Insurance steps into the digital limelight

Until last year, insurance was the Cinderella of digital transformation, bereft of the benefits enjoyed by her siblings in banking and other services. Yet enforced change during the pandemic could prove to be the industry’s fairy godmother, waving away longstanding barriers. This blog considers what’s changed and how insurance might emerge from testing times as the belle of the financial services ball.

With complex products and processes, the insurance business is anything but simple. It’s risk averse by definition – an essential and admirable quality that’s nevertheless resulted in entrenched attitudes[1]. So, although the industry considered digital transformation before COVID-19, it remained largely untouched by change.

Insurers approached their digital journeys with habitual caution. In April 2020, KPMG noted many firms “have only been dabbling with cloud services.”[2]. Pre-pandemic, 48% of respondents to an Insurance Hound survey said they had on-premise systems[3]. The majority agreed most IT spend went on legacy infrastructure, not transformation.

Unlooked-for gains from a crisis

The effect of the first UK lockdown was immediate. Like other businesses, insurers had to engineer a mass, high-speed transition to remote working. Some achieved in days or weeks what they’d planned to do in years – if at all. They also had to divert customer service online whenever possible, to deflect a deluge of phone calls. At lockdown’s start, UK motor claims dropped 20% while travel claims rocketed – one insurer saw a 1,000% increase[4]. In response, companies adopted agile working practices, like moving staff from specialist teams.

Similarly, the forced move to digital distribution proved some previously in-person activities can be done remotely. For instance, deploying drones to assist loss adjusters who can’t do site visits. Or selling complex products through video conferencing instead of face to face.

Retrenching isn’t an option

There’s agreement that, coming so far so fast, the sector must stay the course. As early as June 2020, Accenture noted “digital transformation is no longer an option”[5]. And PwC advised “an incremental approach to technology adoption” wouldn’t be enough, as the sector accelerates towards virtual operations[6].

Evidence suggests insurers are listening. In January 2021, an Insurance Hound survey found 52% were taking swift action to tackle “IT weaknesses exposed by the pandemic”[7]. As economies emerge from COVID-19 restrictions, insurers are expected to make up for lost time. They’ll invest more in cloud services (crucial to scalability and flexibility), cybersecurity, artificial intelligence and analytics.

Showing compassion to those in financial difficulty

Profound shockwaves are being felt within the industry itself, as established practices give way to fresh thinking. Until recently insurers had never been as close to their customers as banks and retailers. Less frequent interactions meant it was harder to get to know customers and retain their loyalty; creating what KPMG calls a “relationship deficit”[8].

To make the task even tougher, and often as a grudge purchase, many people struggle with the finer details of insurance. Comparison websites went some way to improving accessibility by simplifying products and processes. But they also gave people an easier exit route to alternative providers. Nevertheless, the industry showed compassion to those in financial difficulty – waiving payments or reducing premiums, adapting in real time to unfolding events.

Time to get personal

This newfound flexibility could trigger a reboot in the relationship between insurers and policy holders. The pandemic dealt a brutal reminder of the value of insurance, particularly products like life and health cover. Consumers took notice. KPMG[9] anticipates savings and retirement products offering income certainty “are likely to become much more in demand” in the wake of COVID-19.

It also appears people are increasingly willing to share personal data[10]. Consumer reluctance to provide detailed information to insurance firms has severely hampered efforts to personalise products. If that barrier is finally being lifted, it’s a gift the industry must seize with both hands.

For too long, insurance has produced rigidly-designed, standard products. In today’s market, with consumer expectations sky high, insurers must personalise products to survive. The pandemic highlighted the chasm between current offerings and customers’ actual needs. Some products have already been simplified, so they are easier for people to purchase online without human intervention. More innovative products are emerging, such as usage-based and on-demand insurance. These reflect current concerns in people’s lives. Others will follow.

Make it about the customer

To speed things up, EY recommends insurers re-organise their operations around customer needs instead of products[11]. Pointing to divisional thinking common in most insurance firms, EY says each part focuses on its own narrow world rather than on what’s best for the customer holistically. To achieve personalisation, EY concludes insurers must reconcile conflicting interests and “put the customer at the centre” of an entire end-to-end journey.

We agree. We’d also add that digital transformation is the essential foundation for any such restructuring. Without automated processes running on a flexible IT infrastructure, how can firms offer seamless online services? Or engage younger generations in ways that build trust? Or gather and analyse information to understand customers’ needs – and then fashion products that fulfil those needs, delivered through excellent customer experience?

The cultural and structural changes that must accompany a digital journey pinpoint the scale of work to be done – and the untapped potential. To this end, product-led developments could lead to digital transformation across the industry’s extended ecosystems. That, says KPMG, will involve streamlining and enhancing processes from pricing, underwriting and fraud management to claims handling[12].

A world of digital possibility

The ideal outcome would be end-to-end environments that support multiple new ways of operating. As EY points out, ‘substantial work remains to make that vision a reality across all lines of business’[13]. In a disintermediated model, the possibility of insurers doing more business directly with consumers instead of via brokers is enticing and would greatly improve customer intimacy.

Innovative products and digital processes require IT infrastructures with class-leading scalability and security. Insurers want fast and reliable connectivity between ecosystem members. Consumers demand direct links to insurers through their home broadband or mobile devices. In today’s uncertain times, the need for flexible provision points to colocation of cloud-based IT services as the most appropriate and cost-effective solution for many firms.

As an insurer, you need a colocation provider with the capabilities and attributes that will help achieve the best possible customer and business outcomes. At Telehouse, we can’t promise an instantaneous Cinderella-style transformation, but we can provide highly secure and connected data centres. There you can confidently continue and complete your digital journey.

Tell us what you want to achieve, and we’ll show you how we can help.

Mark White

Head of New Business

+44 (0)7525 631 996

[email protected]

[1] PwC, 2020: https://www.pwc.com/us/en/industries/insurance/assets/pwc-covid-19-insurance-industry-stablizes.pdf

[2] KPMG, April 2020: https://home.kpmg/xx/en/home/insights/2020/04/covid-19-puts-insurers-on-fast-track-to-technology-adoption.html

[3] Insurance Hound, 18/01/2021: https://www.insurancehound.co.uk/business-management/strategy/covid-19-and-insurers-it-business-usual-or-business-badly-disrupted-35846

[4] KPMG, April 2020: https://home.kpmg/xx/en/home/insights/2020/04/covid-19-insurance-operations-challenges.html

[5] Accenture blog, 11/06/2020: https://insuranceblog.accenture.com/covid-19-six-post-pandemic-priorities-facing-insurers

[6] PwC, 2020: https://www.pwc.com/us/en/industries/insurance/assets/pwc-covid-19-insurance-industry-stablizes.pdf

[7] Insurance Hound, 18/01/2021: https://www.insurancehound.co.uk/business-management/strategy/covid-19-and-insurers-it-business-usual-or-business-badly-disrupted-35846