Forget About Legacy, Put Customers Center Stage of your IT Strategy

Fred Slikker, CEO, Intrasurance Technology
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Fred Slikker, CEO, Intrasurance Technology

Thanks to a growing network of customers, prospects and business partners, I get to travel and meet a lot of insurance executives to talk about digital disruption.

 The insurance industry is a sitting duck for massive disruption, likely to suffer a similar fate to Transport or Leisure  

The number one question I get asked is “What do you think the insurance industry will look like in X years’ time.” Normally X = 5 (it seems last year every insurance company I met was working on a ‘2020 vision’), sometimes the timeframe is shorter. I have to point out that my focus is primarily on P&C insurance.

If there is one thing that all visionaries agree on, it is that the insurance industry is a sitting duck for massive disruption, likely to suffer a similar fate to Transport or Leisure. The Uber or Airbnb of our industry is already getting up to speed in a lab or garage somewhere with access to private equity funding. To fan the flames, I always make a joke about similar 5 year planning sessions by hotel executives in the recent past. Imagine its 2010 and you’re at an off-site to talk about your ‘2015 vision’ for your hotel business. How many participants would have listed Airbnb as their biggest strategic threat? Would a couple of guys in a San Francisco loft have been noticed, and if so, would anyone have predicted that by 2015 they would become the biggest, most valuable operator offering short term accommodation? That normally gets the discussion going.

Transformation

And yet, despite being surrounded by all these examples of digital disruption in other industries, very few insurance companies actually make any big efforts to transform. When I speak to CIOs about the possibility of setting up new completely digital insurance offerings, targeting all those generation Y customers who are so clearly disconnected from all things insurance, the response is usually mixed. On the one hand, the business case for launching digital offerings is always compelling. On the other hand, a lot of these insurance companies are thinking about, or busy implementing, legacy replacement programs to move away from COBOL solutions running on mainframes. Others are considering outsourcing programs to move more and more IT operations to offshore locations.

Investments

The budgets for these legacy replacement or outsourcing programs never cease to amaze me. Budgets allocated to innovation and digitization is tiny compared to these big transformation programs. The rationale for this discrepancy is that innovation will become much easier once current policy and claims administration systems have been upgraded so that they can support a 24/7 online environment. Innovation in products and services is usually a driver for transformation programs but what is delivered as part of such a program, if anything is usually not much more than stand-alone online sales funnel and/or first notice of loss form. Throw in a couple of native apps very few people will download, and even fewer will actually use, and the maximum ambition level is achieved.

Customer Experience

The real questions CIOs/CMOs should be asking themselves are: “How will these transformation efforts benefit our current and future customers?”, “Will it enable us to offer new insurance propositions and thus help us drive customer satisfaction?”, “Will this help us compete against new market entrants that are customer centered?”  For some strange reason, the consensus view on these questions is that, while they are all critically important to the long term future of the business, in the short term we need time to prepare. Once we’ve migrated to new(er) technologies, we will be ready to tackle them. This is not a new argument; many insurance companies I know implemented policy administration systems within the last 10 years, but are not able to interface with price comparison or aggregator sites, are not able to offer real-time transactions to online customers, and are not able to launch new joint offerings with affiliate partners. The current round of legacy replacement should address these issues.

While this is a step in the right direction, the solutions that are being implemented today will not support the business questions that are being asked tomorrow. When these new systems finally go live, it will be a great day for the insurance company, but their customers will barely notice anything.

Generation Y

By the time these new systems come online, the generation Y customers will have moved on to expect usage based insurance as a standard, they will own (somewhat) autonomous vehicles or, even more likely, will share them with a number of other people. They will expect regular relevant interactions with an insurance company, be it ‘subconsciously’ through mobile devices, and they will expect proactive digital advice leading to tailor-made products and services. Insurance companies should be setting up autonomous teams to tackle these challenges and opportunities. These teams should be unburdened by major IT change programs; they should be incentivized to disrupt competitors and their affiliated companies alike. At the same time technical migrations should be minimized by offering existing customers compelling new offerings to make them switch over for commercial reasons.

One Size Doesn’t Fit All

Given the rapidly changing business environment, insurance executives should think long and hard about the strategic IT priorities for their company. They simply cannot afford to ‘park’ or limit innovation at the expense of automation. I personally don’t believe that one or two Uber-like new insurance companies will disrupt this regulated industry on a global scale at short notice, but I do think that new online players will start growing quickly at the expense of bigger, more traditional companies, by listening to customers and by adopting a fast, design driven, iterative approach to new product and service offerings. Insurance companies should spread their IT investments to address both automation and digitization questions at the same time. Having several policy administration systems should not be a deterrent; it should be the norm. One size policy administration definitely doesn’t fit all your business needs.

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