Digital Insurance

Digital Insurance

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Digital Insurance

Charting a Course to Best-in-Class Capabilities
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  • In This Article
    • Digitization stands to transform the insurance industry—and companies need to act now to position themselves for success.

    • The relative importance of specific digital capabilities, and the development path toward achieving them, will vary by insurer and depend on the company’s specific strategies and target market positioning.

    • Achieving “digital fitness” will require changes across the company.


    Digitization—marked in particular by the exploding popularity and reach of mobile devices and social media—is transforming the business landscape rapidly and fundamentally. In the process, it is forcing a wide range of companies to rethink how they approach their business: what the sources of competitive advantage are, where the greatest opportunities lie, and how best to engage customers and prospects. Digitization’s impact on the insurance industry, specifically, stands to be vast—and the breadth, depth, and speed of the change might catch some players off-guard.

    Succeeding in this environment will place significant demands on insurance companies. Insurers will need to develop individualized approaches to the digital terrain based on their particular objectives. They must be prepared and able to make changes throughout the organization in order to achieve the necessary degree of “digital fitness.” And they must be prepared to act boldly and to start today, if they are not already moving, since critical capabilities are being developed right now that could have a deciding impact on the industry’s pecking order in the medium to longer term.

    Digitization Continues to Gather Speed—and Is Already Disrupting Business Models

    Digitization’s reach continues to expand at a rapid rate. As it does, the ways in which people, technical devices, and businesses interact and exchange information are changing apace. Consider the following:

    • In 2011, for the first time, users spent more time on the Internet with mobile devices than with PCs—and global shipments of smartphones and tablets exceeded shipments of desktops and laptops. Mobile Internet access has thus already overtaken stationary Internet access in importance.

    • Social-media platforms are mushrooming. Facebook, for example, currently has 800 million users; by 2020, the number is expected to surpass a billion.

    • The so-called Internet of things—that is, devices connected to the Internet or those that can generate a connection—continues to grow quickly. Examples include radio-frequency ID chips, bar codes, and quick-response (QR) codes. QR codes are springing up everywhere (2010 saw a 1,200 percent increase in QR-code scanning) and represent an important link between the real and virtual worlds.

    These technological trends and changes in consumer behavior are encouraging companies across many industries—and are often forcing them—to consider new business models. (See Exhibit 1.) Mobile telephony and Internet access are receiving particular attention. Tesco, for example, now offers “virtual product shelves” to its South Korean customers. This feature enables customers to use their smartphones to select products that they want by QR code and have those products delivered to their homes. Ocado, the U.K.’s second-largest online food retailer, has utilized this model quite successfully as well. Many companies are also placing heavy emphasis on finding ways to leverage social-media sites and customers’ growing eagerness to share opinions on brands, products, and services—evidenced, for example, by the many comments about hotels and restaurants that consumers post on TripAdvisor and the video-product reviews on YouTube.


    Ecosystems with their own game rules are emerging as companies forge ahead. Apple’s App Store, which has a billion downloads per month, is a prominent example. Google’s online music shop, Google Music, which will compete directly with Apple’s hugely successful iTunes, is another. This service allows customers to choose from among 13 million songs sold on Google’s Android Market and share their music with friends via the Google+ social network.

    These developments are highly relevant for insurers. As the digital era advances and both consumers’ general expectations regarding service levels and the caliber of the customer experience that companies can deliver continue to rise, demands on insurers will rise in concert.

    Specific Opportunities—and Threats—for Insurers

    The opportunities that this landscape offers insurers are vast. Social networks and communities afford them a means of communicating directly and more effectively with customers, aiding in branding efforts and customer acquisition and retention. Web mining will deliver more, and more accurate, data on customers. Together with in-memory computing solutions, this will support real-time analytics and much better customer segmentation, individualized products, adapted pricing, and more-selective underwriting decisions. New digitization-based technologies and tools, such as tablet PCs and in-memory computing solutions, will help insurers improve process efficiency and quality and open up many new opportunities for cost reduction. New digital technologies will also allow insurers to pursue new partnerships and business opportunities with companies from other industries—for example, in offering intelligent energy management and integrated home automation.

    But the new digitized terrain will also present challenges for many insurers. Greater use of portals and aggregators by customers, for instance, will increase product transparency and reduce the cost of switching insurers. The necessary investments in information retrieval, analytics, and new-product design may be significant. Increased IT and system complexity could lead to materially higher project and operational risks. Poor customer reviews on social-networking sites could do significant damage to an insurer’s brand. And leveraging and responding to the new digital realities will place demands on the entire company, not just the functional hot spots of  IT and marketing.

    Taking a conservative approach while waiting for a clear path to emerge is a losing strategy, however, since there will be first-mover advantages. Indeed, a number of insurers are already pushing the envelope and gaining immediate commercial benefits and potentially a longer-term competitive edge. Several insurers are actively leveraging social media, for example, to strengthen or forge ties with clients, agents, and prospects. Farmers Insurance’s “Win a Ride on the Farmer’s Airship” promotion was a major hit on FarmVille (a popular Facebook game), exposing millions of players to the company’s brand. In the U.K., Direct Line launched an ideas lab that invites customers to help design the company’s next mobile apps.

    Other insurers are aggressively leveraging mobile connectivity. Axa, Nationwide, and NRMA, for example, offer their auto-insurance customers smartphone applications that provide comprehensive postaccident assistance, from first-aid tips to one-touch contact with police, emergency personnel, and repair shops. The apps also make it easy for policyholders to complete and file damage reports on the spot.

    Some insurers have developed entire ecosystems that leverage digital capabilities. A major European insurer, working in partnership with two external partners, has developed a cargo-transportation insurance product that significantly reduces the risk of loss, damage, and delay (which affect roughly a third of worldwide cargo shipments). The product helps the shipper and the transportation company identify risks in advance and define optimal preventive solutions. Once a shipment is on its way, telematics devices allow the transportation company to monitor the cargo throughout its entire journey and troubleshoot if a problem (such as too-high temperatures in the cargo hold) arises. Everyone profits—the sender, the recipient, the transportation company, and the insurers, which see fewer and less costly losses.

    The Need for an Individualized Strategy

    Insurers need a wide range of capabilities in order to take full advantage of the opportunities provided by the digital economy and achieve a critical overarching objective: true customer-centricity. Customers will expect to interact and do business with insurers the way they do with an airline, a direct bank, a hotel, or a shopping portal—that is, they will expect 24-7 service, a superior customer experience, intuitive navigation, very high service levels, and the chance to provide feedback on service quality. Insurance companies need to prepare to design these “moments of truth” with customers accordingly. This translates into the need for more individualized offerings, fully integrated sales and service channels, a means of monitoring social media for customer insights, and strong data-mining capabilities. In operations, it means the provision of mobile access to customers, simplified and industrialized processes, and potential partnerships with third parties to create new capabilities or offerings. In IT, it demands such things as the provision of agile and innovative delivery mechanisms, judicious use of new technologies (including virtualization and open source) to minimize infrastructure costs, and optimized sourcing relationships with providers. (See Exhibit 2.)


    For many players, regardless of their overarching strategy, gaining thorough knowledge of the customer will be a top priority. Accordingly, one of the first initiatives many insurers will need to pursue is ensuring that their store of customer information is complete and up to date. In particular, many insurers are missing key data relevant to segmentation, such as household income, assets, and sociodemographic profiles. In many cases, closing these gaps will demand procurement and integration of outside data. It should be emphasized, though, that the relative importance of individual digital capabilities, and the development path toward achieving them, will depend on the insurer’s specific strategy and target market positioning.

    Once an insurer has identified and addressed its top priority or priorities, it can pursue other initiatives based on its particular objectives. Such initiatives might include the following:

    • Defining ground rules in the use of social media for the company and its sales partners

    • Improving the online experience for customers by, for example, expanding the website’s self-service functionality, simplifying online navigation, making the log-in process easier and quicker, and increasing the site’s availability

    • Identifying already existing or emerging digital ecosystems that offer promising opportunities for partnering and positioning—for example, those utilizing telematics, eCall, and/or remote surveillance and security

    For some of these initiatives, insurers will be able to develop concrete business cases. Other initiatives will have to be viewed as experiments and gauged on the basis of knowledge gained as much as cash flow.

    Achieving Digital Fitness Will Require Significant Changes Across the Organization

    Companies will need to align their digital strategy with their standing business objectives, which will entail understanding how customers are leveraging technology and choosing the right platforms for their brands. They will need to build the required internal capabilities, necessitating the design of training programs and the definition of metrics linked to business objectives. They will need to tailor this effort to the existing organization in terms of roles and responsibilities, speed of rollout, and positioning of key personnel throughout the company. And they must seed and develop a culture that supports the effort, particularly in its tolerance for experimentation. In short, an insurer’s move toward a digitized business model will engage the entire organization, from top to bottom, on multiple fronts. (See Exhibit 3.)


    A leading U.S. life insurer’s attempts to standardize its agents’ use of social media illustrate the breadth of effort necessary to make a digitized model work. Historically, the company’s agents had engaged with sites such as Facebook, LinkedIn, and Twitter largely as they saw fit, with little guidance from the company. The company believed, though, that the growing reach and influence of these platforms demanded consistent positioning and a consistent voice in order to strengthen the brand and draw greater numbers of customers. Accordingly, it launched a comprehensive initiative that included the following:

    • Instituting a battery of regulations regarding agents’ communications on social-media platforms—for example, agents must now archive all their communications with customers

    • Systematically analyzing these communications with regard to topics, feedback, and information on competitors

    • Launching a platform that monitors and archives agents’ interactions on social-networking sites

    • Designing and staging training programs for agents on compliance and best practices in the effective use of social media

    • Linking agents’ profiles to the company’s website and sales campaign, ensuring a standard presence for the company across these platforms

    • Designing a program to leverage social media creatively in a manner not directly related to life insurance—for example, by encouraging Twitter chats on Halloween safety for children

    This effort was launched in a pilot project and subsequently rolled out successfully to the entire company.

    As the example illustrates, the tentacles of even a single digital initiative, let alone a broad, full-fledged offensive, are many and long. Going digital is a move to a fundamentally different type of business and will truly tax the entire organization. Employees across the company will need to act both more responsibly and more independently, and their actions are likely to give them much more influence on global brand building. Insurance companies thus will have to have both the right capabilities and the right culture in place to ensure that they can leverage the digital economy’s potential and manage its challenges.

    The evolution of the digital economy is radically changing customer expectations and behaviors—and the ways in which companies need to conduct their business to engage their customers. Insurers that expect to thrive in this environment cannot afford to take a wait-and-see approach. The more forward-thinking organizations are already plowing ahead, designing comprehensive digital strategies and building the required capabilities. They are taking new approaches, ones that are fast, agile, and don’t just build on legacy assets and thinking. These insurers are testing and learning through pilot projects across the value chain that leverage mobile, analytics, and social media. And they are upgrading their skills and capabilities, especially in the areas of service monitoring and delivery, security, and architecture, through a combination of external recruitment and internal development.

    In short, they are moving aggressively to build a platform for digital success. They will likely be rewarded with powerful competitive advantages, both today and tomorrow, over peers that are standing still.


    The authors would like to thank Richard Helm, Stuart Scantlebury, and Steffen Wachenfeld for their contributions to this article.

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    • Alumnus
    • Düsseldorf

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