By Jeff Chan
A recent study by PwC of global CEO’s identified the insurance sector as the second most disrupted sector in the global economy (entertainment and media was first). The disruption reflects the impact of STEEP – Social, Technological, Environmental, Economic and Political:
- Social: Changes in customer behavior and expectations are impacting the insurance industry. Millennials, for example, are more likely to use digital channels to interact with insurers, and they are also more interested in personalized products and services.
- Technological: New technologies such as artificial intelligence, blockchain, and smart devices are transforming the way insurers operate. AI and machine learning, for instance, can help insurers to automate processes, reduce costs, and improve customer experiences. You can learn more about this topic in CPED’s on-demand webinar with Wisconsin School of Business Professors Justin Sydnor and Daniel Bauer, The implications of Predictive Analytics and AI for the Insurance Industry.
- Environmental: Climate change and natural disasters are affecting the insurance industry, as they lead to an increase in claims and losses. Insurers need to adapt their products and services to reflect these risks and consider ways to mitigate them.
- Economic: The global economic landscape is constantly changing, with the emergence of new markets and the impact of trade wars and geopolitical events. This can have implications for insurers, such as changes in demand for certain products or fluctuations in exchange rates.
- Political: Changes in government policies and regulations can also impact the insurance industry. For example, new laws regarding data privacy or insurance coverage can have far-reaching effects on insurers and their customers.
Four Areas Ripe for Transformation
As the insurance industry is facing pressures to reinvent itself to remain relevant, some of the major revisions are needed in operating models, processes, propositions, and customer relationships.
Operating models
Insurers must adopt new technology and data analytics tools to improve their operational efficiency, decision-making, and customer experiences. This may involve developing new business models that are more agile and customer centric.
Processes
Insurers need to streamline their processes to reduce costs, increase speed, and improve the overall customer experience. This may involve automation of routine tasks, implementation of new underwriting and claims processing models, and leveraging artificial intelligence and machine learning to enhance efficiency.
Propositions
Insurers must develop innovative and relevant insurance propositions that cater to evolving customer needs and preferences. This may include offering customized products, leveraging telematics to improve risk management, and providing preventative services to reduce claims.
Customer relationships
Insurers must focus on building deeper and more meaningful relationships with their customers by offering personalized experiences, engaging with them on multiple channels, and leveraging customer feedback to improve services. These revisions are necessary for insurers to stay competitive in an industry that is undergoing significant change due to technological advancements, shifting customer behavior and expectations, and emerging risks related to climate change and other environmental factors.
What Got You Here Won’t Get You There
The insurance industry has always been focused on managing risk and providing financial protection to individuals and organizations against unexpected events such as accidents, natural disasters, or product failures. This led to the development of a risk-averse culture within the industry, which prioritizes safety, order, and stability.
As a result, insurance companies became heavily structured and siloed to drive deep functional expertise, hierarchical management, and clearly defined roles and boundaries.
Companies need to break down silos, encourage collaboration, foster innovation, and empower employees to take ownership of their roles and responsibilities.
Jeff Chan
Functional expertise, hierarchies, and silos can hinder cross-functional teamwork and coordination and ultimately slow down decision making as departments focus on their own goals and objectives. This can limit the ability of teams to see the bigger picture and respond to changing market conditions, such as changes in customer behavior, competitive landscape, regulatory requirements, and technological advances.
However, the market and business environments have been changing rapidly in recent years, with the emergence of new technologies, business models, and changing customer needs. This has forced the insurance industry to adapt and shift its focus towards innovation, agility, and customer-centricity in order to remain competitive.
The orientation towards safety, order, and stability is still important, but it needs to be balanced with the ability to embrace change and to be agile in response to new market dynamics.
This requires a shift in culture, as well as a more flexible, collaborative, and cross-functional approach to work. Silos, hierarchy, and functional focused expertise are elements of an organization that once made insurance companies successful but are now holding companies back.
Companies need to break down silos, encourage collaboration, foster innovation, and empower employees to take ownership of their roles and responsibilities. By doing so, insurance companies can evolve to meet the changing needs of their customers and stay ahead in a rapidly changing environment. Changing both work practices as well as mindsets and behaviors are needed.
Where Digital Transformation Will Change Insurance Organizations
Insurance companies going through a digital transformation experience change in four main areas:
- Enriching the customer experience. This involves segmenting customers and mapping their customer journeys to align services that meet their unique needs. Through digital channels and advanced analytics, insurers can personalize their services and offer relevant products and services that are tailored to their customers.
- Enhancing the power of operations. This involves consolidating back-office operations to optimize costs and improve efficiency. Also, retiring legacy systems can help insurers to shift toward more modern and scalable technology platforms that can power their digital transformation efforts.
- Innovating new products or services. As a result of customer segmentation, new products and services are emerging that better meet unique customer needs. For instance, insurers are developing digital platforms that provide customers with easy access to insurance products, automated claims processing, and virtual assistance.
- Implementing new business models. Insurers are exploring new business models such as usage-based insurance and peer-to-peer insurance that leverage digital technologies to create more value for their customers.
It’s important to note that employees may feel threatened by technology replacing the fundamentals of their work. However, technological advancements could also create new job opportunities in the industry that require different skills such as data analytics, cybersecurity, and customer engagement. While some jobs may indeed go away, new roles may also emerge as the industry evolves.
As the industry evolves, you’ll need to prepare your organization to be more agile and create an organizational culture ready to adapt to change. Our free, interactive Insurance Industry’s Guide to Change Agility offers expert insights and tools to help during the process.
Jeff Chan specializes in working with companies to improve organizational performance and productivity through expertise in change management and business transformation. He has held general management and senior human resource positions with BP/Amoco, Hewitt, Sears, Spiegel, and for the past 10 years has been the President of Chan Management Consulting.