There is a lot of talk about the need for the sector to adapt to changing consumer demands but are tensions between the anti-risk culture of insurance companies and the nature of digital transformation holding back progress? The newly launched Digital Insurance Collective offer their insights and thoughts
The first descriptor that springs to mind when defining the UK insurance industry is not “digitally innovative”. Clunky legacy systems, a risk-averse approach to social media adoption, and a culture that shies away from experimentation stand in the way of insurers and brokers keeping up with the digital demands of their customers.
With this in mind, Post is seeking to turn the industry’s prehistoric image on its head by bringing together some of its sharpest digital minds to form the Post Digital Insurance Collective, with CGI already on board as a headline sponsor.
Making up the collective are Post’s Digital Activists – 11 people who have been championing the digital revolution in their own corners and slowly chipping away at the status quo. The cohort includes digital crusaders from traditional insurance organisations and agile start-ups, chief digital officers and innovators-at-large.
Tackling the barriers
At its inaugural meeting on 23 October, the Digital Activist Board had a lively debate about the state of the digital insurance nation, first tackling the barriers preventing insurance businesses from fully operating in the digital world.
For Iain Harper, Endsleigh digital head, one of the key obstacles to embracing the digital revolution is the market itself. The dominance of price comparison websites and the cost-sensitive market that emerged as a result means investment in transformation has been a hard sell for insurers that are not making good margins on their products, he explained.
“That fight for margin has manifested itself in things like add-ons that wrap around the periphery and are quite anti-customer. It is quite a febrile atmosphere to be trying to do really big transformation because you’re fighting the market,” Harper said. “Where the consumer, the products and the insurer are at loggerheads is an interesting barrier.”
Infrequent customer engagement through digital channels was also seen as an obstacle, particularly when compared to the frequent digital contacts with other financial services providers – mobile banking apps, for example, are used daily.
NIG broker e-trade director Jaime Swindle explained: “People don’t interact with their insurance policies because they don’t understand what that interaction looks like. Therefore, how do we educate and enable people to do that?”
“If you assume people don’t need to interact with their insurer – apart from once a year when they make a fundamental change – that is part of the driver. Why would people invest in that area if it is a once or twice-a-year transaction?” Swindle asked.
Paul Heybourne, Aviva global innovation research and demonstration lab manager, agreed more engagement was needed. He warned that the insurance industry was in danger of realising this too late.
“The blocker in my mind was around the ambition and vision the industry has. We could have much stronger engagement. Frankly, perhaps we just don’t need to because we are making money and the shift will happen, but it may be too late,” Heybourne said.
The challenge of upgrading customer interaction from a transaction to something that adds value was identified by Vivek Banga, Arthur J Gallagher’s chief digital officer.
He gave the example of an energy provider that offers customers an app to complete their monthly meter readings. Such an initiative encourages 12 digital interactions per year.
“If a transaction is one-off and largely done on price, there is a limited road for everything, including digital. If, however, it starts getting into more value and risk management services, then digital starts playing an important role,” Banga explained.
Freddy Macnamara, founder of start-up broker Cuvva, which offers hourly motor insurance, advised insurers to ask their customers what value they want from an insurance app.
“What insurers do, from my perspective, is sit in their offices and say: ‘This is how we’d like to sell this’. What they should actually be doing is going back and sitting down with consumers and finding out what they want from an insurance app,” he advised. “It really involves studying the customer rather than just asking: ‘Why haven’t we got digital in here?’”
Investment in digital innovation was also a hot topic for the activist board – in particular, how much spend industry firms are dedicating to new digital initiatives.
Investing in digital
Banga believes insurance customers are investing more in digital and, therefore, industry firms need to reflect this in their IT spend.
“If I am spending x million on IT and part of that I have to spend because of government regulation and maintenance, then how much of it is going towards this huge trend we are seeing? That is a good challenge to be raised with IT departments because it starts creating a business case for spending a slightly higher percentage on digital,” he said.
For Steven Mendel, CEO and founder of members-only insurance service Bought By Many, insurers’ legacy systems are more of a hindrance than a help in dedicating increased investment to innovation.
“There is this dichotomy between maintaining and keeping relevance with a huge mainframe sitting over here and the ability to create something new over there – or at least something that is running to keep up with the pack,” Mendel explained.
Harper said the company has started breaking down projects into mandatory activity, growth activity, and innovation.
“That is the first time that has been looked at through that lens. It would be really helpful for senior management to be able to see [if, for example,] the vast majority of our projects for 2016 are just mandatory things and there is 2% on innovation. Up until now it has all been a fairly amorphous pot of business change,” he added.
CGI vice-president and head of insurance Neil Sadler said CGI research conducted with more than 800 executives showed that from an insurance perspective 70% of IT budgets are spent on running the business rather than changing the business.
“People are being asked to do more with less because among all of that you have got salaries going up [as well],” Sadler explained.
LV ecommerce director Paul Wishman agreed insurers only have so much money to dedicate to innovation programmes. Many companies are currently going through, or have been through, expensive IT system overhauls, so it is unrealistic to expect them to dedicate spending on innovation projects concurrently.
“At the same time, there are exciting things happening today that we are a bit restrictive about because you can’t do everything at the same time. Generally, we are not able to accommodate the parallel streams of change that we would like,” he added.
Creating a positive culture around digital change was cited by several board members as a challenge within their organisation.
Direct Line Group digital director Ash Roots said: “Technology is always going to be changing and you need to know how to adapt to that. Tied into this is that culture can be changed today. I can go back to the office [now] and start changing the culture, you don’t need any money.”
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Harper highlighted a tension between the anti-risk culture of insurance companies and the nature of digital transformation which requires trial and error. “If we were good at taking risks, we probably wouldn’t still be profitable or in business,” he noted.
The conversation moved on to whether insurers should diversify their business or investment offering to emulate successful digital companies such as Google or Amazon. Google, which started as an information organiser, is now involved in projects like driverless cars and trialling gadgets such as Google Glass.
James York, innovator-at-large at Worry and Peace, explained: “Boards in our sector are probably not geared to think as much outside the box as the boards of those other companies that are not only doing things themselves, but taking leaps forward.”
“Strategically, do we have the gumption to use all the resource and capital we have got, to do what the Googles and Apples do, which is to buy what we don’t have?” he added.
Roots contended that large tech companies have a very different purpose to insurers. “Google’s purpose, outside of what it says, is to be disruptive. I’m not going to try and define what our purpose is in terms of that language but an insurer’s purpose is very different to Google’s,” he said.
Outside your comfort zone
York praised Google’s strategy for taking the approach of innovating internally and buying what it can’t innovate.
“What you buy-in is outside your comfort zone, to give yourself a buffer, so people can’t get at your innards. As a sector, we are in a distribution trap in that we are always someone else’s add-on, we are always someone else’s revenue stream,” he explained.
“The new ventures can come and do things that the incumbents can’t. Google can write its own script as it goes, because everyone expects it now to do something that is not organising information on a worldwide level.”
Mendel applied York’s argument to the insurance industry by explaining: “What insurers do incredibly well is applying their balance sheet and their knowledge and experience of hundreds of years. Insurers are incredibly good at garnering capital together and using that capital, putting it to play in writing and creating
access to risk.”
“Insurers should play to that strength and give access to that balance sheet, to the ability to price and genuinely understand risk to the businesses out there,” he said.
York responded that tech giants find new ways to distribute to customers and uncover new transaction points. “My logic would be to find high transaction volume opportunities and fuel your low transaction business with that and then you have created a buffer zone and maybe another business opportunity to conglomerate your business to diversify,” he suggested.
“It’s a bit idealist but, from that perspective, there is immense idealism where innovation has come from. All the people we worship are idealists – Google has an ideal and it has created a mission off the back of it.”
Wishman considered it was important for the industry to frame ideas for diversified investment or business carefully to the C-Suite, should it want to go down that path.
“If you’re going to say: ‘I’ve had this great scheme and it is nothing to do with insurance whatsoever but I am looking for x amount of money’, you’re on a hiding to nothing,” he said, adding any propositions would need to be proven as making strategic insurance sense as well.
As the conversation drew to a close, the activists were asked where they thought the industry was at, digitally speaking – has 2015 been a year of transition or transformation?
For Swindle, the industry has been building on the technological change it began implementing over the past decade.
“Ten years ago, people could log, track and manage their claims online, and buy things on a mobile phone. Digital was there for all of us,” she said.
“People aren’t necessarily aware of those things because it is just part of the transition. It doesn’t feel like a Big Bang because it is happening as you go along.”
Banga said there was no doubt the industry was making progress. However, he questioned if the industry was changing with the same pace at which consumer technology was evolving or even at the rate with which customers were embracing digital.
“We are a conservative industry and we are an industry with roots back to the 1800s and, therefore, pace of change gets influenced by some of those factors,” he said.
“There is only so much change we can deliver year after year and maybe that is what slows us down a bit. There is a lot of room to grow and a lot of progress to make.”
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