“Tech is always a bottleneck when it comes to implementing our strategies”
“Startups are disrupters trying to eat our cake”
“Digital is just another distribution channel”
Sound familiar? At most insurers and brokers these or similar statements reflect the current reality on the ground. However, ignoring the problems that arise from this combination of beliefs seriously risks your company’s future.
Tech should be an enabler, not a bottleneck. Startups, especially within the InsurTech space, are a toolkit you can use to address the challenges of a rapidly-changing world. And if you think digital is “just another channel” you may be missing a trick: digital is THE way that insurers and brokers can get closer to their customers again, after decades of a (very long) arms-length relationship.
The last point may be the most controversial, but also the most critical to understand the importance of digital strategy; and in turn why partnerships with InsurTechs are crucial. Insurance used to be a trust business. In the early days, to insure someone’s ship on their Atlantic crossing, you needed to know who they are and to trust them. The way to Lloyds of London was paved with introductions.
Over the decades and centuries, insurance, especially outside the commercial arena, became a distrustful numbers game. And at first technology accelerated this trend. Price comparison sites, for all their (alleged) customer benefit, may be the ultimate embodiment of this. At the extreme, assets such as brand, product, and service quality get diluted down to one number: price! And that resulted in a race to the bottom on appropriate levels of cover, service quality, and claims management.
But digital will (!) change this. As other industries have shown, digital offers a whole new way to engage with customers. An interactive way that allows for customised service, makes the customer feel heard, and ultimately generates trust.
How can digital do this in insurance? By offering truly modular insurance components that are easy to assemble, addressing the customer’s unique needs. By pulling together datasets from outside sources, enriching insurers’ knowledge, and simplifying the customer’s purchase journey. By offering 24/7 chats that feel more like a natural human interaction than static forms do. By using automation, self-service portals, and AI to be fast and responsive when it comes to customer enquiries, claims, and other services. In short: by keeping the customer informed and up to date, rather than in an information blackspot.
The list is certainly not exhaustive and the “silver bullet” might not even be on it. Now this insight might seem trivial, but it actually is the key. The advent of tech companies and the sprawl of the “startup sector” have challenged decades of corporate product development strategy.
Best practice used to involve preparing multiple, competing business cases, complex budget cycles and vast (IT) projects planned out from start to finish in a waterfalls setup and taking years to implement – chasing the elusive ‘silver bullet’. With hindsight, it probably wasn’t even the best approach at the time, but it at least worked. The problem now is that this method will become increasingly less effective: not because the insurance game has changed, but because the world has.
What tech companies and startups have shown is the value of trial and error. This is especially true in an environment that is changing fast and which lacks historic data points to help decision makers accurately represent the current or future state of play. A Minimal Viable Products (MVP) – a first, fast, basic, AND affordable iteration of a new product, only focusing on the core value proposition – allows you to gather relevant data and customer feedback, test basic hypotheses, and ensures two things. First, that you only continue with projects that show potential, and second that you remain flexible enough to adjust early assumptions based on fresh data, ensuring a better “final product” than all the pre-planning in the world.
And this leads to the next point, the importance of InsurTechs in digital and in broader strategy. There are lots of ideas and possibilities to improve product offerings, foster better customer engagement, pre-emptively reduce risk, and minimise fraud. No single company has the strategy, IT, or business resources to try to find solutions in all relevant areas. And there is actually no longer the need.
So how are these InsurTechs a benefit, rather than a threat to incumbent insurers? Simple. In reality, there are two types of internal IT projects. Firstly, large infrastructure projects that take up a lot of IT resources. These are mainly focused on cost-savings and operational control along existing processes, but don’t require that much input from business and are for better or worse being supported by large IT-consultancies and -vendors. Secondly, competing for finite internal resources, are business-led IT projects to launch new products and address new markets/customers.
Traditionally, the former is usually prioritised over the latter due to a ‘safety first’ approach to competing uses of resources: cost savings appear to offer more certain, and faster, results than chasing ‘risky’ new business opportunities.
Over the last few years InsurTechs have emerged to provide innovative solutions addressing most aspects of the insurance value chain, each with niche focus, and trying to work with, not against, the incumbents by taking on the development burden for both types of projects. They thus effectively provide the capacity to make technological changes for insurers where limited resources are available internally
This is why a cultural shift is required within insurance organizations: now that much of the resource burden can be placed on InsurTechs, insurance organizations need to recognise that the trade-off between these two competing project types need not be so severe. New market opportunities no longer have to be subservient to legacy system issues.
So digital transformation is actually more of a mind/culture issue than a technology one. Businesses should be using MVPs and low implementation costs to foster a culture of cost-effective, data-driven decision-making through trial and error, rather than large scale business planning and resource allocation programmes based on retrospective experience. Because one thing is clear: You won’t find your future customers and products within a Powerpoint presentation or Excel spreadsheet. You have to get “outside” the building and engage with your customers and partners to continuously listen and observe.
So how do you start this transformation if your IT resources are tied up right now? Fortunately, there are InsurTechs that help with exactly this. For example, (shameless plug!) KASKO offers a middle layer between insurer’s legacy IT and digital customer touchpoints (e.g. insurer websites, broker portals, banking apps, e-commerce checkouts). Go-to-market is dictated by how fast you can come up with what you want to insure and how to price it (instead of how to implement it),, different pricing and cover modules are tested and measured continuously, and new differentiation features such as third party data sets (e.g. social networks) and services (e.g. chatbots, fraud AI) are integrated in one central place. This is how smart strategy can be developed and implemented quickly and at minimal risk and customers can be won over.
Insurers need to embrace this new world – their customers certainly have.
About the author
Nick Suehr is the co-founder and CEO of insurtech startup KASKO based in London, UK. Via their “InsurTech as a Service” KASKO enables insurers to quickly and cost-effectively design, run and continuously optimise new and existing insurance products in any channel. To do so, they have built a proprietary insurance platform that can act as an end-to-end solution or be flexibly integrated into the insurer core.