The 2nd Watch team attended the Reuters Insurance AI and Innovative Tech conference this past month, and we took away a lot of insightful perspectives from the speakers and leaders at the event. The insurance industry has a noble purpose in the world: insurance organizations strive to provide fast service to customers suffering from injury and loss, all while allowing their agents to be efficient and profitable. For this reason, insurance companies need to constantly innovate to satisfy all parties involved in the value chain.
But this is no easy business model. Ensuring the satisfaction and success of all parties is becoming increasingly more difficult for the following reasons:
- The expectations and standards for a good customer experience are very high.
- Insurers have a monumental amount of data to ingest and process.
- The skills required to build useful analyses are at a premium.
- It is easy to fail or get poor ROI on a technical initiative.
To keep up with the revolution, traditional insurance companies must undergo a massive digital transformation that supports a data-driven decision-making model. However, this sort of shift is daunting and riddled with challenges throughout the process. In presenting you with our takeaways from this eye-opening conference, we hope to address the challenges associated with redefining your insurance company and highlight new solutions that can help you tackle these issues head-on.
What are the pitfalls of an insurer trying to innovate?
The paradigm in the insurance industry has changed. As a result, your insurance business must adapt and improve digital capabilities to keep up with the market standards. While transformation is vital, it isn’t easy. Below are some pitfalls we’ve seen in our experience and that were also common themes at the Reuters event.
Your Corporate Culture Is Afraid of Failure
If your corporate culture avoids failure at all costs, then the business will be paralyzed in making necessary changes and decisions toward digital innovation. A lack of delivery can be just as damaging as bad delivery.
Your organization should prioritize incentivizing innovation and celebrating calculated risks. A culture that embraces quick failures will lead to more innovation because teams have the psychological safety net of trying out new things. Innovation cannot happen without disruption and pushing boundaries.
You Ignore the Details and Only Focus on the Aggregate
Insurtech 1.0 of the 2000s failed (Metromile, Lemonade, etc.), but from failure, we gained valuable lessons. Ultimately, they taught us that anyone can grow while unintentionally losing money, but we can avoid this pitfall if we understand the detailed events that can have the greatest effect on our key performance indicators.
Insurtech 1.0 leaders wanted to grow fast at all costs, but when these companies IPO’d, they flopped. Why? The short answer is that they focused only on growth and ignored the criticalness of high-quality underwriting. The growth-focused mindset led these Insurtech companies to write bad business to very risky customers (without realizing it!) because they were ignoring the “black swan” events that can have a major effect on your loss ratio.
Your insurance company should take note of the painful lessons Insurtech 1.0 had to go through. Be mindful of how you are growing by using technology to understand the primary drivers of cost.
You Don’t Pursue an Initiative Because It Doesn’t Have a Quick ROI
Innovation initiatives don’t always have an instant ROI, but that shouldn’t scare you off of them. The results of new technologies often aren’t immediately clearly defined and can take some time to come to fruition. Auto insurers using telematics is an example of a trend that is worth pursuing, even though the ROI initially feels ambiguous.
To increase your confidence in documenting ROI, utilize historical data sources to establish your baseline. You can’t measure the impact of a new solution without comparing the before and after! From there, you can select which metrics to track to determine ROI. By leveraging your historical data, you can gather new data, leverage all data sets, and create new value.
How can you avoid these pitfalls?
The conference showed us that there are plenty of promising new technologies, solutions, and frameworks to help insurers resolve these commonly seen pain points. Below are key ways that developed new products can contribute to a successful digital transformation of your insurance offerings:
Create a Collaborative and Cross-Functional Corporate Culture
In order to drive an innovation-centric strategy, your insurance company must promote the right culture to support it. Innovation shouldn’t be centralized, and you should take a strong interest in deploying new technologies and ideas by individuals. Additionally, you should develop a technical plan that ties back to the business strategy. A common goal and alignment toward the goal will foster teamwork and shared responsibility around innovation initiatives.
Ultimately, you want to land in a place where you have created a culture of innovation. This should be a grassroots approach where every member of the organization feels capable and empowered to develop the ideas of today into the innovations and insurance products of tomorrow. Prioritize diversity of perspectives, access to leadership, employee empowerment, and alignment on results.
Become More Customer-Centric and Less Operations-Focused
Your insurance company should make a genuine effort to understand your customers fully. This allows you to create tailored customer experiences for greater customer satisfaction. Empower your agents to use data to personalize and customize their touchpoints to the customer, and they can provide memorable customer experiences for your policyholders.
Fraud indicators, quote modifiers, and transaction-centric features are operations-focused ways to use your data warehouse. These tools are helpful, but they can distract you from building a customer-oriented data warehouse. Your insurance business should make customers the central pillar of your technologies and frameworks.
Pilot Technologies Based on Your Company’s Strategic Business Goals
Every insurance business has a different starting point, and you have to deal with the cards that you are dealt. Start by understanding what your technology gap is and where you can reduce the pain points. From there, you can build a strong case for change and begin to implement the tools, frameworks, and processes needed to do so.
Once you have established your business initiatives, there are powerful technologies for insurance companies that can help you transform and achieve your goals. For example, using data integration and data warehousing on cloud platforms, such as Snowflake, can enable KPI discovery and self-service. Another example is artificial intelligence and machine learning, which can help your business with underwriting transformation and provide you with “Next Best Action” by combining customer interests with the objectives of your business.
Any tool or model you have in production today is already “legacy.” Digital insurance innovation doesn’t just mean upgrading your technologies and tools. It means creating an entire ecosystem and culture to form hypotheses, take measured risks, and implement the results! A corporate shift to embrace change in the insurance industry can seem overwhelming, but partnering with 2nd Watch, which has experts in both the technology and the insurance industry, will set your innovation projects up for success. Contact us today to learn how we can help you revolutionize your business!