Charting Digital Strategy

For property and casualty insurers, having a solid digital strategy in play is a necessity these days. Consider findings in the McKinsey & Company report, Making Digital Strategy a Reality in Insurance, released last fall. Reviewed p&c carriers in the United States that are employing a digital strategy are growing at a compound annual growth rate of 6.2% – almost two times faster than their non-digital counterparts – while delivering significantly better profitability, the report found.

For insurance companies looking to go digital, how digital investments are prioritized is not always crystal clear. The goal of determining how best to spend an insurer’s digital dollars and organize related decisions, though, could be advanced by looking at a number of factors.

Based on research and discussions with Guidewire’s 300-plus global customers, those factors include solution focus areas like core operations (internally focused systems) versus digital experiences for external stakeholders like policyholders and brokers, or business focus areas like optimizing for current markets and value proposition versus looking to introduce a broadened value proposition.

Excelling on all of these fronts will most likely prove an indicator of insurer success on the digital front. There are a number of factors to consider, but also how they relate to one another.

But where to start? Arguably, the best place to begin is with the insurer’s highest priority business objective, which may include any of the following:

• increasing revenue in current markets;
• lowering operating costs; and
• entering a new market.

Whatever the business objective, it should be the underlying driver for the digital strategy.

A LITTLE GUIDANCE

Consider the following scenarios, depending on the specific objective of the organization in question.

1     Increase revenue in current markets

A typical way to achieve this objective is through better sales closure rates and customer retention resulting from increased digital engagement.

This may involve employing an “outside-in” approach focused on digital experiences first, which would include studying the behaviours of the target customer and/or target agent/broker community (depending on the insurer’s distribution focus) to create compelling journeys that increase engagement, conversion and overall net promoter score.

A word of caution here: Confirm that the organization’s core systems are capable of supporting these journeys. Often, legacy core systems constrain digital engagement initiatives, meaning that modernizing core systems becomes a prerequisite to achieving digital engagement objectives.

Attempts to “bolt on” digital engagement solutions on top of legacy core systems may satisfy short-term objectives, but the duplication (of such things as rating rules, product definitions, underwriting rules and third-party integrations) often required in these cases will result in higher maintenance costs, longer time to market for changes and, ultimately, higher total cost of ownership.

2     Lower operating costs

This objective would typically include initiatives, such as the following:

• automating low-value manual steps to optimize policy and billing operations;
• improving claim intake and adjudication processes to decrease claim processing time, thus lowering costs and potential indemnity; and
• providing self-service portals to reduce service call volume and lower overall servicing costs (slightly different than creating compelling journeys because the focus is on self-service enablement versus overall digital engagement).

The idea behind an “inside-out” approach is to determine the most costly internal operations and leverage digital technology and modern core systems to optimize operations and lower costs.

However, with all the buzz about customer-first thinking, this approach sometimes gets a bad rap.

That said, it is still a viable approach for those insurers that feel their much-higher-than-average operating costs are crippling their ability to consider any other strategic initiatives.

3 Broaden value proposition

To expand into new markets or broaden the value proposition for an insurer’s current customer base, the focus typically revolves around leveraging data and analytics to determine the elements of a successful new business, and then putting in place the core systems and processes that are necessary to operate the new business.

Achieving this will likely involve two possible approaches: “innovate-out” or

“disrupt-in.” The innovate-out approach means extending the solutions that support the insurer’s current value proposition to handle the new business or market opportunity.

This might include, for example, adding integrations to telematics devices and updating rating in the current policy system and policyholder portals to support usage-based auto products. This strategy can work depending on the flexibility of an organization’s current solutions.

The disrupt-in approach means starting with a “greenfield” approach to the new opportunity, unencumbered by current solutions or processes.

This might include, as one example, standing up a new greenfield solution stack to address a new market segment such as direct-to-consumer small business insurance.

IMPORTANT DISTINCTION

“Disrupt-in” versus “disrupt” is an important distinction. It is critical to consider how this new greenfield solution could eventually extend to the company’s current business to avoid having multiple siloed solutions in future.

As with the earlier caution around quick-fix digital engagement solutions, implementing a greenfield solution for a new business line or product also demands considering the long-term implications of such a move.

Initial implementations should be constrained to just the new target offering to  maximize speed to market, but the chosen solution set should also be extendable and scalable enough to support the rest of the business if it proves successful for the first use case.

Ultimately, an insurer’s long-term target must be to have a single platform that satisfies all digital experience and core operations aspects of its digital strategy. In doing so, the company will be well-positioned to adapt and succeed as new products, markets, distribution channels or alliances emerge.

But zeroing in on the right initial digital investments makes all the difference, and will provide a solid foundation to ensure continued success both now and into the future.

-Glynda Gill, Digital Strategy Director, Guidewire