Insurtech firms, powered by artificial intelligence (AI), machine learning (ML) and the Internet of Things (IoT), have caused an upheaval in the insurance industry. These nontraditional players have created a new class of offerings that range from capturing behaviors, such as personal driving habits and data from wearables, to preventing loss by using IoT sensors to monitor environmental conditions such as humidity and temperature.
To ensure relevancy and competitiveness, insurance incumbents should take a fresh look at how to apply new digital capabilities to their own value chains — including their products, distribution methods and service models. Based on our work with insurers, we suggest companies pursue three primary digital-engineering goals and share recommendations to achieve them.
Gain first-mover advantage
The first company to introduce an appealing product gains a potentially sustainable competitive advantage. To be first to market, insurance companies need to anticipate customer desires for products and experiences before those desires are even expressed. They also need the right tools, processes and infrastructure to quickly convert these customer insights into products.
Examples of recent innovations:
Rideshare insurance that allows drivers to toggle between rideshare coverage and personal coverage.
Life insurance products that provide discounts to customers who wear activity monitors and that offer connected learning to educate customers on healthy lifestyles.
Apply human science to learn how customers would like to access products, and identify any gaps in current offerings.
Build what will differentiate; buy the rest. To support the buy vs. build decision, determine the value chain components that differentiate your offering (see Figure 1).
Modernize the product architecture. Deconstruct monolithic applications into microservices that can be swiftly snapped together to introduce and distribute new products through new channels.
We helped a large P&C insurer modernize its outdated quote-to-bind to accelerate new feature introductions and improve the user experience.
Solution: Within a year, the rebuilt application included a cloud-native architecture and was rolled out across many U.S. states using a platform as a service (PaaS) cloud model. The solution resulted in 50% shorter release cycles and new feature introductions. And the company attained an 80% faster quote-to-bind process.
Reduce legacy IT costs to fund innovation
The high cost of legacy IT, including infrastructure, application maintenance and upgrades, can starve innovation. Moving applications to the cloud frees funds by shifting capital expense for data-center upgrades to a predictable operational expense. Application maintenance costs drop when monolithic applications are replaced with modular microservices, which enables developers to quickly update features by working on affected microservices instead of modifying an entire application.
Develop a roadmap to gradually move core applications and data to the cloud.
Adopt the cloud version of existing applications. To create a distinctly branded user experience for commercial applications, such as Salesforce, build a microservices-based front end.
Modernize legacy mainframe and server applications by converting them to a microservices architecture.
A leading life and annuity insurer wanted a faster way to build and deploy customized portals for its thousands of affinity groups, each of which expected a tailored experience.
Solution: Using Amazon Web Services (AWS) core components, we built a single, unified portal with a dynamic user interface branded for each affinity group. The solution resulted in a 35% reduction in five-year total cost of ownership for the affinity group portals, due to the managed cloud infrastructure and automation. New web portals could be launched every month versus every three months.
Grow revenue by differentiating the customer journey
In today’s crowded insurance market, even the most appealing new offerings will fail if the customer journey is cumbersome.
Customers evaluate insurance-product experiences based on their convenience, the speed to resolution (such as policy activation or claim payout) and personalization.
Technologies such as electronic document capture and processing, robotic process automation (RPA), and robo-advisors improve serviceability to create a competitive advantage.
Accelerate policy issuance and claims settlement by adopting straight-through processing (STP).
Replace manual data reentry with RPA.
Create a seamless digital experience across the value chain — from engagement to claims.
Build robo-advisors to support customer product selection, next-best action, investment advice and other stressful decisions.
A global insurer sought growth by partnering with airlines, travel agencies and multiple other distribution channels to introduce a new product that offered one-click enrollment, pay-per-ride coverage and real-time claim payments via a mobile app. With the larger customer base, the company also needed more capacity to handle the influx of claims.
Solution: To handle low-value claims, we built an AI-based STP solution. Customers now use a mobile app to describe the incident via text, voice or video and upload the necessary proof. As a result, claims processing improved to three minutes from more than five days. Also, the company now has the capacity to handle 50% more claims.
To compete with nontraditional market entrants, insurance companies should first identify their comparative advantage — whether it be product, experience or distribution — and then do some combination of the following:
Modernize existing applications by adding a new interface or by making them cloud-native to reduce management costs and accelerate new feature introductions.
Build new microservices-based applications to meet new customer needs, leveraging AI, IoT, ML and RPA to differentiate the customer journey.
Accelerate time-to-market by distributing new products through exchanges, marketplaces or aggregators. This will afford time to build an internal distribution channel if desired.