Over the past year, we’ve been asking a lot of customers questions about digital disconnection – in particular what it means and the impact of the business that such a transformation can have. These questions stem from the seismic shifts that insurance makes, a sector in which change has been measured over decades.
That time frame has been significantly shortened. Consider the advent of digital new entrants. Although most do not yet have to dispose of much market share, they have attracted large amounts of capital, which in turn has put pressure on the established parties to create value to shareholders. Newcomers are also reforming customer expectations, contributing to it.
COVID-19 has meanwhile accelerated digitization. Agents could not see agents, call centers were closed and bank insurance sales fell when branches closed. Remote, distributed operations are now the norm, and the digital business model of new entrants has become the standard. It is easy to imagine that the industry will be standard in 2025.
Transformation in progress
Transformation is therefore crucial. But to get rid of paper more easily – for example:
- How do you replace long back office workflow processes with in-app delivery?
- How can virtual agents work effectively if they cannot get real-time responses from back-end support systems designed to process batch requests?
- How do you simplify the rules and regulations for P&C products so that they fit into a mobile interface, but without having to reach out to call centers?
On top of this, insurance is one of the rare sectors where the computer program is the factory. Insurers were among the first to use mainframes in the 70s and 80s, and there are still many core systems for policies and claims. As a result, many players have significant technical debt.
Since the millennium, engineering solutions have come and gone. Many were expensive, complicated and time consuming. Today, however, a much wider range of solutions is offered by service providers and engineers. The trick is to integrate it into the IT stack.
The value of these deals is even more important, as insurers know they need to act fast. The best solutions provide a way to counter new entrants by giving customers, agents and other stakeholders in the insurance ecosystem – for example repairs or hospitals – an excellent digital experience that allows them to integrate services into their business processes.
To create an excellent digital experience, a stack of digital solutions is needed, and it needs to mark a number of subjects: it needs to provide, for example, an excellent mobile experience; it must dwell in the cloud; and it must use machine learning and other analyzes to achieve underwriting, pricing, marketing and claim handling.
All well and good, you might say, but how can my firm connect our heritage systems to this advanced technology? Given that old-fashioned systems used on old code are often inflexible and unable to respond in real time, are we not in danger of opening Pandora’s Box?
This is where digital decoupling comes in. Simply put, digital decoupling accelerates digital risks for digital insurance by connecting insurers through data lakes (which may be in a data center or in the cloud) in real time with the data existing in the old system. .
In this way, any change made to the inheritance policy or to the inheritance claim system is repeated in real time in the data lake, without affecting the inheritance code. A modern digital stack, with its powerful machine learning, can seamlessly manage these diverse sources of data.
Although the implementation of an entire decoupling project takes time, insurers usually find that the implementation of the basic operating infrastructure takes six months. At that point, they can drive their digital transformation and quickly launch new business functionality online with the help of agile digital factories.
The goal should be to generate business benefits within short cycles so that insurers can enjoy the first results within a few months. Pilot projects that focus on specific areas can be helpful to deliver within such a time frame.
If insurers then add new features to the digital stack, they can step out of their old-fashioned systems step by step, thus reducing its footprint. This is much better than rebuilding the old code.
Transforming in this way has many benefits. New features, for example, could include dynamic pricing, flexible and more modular contracts, and support for virtual agents, which in turn can reduce call center workloads. We have seen that insurers implementing such changes, including the removal of paper, can reduce their cost services by 35-40 percent.
If you compare old-fashioned systems only as a record system, it can also create new product packages supported by the digital stack. In addition, some large insurers have added fintech-type cloud-based small core systems to bring in new classes of products. It not only disconnects new and old systems; it enables them to separate the execution of their business strategy from the solution of technical debt. Step by step, they can become more agile and agile, with modern product sets and services matching new entrants.
Finally, through a digital decoupling approach, established firms can keep new entrants on board by leveraging the strengths of newcomers: experience in risk management, balance sheet strength and the scope and depth of the existing distribution network.
Next, we will investigate how insurers can prepare for digital disconnection to achieve their goals. We will also point out pitfalls you should avoid and some of the innovations that make this approach possible.