Accelerating product and business innovation has taken the front seat for insurers around the globe as they try to meet the ever-changing customer demands. With the current socio-economic turbulence and digital disruption, customers have already begun to prioritize flexibility, convenience, and transparency in their insurance. To grapple with this shift in expectations, experts from OneDegree, IXT, and Deloitte came together to explore InsurTech and product opportunities to accelerate new business growth, drive efficiency, and maximize ROI in product innovation and system modernization.
Themes Across Different Markets
In the last two years, with the global Covid lockdown, several drivers emerged to reshape the insurance market. Deloitte has categorized these drivers into Customer, Society, Technology, and Competition in Exhibit 1. Insurance products will have to include at least one or more of these components to serve consumers’ changing needs, habits, and behaviors.
Exhibit 1
In Exhibit 2 below, the y-axis represents the position on the Value Chain, while the x-axis is the E2E Customer Experience. Deloitte shared that most insurers are currently at the bottom left.
Exhibit 2
Paper-based operations are still dominant in many markets. The more mature the market, the more it is paper based. However, the industry is starting to move into a hybrid model. It is predicted that soon, we will see full digitalization in many developing and emerging markets. Also, it is an imperative that insurers must aspire going beyond being a Core Insurance player and move into the Exponential Insurance category.
What is Exponential Insurance?
Exponential insurance is an insurance player with its own ecosystem, partnerships, alliances with e-commerce, mobility, digital channels, subscription-based products, and services to the consumer. These insurers fit within the consumer lifestyle.
Winning in this World of Changing Dynamics
Insurers need product leadership, but instead of having a product-led strategy, they should have a customer-led strategy to know what the customer wants, how insurance can interact with their lifestyle, and therefore their need for insurance.
Ideation to Innovation
Ideation in insurance is not difficult; it’s the process of executing and validating ideas that is challenging. But there are two ways insurers can manage this:
- In the product development process, when a team has an idea, it is not just looking at data and pricing. It’s doing customer surveys or simple market demand analysis and assessing feasibility, getting some validation before proceeding with the next step.
- Launch products fast so that you can A/B test with campaigns and see what the reaction is.
So, learn about market demand and try to find the product-market fit. And following that, launch quickly because a shorter product cycle time gives you more flexibility to iterate the product.
Why is Innovation in Insurance difficult?
The number one reason is people, particularly incumbents and traditional insurers. When something is new, it takes effort to learn, and it’s uncertain whether the new project will be successful. As a result, the inertia to not try something new becomes a norm.
To tackle this challenge, insurers can have a separate unit, an agile team, or a decoupling of a special team. Incumbents can start small and focus on a product or a piece of technology before trying to scale. It’s like an InsurTech within an insurance company. They can also partner or invest in InsurTech to learn from them.
Having said that, robust innovation must come from the top. It takes someone with the right vision and mindset to get things off the ground, considering innovation impact and results take time. But most senior decision-makers still take an “if it’s not broken, let’s not fix it” approach to insurance.
Therefore, organizations need to find a visionary who can blend impact with transformation.
Rapid Product Innovation
One of the ways that companies can launch new products quickly is through the product factory approach. In this approach, an agile team studies the products in the market, identifies the products which customers want or need, designs the product, prices it, and launches quickly. When they launch quickly, they can test out if there is real demand and take corresponding actions.
Exhibit 3
The product factory approach is an efficient way of rapidly launching products and has been successfully deployed by those who focus on pushing products out quickly and learning from the market. But having a product factory alone is not sufficient…
Modern Core System
To push the product out, you must connect them to your point of sale services, learn your customers’ behavior with your customer data platforms and analytics, and monitor risks.
Exhibit 4
All these can be managed efficiently with a modern core system. A modern core system helps you launch products fast; instead of waiting 3-6 months, you can now launch within 2 to 4 weeks or less. The faster the launch process, the faster you learn from the market, and the faster you can iterate and scale. According to a Deloitte global survey from earlier this year, modernizing core technology stacks remain a key trend among insurers, globally.
8 Things A Modern Core System Must Have
- Campaign Management: Once a product is ready, you need to push it out and hyper-personalize the product to the customer. So, for campaigns, whether it’s discounts, price optimization in different techniques, or behavioral economics, flexibility within your core system is a must.
- Scalable Product Configuration: If you can launch a product every two weeks, that is 26 products a year. To scale this quickly, you need a core system with a flexible product library that’s scalable to support different types of products.
- Customized Underwriting and Rating: We no longer use simple one-way, two-way tables but complex rate algorithms. Having that flexibility in using rating or pricing to entice the customer to purchase a policy is very useful.
- Policy Administration and Policy Journey Management: Don’t let the customer wait a couple of weeks to confirm the policy. Ascertain that all the personal information is synced as soon as they buy the policy and immediately push out the policy certificate. This particularly applies to on-demand products, where consumers buy a policy because they might need it the next day or even the next minute. Real-time policy administration and automated policy transactions are, hence, crucial.
- Claims: Process claims quickly, especially for on-demand products. Have fast claim payments through your payment gateway and seamlessly detect fraudulent claim behavior for a smooth customer experience.
- Dashboard and Reporting: Have a risk dashboard and risk performance data, within the core system, to output what you’re producing in real-time.
- Open APIs: Use open APIs to connect with distribution partners, finance systems, IT backbone, and all other systems integral for operations.
- Security and Compliance: Make sure there is right RBAC user permission control and a KYC functionality to flag unusual customers and blacklists.
Six Predictions for the Insurance Industry
- Digital boom – Digital channel products will make up at least 10% of the total new business revenue from next year onwards. Capitalizing on this digital boom would be a serious game-changer for insurers.
- Digital teams – Almost all insurers will start to develop their own full-fledged digital teams internally.
- Product innovation – Insurance will evolve to take different shapes with new digital players coming up with their own forms of insurance programs and schemes. Regulators will be challenged, and insurers will have to innovate and stay nimble to remain relevant to these players.
- Millennial-led transformation – A different way of how insurance works with customers, particularly millennials, will emerge. Insurance will be gamified, and how customers interact with insurance will change because millennials treat services differently than the older generations.
- Digital asset insurance – There will be an increased pick-up in digital asset insurance.
- Insurance in the metaverse – Though insurance’s part in the metaverse is still not clear, the interest is very high.