The benefits of investing in technologies such as artificial intelligence (AI) and big data are wide ranging; they include higher revenue, increased efficiency and stronger customer relationships. Our ongoing study of insurance organizations’ digital maturityi revealed as much when it found that 85% of respondents said they were investing in their digital agendas to explore these technologies.
In the past, however, a fragmented approach to digital adoption has impeded insurers’ ability to implement the process and business-model changes necessary to drive revenue, profitability, and other targeted business outcomes. This fragmentation has meant that initiatives are implemented in isolated pockets and a digital plan is as good as non-existent.
Digital transformation requires a clear strategy that is based on an accurate understanding of the digital “as-is” state — that is, the company’s “digital maturity.” This will help insurers to be better positioned to create and apply a comprehensive digital plan to stay ahead in this highly competitive industry.
Measuring digital maturity
Our Digital Maturity Diagnostic (DMD) framework uses insight gleaned through self-assessments by senior business and IT executives at multibillion-dollar companies. The tool examines five areas of digital maturity:
Core business functions.
To assess digital maturity, the framework compares and analyzes responses against a benchmark database. In essence, it measures two fundamental qualities essential to any digital transformation effort — a company’s digital capabilities, or the degree to which it embraces digital; and a company’s transformation capabilities, or its ability to drive and embrace change.
Progress varies across the industry
Although our DMD survey is ongoing, it has already uncovered a pattern in which insurance companies fall into one of three digital-maturity categories:
Digital Dominators have high scores across both the digital capabilities and transformation capabilities dimensions. They embrace digital tools and are well-positioned to benefit from them. According to the survey results, personal property and casualty (P&C) insurers are, in general, more digitally mature than other types of providers. As a group, commercial insurance organizations report the lowest levels of digital maturity (see Figure 1).
The survey also shows a strong correlation between digital maturity and financial performance, with Digital Dominators experiencing higher revenue growth and profitability compared to less digitally mature companies.
Learning from the leaders
The survey provides insights into digital leaders’ strategies that other insurers can use to guide their own decisions. These include:
Innovation labs. Digital Dominators’ innovation labs stand out because they are more likely to be integrated into the business, work in partnership with an ecosystem of internal and external partners, and be regarded as an organizational strategic initiative.
Analytics. Digital Dominators also stand out in their extensive use of data analytics tools that use AI and machine learning technologies. All Dominators have well-developed predictive analytics capabilities.
Automation. Digital Dominators not only embrace robotic process automation, but they also take it to the next level by deploying intelligent process automation.
More broadly, Digital Dominators are more likely to have adopted digital-transformation best practices. For example, Dominators differ from Dabblers in how they use data, approaching it as a perishable asset and leveraging it to create real-time, actionable insights.
The insurance industry has been a sophisticated user of technologies in the past, as evidenced by its adoption of technologies such as enterprise systems and the cloud. However, the digital revolution brings new challenges and opportunities that require more advanced skills and approaches.
Most important, insurers that seek to digitally enhance their organization must transform their culture by injecting digital thinking into their DNA. Cultural change isn’t easy, and it must be driven from the top, with a strong executive vision and a strategy that is well articulated across the organization. The right culture effectively fuses business and technology. It also engages the organization in using digital tools to satisfy customers, recognize potential market disruptors, and help the company become a disruptor in its own right.
i The Digital Maturity Study is an ongoing benchmarking study conducted by Cognizant. Results are based on an active online study of 25 large U.S. insurance companies, covering property and casualty (personal and commercial), life and annuities, retirement and group benefits lines of business. Company sizes range from $3B to more than $40B in annual revenues, with an aggregate total of more than $250B. Initial benchmarks were set by surveying senior business and IT executives from October to December 2018.
How Insurers can Excel by Operating through a Digital Maturity Looking Glass