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Apr 2021

IT in Insurance: An era of disruptive innovation

Source: Asia Insurance Review | Nov 2015

Ms Denise Garth of Majesco shares the key takeaways of the 4th annual Asia Insurance CIO Technology summit in Jakarta which focused on the challenges for insurance during an era of disruptive innovation.
 
 
Our industry is waking up and finding itself on a precipice in the midst of strong, seismic shifts. A new revolution is underway – the digital revolution. 
 
   This particular shift is different, due to the complexity, breadth and depth of converging factors and global changes. To an industry steeped in centuries of tradition, the revolution is poised to create significant disruption. 
 
   During my two days as chairperson for the Asia Insurance CIO Technology Summit, I witnessed a wealth of expertise, content and discussion. Below are some “key takeaways” from the event that all insurers should begin to assess and discuss as they plan initiatives that will help them to succeed in the era of disruption. 
 
   Disruption is a reality; strategy and execution will determine an insurer’s future.
 
   An increasing pace of change converging upon multiple influencers of change is unleashing disruption in every industry, including insurance. Added to this are start-ups and venture capital groups looking to “uberize” and disrupt insurance. 
 
   Traditional insurers, however, still have an edge. Most of the start-ups and other challengers do not have a deep knowledge of insurance pricing, profitability and regulatory requirements, nor do they own an established base of customers. This is where insurers can compete and out-innovate with a strategy that thinks big, starts small and executes fast! 
 
An outside-in view is mandatory
Insurance business models, assumptions and practices of the past decades and centuries are less durable in today’s game-changing marketplace. Taking an outside-in view is mandatory in a vastly changing competitive market. 
 
   Consider Google, Alibaba, Apple, Walmart and others outside the industry seeking to challenge the insurance industry. They are capable competitors because they understand business and trend dynamics, they have vast amounts of customer data, and they are able to rapidly employ consumer-centric practices to quickly create and capture economic opportunity. They are not giving thought to operational efficiency, lower prices, massive advertising, large internal systems, or channel loyalty. They are shifting dynamics to meet competitive challenges. 
 
   Insurers are capable of the same thinking and action, and better suited to meet long-term needs. Their vision, however, must include a whole new realm of realities that may include rewriting methods and ideas that were once considered sacred. 
 
A Renaissance in insurance is emerging
Think of how disruption and the digital revolution are going to reinvent your business model. 
 
   Insurers are moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line of business silos to customer centricity and customer experience for all products across all lines; from simply containing risk to proactively providing personal risk management; and from siloed solutions focused on transactions to a platform portfolio that bridges together real-time interaction for all products and services for a customer, giving them an Amazon-like experience. Wow! 
 
   These influencers of change demand that we not only transform insurance but also have a rebirth, a re-imagination or a renaissance of insurance.
 
Innovative new business models rapidly emerging in APAC countries 
Instead of transforming the business using age-old assumptions and traditional business models, insurers must look to reinvent the business model, not unlike how Uber reinvented the taxi model. 
 
   During the conference we heard how many traditional insurers as well as challengers are aggressively rethinking the insurance business model. Some believe that insurance will be run more in an open ecosystem, becoming more fragmented and niche focused, building on the micro concept. 
 
   Interestingly, a new model is emerging where buying insurance is being embedded in other business models/industries with high frequency transactions, moving well beyond selling in another channel to embedding insurance sales within other sales. 
 
   Examples included Alipay, part of Alibaba, selling half of all universal life policies in China, ZhongAn selling return insurance for anything bought on Alibaba, and Huatai Life, selling unit-linked policies on JD.com and selling A&H insurance via a WeChat app. Another great example includes PICC Life, selling A&H insurance on Qunar.com, an online travel information provider. These examples show a trending toward high-volume, interaction-based, small-issue policies. PICC, for example, is issuing hundreds of policies every second. 
 
   Flight delay insurance is another instance of transaction models, making an automatic payout if a flight is delayed over three hours. These new insurance models rely upon high volume businesses to churn out clear and quick insurance options that appear as upsells during non-insurance interactions. In this way, non-insurance industries will give insurance valuable, high profile face time and subsequently the potential for a tremendously high volume of insurance transactions. 
 
   These new emerging models require cloud based insurance solutions, real-time product to channel offerings, native big data capabilities and the ability to handle massive volumes per second and per day. 
 
The CIO role is evolving rapidly
Based on the presentations and discussions throughout the conference, one thing became clear – the CIO role is rapidly evolving due to influencers of change and shifting priorities. 
 
   Yesterday’s Chief Information Officer is today’s Chief Innovation Officer, Chief Integration Officer, Chief Insight Officer and Chief of Organisational Invulnerability. In today’s complex world, CIOs must act as a “Business Strategist CEO”. To be successful business partners, CIOS must increase their influence and positioning within the organisational hierarchy and take on the role of a change agent. 
 
   CIOs are well-positioned to be innovation champions within their organisations. They must be proactive in identifying technology that can create new value for the business. And effective CIOs must couple vision, creativity and market and organisational awareness with an ability to navigate the rapidly evolving technology landscape. CIOs and CMOs must collaborate more closely than ever to ensure that digital platforms and data are converted to profits through customer-focused design and big data analytics.
 
Cyber security is Board level discussion
Security is no longer an IT focus. It is a Board level, organisation-wide imperative. Boards must fund and address cyber security across three aspects including: confidentiality, availability and integrity. 
 
   Conference consensus was that mandatory regulation leading to fines is a temporary solution to cyber risk and RESILIENCE is the solution and proactive mechanism to enable organisations to prevent, resolve and recover from cyber issues quickly while reducing reputational risk. 
 
   Blockchain technology was one concept discussed that has the potential to help address fundamental issues with cyber security. Blockchain is a ledger of all digital events in one location. It is distributed and shared by many different parties and is only updated by a consensus of the participants in the system. The result is that by registering the electronic transactions in a global insurance blockchain, it makes transaction fraud impossible. Verification of transaction authenticity is instant and can be performed by any trusted source, from any trusted location.
 
Data is a strategic imperative
It was shared during the conference that it is estimated that data volume will quintuple between 2013 and 2018 to 20,000 exabytes! This explosion of data requires new tools and capabilities. 
 
   To effectively manage and leverage the data strategically, some insurers are moving toward using end-to-end analytics solutions that cross the entire insurance value chain. In doing so, they hope to gain an enriched, single client view and the ability to execute a targeted pipeline, with unified campaigns and advertising. They also hope to utilise risk appetite-based pricing and assessment-based pricing along with the servicing of evolving client preferences and needs. End-to-end analytics will also assist in the prevention of losses and business interruptions, provide loss lessons for management of claims trends, recovery and services and contain a structure that will allow for effective portfolio analysis, scenario testing, mixing and tiering.
 
Digital is much more than portals and mobile
Power has shifted from the company to the customer. All companies, including insurers, must adopt the digital technologies that create the interaction experience that consumers now demand and expect. 
 
   The company that can best remove or reduce the pain of buying and owning insurance stands to reap a huge market of consumers who are tired of being treated poorly by the insurance industry, compared to the new benchmarks set by Amazon and Apple. 
 
   It is easy to talk about but it is hard to actually make the digital transformation in any industry or company, not just insurance. Celent provided a view of the different levels of maturity for digital. 
 
   Basic digital maturity includes having sales websites with direct to consumer or agent based online policy servicing, digital marketing and electronic messaging with partners. Advanced digital maturity includes: usage- and telemetry-based insurance, online comparison with “digital agents” or “robo-advisers,” integrated partner eco-systems and generally-low level of human touch. Extreme digital maturity would include one-touch sales, zero paper, and zero-touch claims fulfilment.
 
Channels rapidly evolving
A key topic of discussion was the rapidly evolving distribution models that are moving beyond traditional agent models. Many believe insurance can and should become more social, customer-focused and efficient. 
 
   Using the latest mobile, social and data technologies, insurers can offer more customer friendly service delivery. Unfortunately, many insurers’ client interactions are still not fully possible online, few have responsive websites for mobile and there exists little to no integration with social media or P2P options. 
 
The rebirth of real opportunity
So how will you out-innovate, let alone compete? How will you become this generation’s emerging insurance leaders? 
 
   Look beyond long-held traditional views and become accustomed to major business shifts. Strategise and seek to reinvent the business model, not unlike how Uber reinvented the taxi model or how the new entrants are reinventing insurance. 
 
   The only way insurers stand to catch up in a race where the trophy is not just success but also survival, is to out-innovate the competition, including the new competition from outside the industry looking to disrupt insurance. It’s possible, but it is going to require both wise technology investment and a whole new insurance business model mindset.
 
Ms Denise Garth is Senior Vice President – Strategic Marketing, Industry Relations and Innovation at Majesco.
 
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