Digital Transformation: Trends in insurance industry

Highly stimulating discussions while conducting digital transformation sessions for senior management members of insurers.

Even though insurance industry contains many seeds of disruption, there are several reasons for the lack of disruption. It is difficult to imagine that this situation can continue for long given the rising tide of consumer expectations and transformative impact of new technologies. Other financial services also face similar predicament. Some interesting lessons:

1.     Business Environment: The current business environment is volatile, uncertain, complex and ambiguous (VUCA) with assertive customers, hyper competition and new digital technologies as major factors. Commoditisation of insurance products is a stark reality. The world is increasingly non-linear and exponential. This has major implications for competition, organisational and employee behaviour.

A key task for insurers is to figure the right kind of strategic objectives. Other strategic issues like vision, purpose, mission and values, which have traditionally been treated casually, suddenly become very important to keep people and the organisation aligned and focused on the objectives.

2.      In such an environment, copying competitors’ actions, adoption of best practices, change programmes like SixSigma; and benchmarking have limited utility.

3.      The insurance marketplace has ever increasing numbers of players and is increasingly customer driven. This alongwith digital movement is overturning conventional modes and norms of competition and new rules of competition are emerging. Some of these rules are specific to insurance industry and some are not. It is important to understand their implications.

4.      Pipeline Model of organisations: Traditional insurers with their deep silos, competing agendas to the neglect of organisational agenda, budgets, rampant complexity, vertical focus and neglect of customers has been referred to as the 'pipeline' model which solely values efficiency, scale and profits.

5.      Disruption: Digital technology when used to solve deep customer pain/ problems/context can disrupt established industries especially with prevalence of network effects. The nature of pain/problems/context can change and therefore continuous customer sensing capability is required.

6.    Ecosystems: In a departure from traditional approach, its not merely the organisation that competes but also their partners, suppliers etc that constitute the extended enterprise. Platform and network view of organisations is a means of achieving this outcome.    

7. Strategy: Organisations need to become highly differentiated in a cluttered marketplace. Superior customer experience cantered on solving deep rooted customer problems is one of the routes to achieve differentiation.

8. Business Model: To avoid being disrupted and for a full blooded digital programme, insurers ought to move in the direction of discovering new business models and using technology at the right places.

9.  Operating Model: Insurers need to develop an integrated operating model comprising of people, processes, technology, capabilities,organisation structure and information.

10.  Technology: Is not the end in all. It is a necessary but not sufficient condition. Boeing 747 Max twin crashes in Indonesia and Ethiopia are good examples of using pursuing technology without considering the human-technology interface. Employees also cannot have a blackbox attitude to technology. Technology has gone beyond an enabling role to have a transformative impact. 

Often , technology becomes the visible portion of digital transformation process. The invisible portion of the iceberg consists of new mindsets, principles/values and vital processes like highly collaborative strategy formulation process, new business model, operating model, network based org structure, new people management practices etc for a digital world. It is these issues that mainly determine the success/failure of digital transformation programmes.

11.  Data: The new ‘oil’ is a key asset for digital organisations that needs to be nurtured over its entire lifecycle. It becomes the springboard for all kinds of decision making in every aspect of the insurer. If wisely and widely used in the organisation, it also positively impacts standards of accountability. The Data-Information-Knowledge-Wisdom hierarchy is a useful framework to evaluate the use of data at the tactical-operational-strategic levels of the insurer.

12.  Leadership: The traditional model of leadership is usually centered on positions and titles and is frequently equated with higher wisdom and skills as one rises in the hierarchy. It is also equated with having the answers. For a VUCA environment, this model is inadequate. The new model is aimed at developing leadership at all levels. This requires empowering people at all levels, encouraging experimentation, providing psychological safety in case of mistakes, escaping blame based culture and focus on organisational learning. Developing a steady stream of leaders in a key organisational task. Leadership is better seen as influencing and comprises of processes, mindset and tasks.

13. People management: The nature of work has transformed into knowledge and information based. However the manner in which people are managed in insurers still reeks of industrial approach oriented towards compliance. This also needs to change to one based on contribution. Deep collaboration and strong team work is primary requirement to cope with VUCA environment.

14.  Consultants: Consultants can be useful allies in a digital transformation programme. However they often bring to the table standardised approaches. As such insurers should not allow themselves to be completely led by them. A common prescription given by consultants is automation of most processes. Insurers know their processes far better than anybody else and there is no point in automating an inefficient process. This is where deep organisational knowledge usually possessed by organisational members is critical and needs to be recognised while using consultants.

15. Organisation agility or rapidity of response to opportunities or setbacks is a key attribute of digitally transformed organisations.

16.  The main challenge to digital transformation is the deeply entrenched bureaucracy and industrial scale based approach to work and workplace as well as outmoded view of human contribution.

17. Micro and cross functional projects are a good way to begin the digital transformation journey.

Organisational cultures usually lag the pace of technology developments and is often the reason why most digital transformation efforts fail. Digital change is often best seen as a journey rather than destination.

The days of pipeline organisations are over. Platform based organisations are the future! Insurers watch out!

Look forward to your thoughts/ideas:-

"The challenge for banks is that the uncommon is becoming common at an accelerated pace"...Alan McIntyre

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A veteran of consulting and financial services industry and based in Delhi, Rajiv offers training and consulting services focused on ‘People and Organisation Transformation’. I offer facilitation on strategy formulation, implementing ERM, Balanced Scorecard and OKR in organisations.

Employs variety of approaches like systems thinking, strategic thinking, behavioural economics, NLP, Dr Deming's ideas and Lean to achieve outcomes.

On the verge of completing a book on transformation in Banking and Financial Services.

I am at [email protected]