of Topdanmark, a 100-year-old Danish insurer that recently began modernizing its operating models. “We made a strategic choice to simply utilize the innovation power” of proven platforms and their partners.
Step #2: Only Sell & Service Coverage Through Humans
Nothing earns all the feels like forcing digital consumers to talk to a live agent—or having your human service reps ask questions the customer has already answered in another channel.
Indeed, the benefits of this approach are plentiful. The last thing you want is to attract consumer segments with the nerve to expect 24/7 service through whatever channel they please. Plus, siloed data is a great way to help marketing and service teams fly blind—limiting their acquisition, upselling, and cross-selling potential like nobody’s business. Literally.
In contrast, digital challengers build or source their digital platforms to support data-driven, omnichannel customer experiences across text, chatbot, web, IoT, and human-based service—or any mix thereof. A customer can start an interaction in one channel and continue it in another, without the insurer ever missing a beat. These innovators understand, as McKinsey has noted in a recent article, that a “user-first” omnichannel approach that balances the digital and human elements of the customer experience is critical to an insurer’s ability to remain competitive.
As McKinsey points out, digital challengers’ sales and marketing teams work more like Amazon than an old-school incumbent. For one thing, they have cross-disciplinary expertise in data science and conversion optimization, with the ability to mine data and serve up highly personalized content, products, and services.
“Customers now expect things to be faster, they want it to be easier, instantaneous, intuitive,” said Insurance Australia Group Enterprise General Manager Kylie Burtenshaw, who leads IAG’s efforts to transform itself into a digital insurer. “They expect us to preempt their needs.”
For example, digital insurers might send tailored messages to a customer or prospect about new auto policies when his son turns 16. Or a rep may bring it up during a live interaction. The power of this kind of omnichannel experience in helping digital challengers build rock-solid customer relationships is nothing short of amazing. But you do you.
Step #3: Bolt Insurtech Band-Aids to Your Legacy Systems – Over & Over Again
Yes, digital challengers have a lot going for them. So it’s a good thing incumbents have an infinite amount of time and resources to bolt the latest insurtech Band-Aid to their many legacy systems. Not just once, but over and over again with each new application upgrade.
Tethered to legacy systems, carriers who want to leverage insurtech value propositions in a connected fashion are forced to bolt the insurtech application over and over again to different, disparate legacy systems. With the average Tier 1 having over 70 disparate legacy systems with an average age of 25 years each, valuable time is wasted in creating one-off integrations.
Digital insurers think differently, of course. To them, insurtech isn’t a Band-Aid used to cover a blemish or hide missing functionality in the legacy system. And it’s not just for customer-facing innovation, either. Instead, digital challengers seek best-of-breed insurtech vendors that can accelerate and enhance even the most mundane back-office efficiency efforts. They also don’t try to bolt these new capabilities onto outdated systems (see Step #1). They know that success hinges on blending latest-greatest with tried-and-true—insurtech with maturetech.
Nimble digital insurers run proven, cloud-based core systems built specifically for managing the regulatory and operational complexities of the insurance business. And they pair it with an ecosystem of pre-validated insurtech solutions that integrate quickly and take full advantage of the platform’s data and functionality.
With pre-built insurtech integrations for Guidewire, for example, insurers can launch everything from digital self-service, to texting-based claims workflows, to personalized, usage-based insurance (UBI) and more. As part of the industry’s largest insurtech ecosystem, hundreds of different partner solutions are easily implemented once and then update automatically—without interruption.
Step #4: Make Do With A Data Warehouse
Let digital challengers fall for all the hype around big data, predictive analytics, and artificial intelligence. Throwing up a data warehouse will do just fine. Sure, you’ll have to build queries that’ll have to be reworked every time you want to add a field. And yes, you could wait weeks or months only to get buried by stale, unactionable data. But at least you know what to expect.
Digital challengers do an end run around all that. For them, data, analytics, and AI aren’t afterthoughts. They’re embedded within their entire business models. That’s why so many gravitate toward digital platforms that leverage first- and second-party customer data to unearth insights that can boost conversions or improve retention and profitability. Today’s most robust platforms also tap Internet-scale third-party data sources to help price risk accurately while delighting customers with fitted coverage.
And then there’s the moment of truth for every insurer—claims. Successful digital insurers leverage AI to help automate and orchestrate data collection and claims processing, identifying low-severity claims that can be automated through repair and payout, while routing more complex claims requiring nuanced judgement and empathy to human adjusters.
Four Ways to Fail (And Two Ways to Win)
As the insurance industry moves into what Oxbow Partners calls a Platform Age in which cloud computing and API-driven integrations ensure technology permeates every single facet of our business, all insurers will become digital insurers. Or else.
The four steps I’ve presented here should make the playbook of any organization with the focus and commitment needed to fail at building a digital insurance platform. For everyone else, there are two ways to do the opposite. First, avoid these four steps at all costs. And second, make sure you build or choose a platform that enables you to innovate quickly, engage consumers digitally, and achieve efficient, sustainable growth—no matter what comes next.
In the battle against digital challengers, it’s the only way to successfully bite back.