Insurance: the imperative to transform...

... or why insurers must prepare to scale and speed their transformation agenda

 As Patrick Lane, Deputy digital editor at the Economist, and Mark McLaughlin, global insurance director at IBM, shared with us before the start of the webinar, insurers have for years competed on price instead of maximizing value for their customers. And actions from adjacent sectors, including BigTech, have changed consumers' expectations and amplified the need for accelerated digital transformation—even in insurance.

We all know that "the future of insurance is now." IBM

 We also understand that addressing insurers' emerging challenges while unlocking growth will require new capabilities that simplify products and services, personalize customer experiences and embed new technologies within operations and across value chains, and this at speed.

Today, AI combined with IoT, sensors, and cloud computing are doing just that, empowering insurers to promote digitized experiences with well-architected engagements that customers can trust—and do so rapidly and securely. 

Against this backdrop, Abel Travis, Host of the Insurance Innovators Unscripted Podcast and vice president and head of fundamental underwriting at AF Group and Yann Bry, head of business innovation and board member of AXA Next, joined Mark, Patrick, and me to engage in a debate on how to accelerate insurance for tomorrow.

The article below provides a narrow lens on a highly interactive and engaging discussion. I hope you enjoy reading this small window into our exchange. And do review the post-webinar video that captures the essence of our conversation and what the industry must pay attention to right now.

Q1: How are digital consumer expectations changing, and how has the pandemic accelerated this?

When I evaluate the digital consumer within retail insurance, I am often asked to assess Gen Y and Gen Z as both segments are still very much underserved by insurers.

Based on market research, Gen Y, most often called Millennials, will likely comprise the largest share of the working population between 2020 and 2030. They will represent 40% of the global working-age population by the end of 2030 and globally account for 1.9 billion people. They are also getting older. In just 11 years, the most aged Millennials will turn 50. They care about significant issues such as the environment. In a global study by Cushman and Wakefield, nearly one-third of Millennials placed sustainability and the environment as their top concern and asked businesses to improve our society.

Gen Z is the largest cohort alive, comprised of just under 2 billion people globally, or 26% of the world population. They are digital natives. This means that they have grown up with mobile-first devices integrated with other technologies, which they careless about. They expect that what they touch be seamless and friction-free. Because they have grown up in the shadow of global terrorism, environmental destruction, and ongoing economic turmoil, they have a sharper focus on security and stability than Millennials.

So, when I evaluate the changes affecting these two demographics. I usually think about four words: "speed, convenience, stability, security."

Because Millennials are demanding services that are digitally enabled, they are often called the convenience/ Netflix generation. This is the reason why many businesses have had to transform and hyper-personalize "on-demand" propositions digitally. Millennials place the environment at the top of their concerns and demand that companies improve and protect the environment, reduce carbon footprints and overall emissions. Many companies' environmental choices impact where Millennials go in terms of jobs and the companies and industries they select in terms of career. Millennials are more likely to seek remote and flexible working opportunities, where saving time and energy are two critical priorities for them, enabled through the latest tech use. According to research, millennials prefer to work from an office with amenities that meet their lifestyle choices. Still, 50% of them would sign-up to work remotely for at least one day per week. Lastly, while considered perennial renters, many Millennials want to buy their homes now, and many want to move to megacities. However, their poor financial footing makes less urban-centric options more enticing. So locations transformed into vibrant hubs with amenities at walkable distances could also become attractive options.

Gen Z, on the other hand, is a digital-first cohort. They seek stability, safety, and security after seeing many events affecting their lives. Gen Z does not seem as keen to follow an entrepreneurial path as Millennials. They also appear more financially driven, prepared to work hard, with an ambition for high salaries, buying their own home, and starting a family. More comfortable with technology than with people, Gen Z suffers from higher mental stress and health issues. As employees, HR teams must pay more attention to helping them with soft and emotional skills to handle challenges and ensure that they engage with others.

For insurers, this means that the customers of today are not the customer of tomorrow. By 2030, Millennials and Gen Z combined represent 66% to 68% of the working population with very distinct needs. Trying to serve them as one single mega segment will be a recipe for failure.

Q2: How is technology continuing to improve product lines and driving operational efficiency? How effective is a roadblock inflexible legacy system? What parts of the insurance value chain are best suited to be digitized? 

My view here is that technologies such as the cloud, IoT, and AI are becoming de facto capabilities to build tomorrow's businesses. Using the right mix of technology enablers, the benefits include:

• faster services and processing time that are reduced from days to minutes,
• the ability to operate 24/7 to scale up or down activities with demand,
• reduced volumes of errors as well as improved quality, and
• major efficiency savings.

Applying an InsurTech viewpoint to the issue, it is clear that young growth ventures have contributed to a significant shift in our industry's thinking. 5,000 InsurTech start-ups, scale-ups, grown-ups are now part of this ecosystem. Some have graduated to become unicorns, and others are moving to IPOs. $40 billion has already been invested by corporate and venture investors in the sector, and for those that have IPOed recently, the top 3 InsurTechs have achieved an aggregated market capitalization of $26 billion. Not bad in just five years. During the first quarter of 2021, InsurTechs have also raised $2 billion in funding, a steep increase from last year's first quarter.

InsurTechs are digitizing, transforming the insurance value chain. They are reinventing:

• Customer engagement: When I started working with start-ups in 2015, the focus was on enabling customer engagement and unique experiences because many insurers were very dependent on the broker channel. Today, the focus is on allowing very targeted emotionally-driven experiences regardless of engagement channel.
• Product design and development: Today, many InsurTechs are delivering what we call InsurTech-as-a Service or enabling the "platformification" of the insurance value chain to make it more transparent and trustworthy, but also to reduce the time required to launch a new product to market from months to weeks.
• Underwriting and pricing: This is all about advanced modeling in general, with a clear focus on narrow-segmentation, advanced analytics, climate modeling, and now newer techniques to address environmental change.
• Claims management: This includes significant innovation in the space of object recognition and evidence-based intelligence, with very few ventures mastering the art.
• Asset management and risk prevention: For instance, the demand for cyber risk mitigation services and solutions increased drastically during the pandemic because of remote working, both from small and large businesses. However, the issue linked with emerging risks affects so many layers of the industry, ranging from health and wellness, ethics to potential new liability risks, sometimes linked with poorly deployed Diversity and Inclusion strategies.

 InsurTechs are also offering unique opportunities within the data access, AI, and analytical insight spheres to speed decision making:

•  Behind the scenes automation: Tech is used to automate repetitive tasks to simulate actual human behaviors using cognitive intelligence and AI to manage data.
• Analytical insight: Tech here mimics the human brain functions with a greater level of efficiency. AI is used to drive custom personalization, develop sophisticated scoring mechanisms and predict customer purchases.
• Engagement bots: Tech here uses series of bots from Robo advisors, chatbots, talk-bots to ease responses, engagement, and the provision of recommendations.

Combined with Cloud Computing and IoT sensors, AI enables the delivery of unique industry use cases and differential advantage. However, the challenge often within large corporations lies within the legacy system environment built over the years through business acquisitions resulting in highly inflexible infrastructures that create significant and costly roadblocks. Still, I have seen many organizations innovating using RPA (Robotic Process Automation) and deploying API strategies to speed and scale their innovation activities.

 Q3: How are insurers partnering up with external partners in ecosystems to drive innovation?

 As Yann and Abel highlighted during our conversation, insurers use many techniques to partner with the right emerging tech partners, including InsurTechs. From what I have seen over the past years, insurers partner with various market players, including InsurTech start-ups, growth Techs, and reliable, mature tech players. In my world, at the discovery and ideation stages, an insurer may be involved with an accelerator or an incubator to understand how things work and start to deploy small projects. They then upgrade their approach to an Applied Lab or Garage. The goal here is to co-create so that to accelerate the delivery of clearly defined business outcomes. The models highlighted require powerful innovation techniques often used by a multitude of business and technology experts to evaluate the very best techniques, tools, and partners at various maturity stages of the process.

Market players often move to studios or venture-building models to start realigning internal operations with external demands. These later venturing models allow for the proprietary development of new customer-propositions, business models, and therefore the democratization of innovation at scale. Each case requires a highly astute business lens to the problem at hand, access to various technological enablers, and the architectural acumen to put the essential business design parts together.

For insurers, this means that the process becomes very resource-intensive if not approached strategically. And often, tactical actions lead to leaders not understanding the strategic value of digitizing until something big like Covid-19 occurs or BigTech and NewTech enter our market.

Q4: What will the industry look like in 5 years? 

 Assuming that we clearly understand what our customers want and need and why it is essential to start with a clearly defined design framework, we can then move to define more personalized customer experiences. As part of this, I can see interest within the insurance sector in three emerging business models.

• The service-led business model: This is where value-added services are utilized across all engagement types through well-targeted and understood micro-services. This means that "access or subscription" becomes far more critical than owning things. This is what the sharing, streaming, leasing economies aim to realize to optimize capacity utilization and reduce waste. This business model requires a new set of resources, competencies, and capabilities. An excellent example of this is the well-known Rolls Royce's pay per the hour subscription model.
• The ecosystem-led business model: As UN SDG 17 states, future growth plans should include partnerships. This confirmed that ecosystems are recognized as a prominent driver of change, where acceleration comes from overlaying capabilities from the most suited many rather than the few. Collaboration is crucial for companies that want to develop profitable solutions. An entire ecosystem of companies linked through their value chains become instrumental in doing business sustainably & making the whole better than its parts. Philips Healthcare's ecosystem is worthwhile reviewing within the healthcare space.
• The circular economy business model: Traditional linear "take, make & dispose of" business models are replaced with "closed-loop circular and resource-efficient, re-use and repurpose" business models to counteract resource depletion and reduce pollution. Caterpillar, Schneider Electric, and Intesa Sanpaolo are already deploying this sophisticated model.

Do tune into the post-event webinar recording to listen to practical advice and examples shared by all panelists. It was a fun chat.

Abel Travis, Mark McLaughlin, Patrick Lane, Yann Bry, and I look forward to hearing from you as well as the IBM Cloud team #IBMPartner

Remember: "The Future of Insurance is now." IBM for Insurance