The insurance industry is changing and insurance companies are struggling to cope with increased competition and lower profit margins. To add to their woes, insurers are experiencing high rates of customer abandonment because customers are constantly looking for competitive prices and attractive action plans. More and more customers rely on social media and other digital channels to make an informed purchase decision.
Today's customers are more powerful than ever and they demand that companies be more responsive. Insurers have begun to undergo a digital transformation in order to gain a certain advantage over their competitors. However, many insurance companies have not been able to completely embrace the digital future due to a number of challenges; the main challenge being the inability of the company to align its digital strategy with the preferred values of customers.
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Lack of strategic alignment: the key problem
The insurance industry has always been lagging behind in technology adoption. In contrast, other service sectors such as retail, banking, hospitality and health have quickly adopted strategies for undergoing a digital transformation.
One of the main reasons that prevented insurance companies from undergoing rapid digital transformation is their age-old perception that technology is primarily used to reduce costs and improve productivity. In addition, slow legacy systems, resilient culture and inflexible workflows have always prevented insurance companies from taking drastic action to drive the desired change. In addition, many insurance companies are struggling to innovate while complying with the regulations at the same time.
According to McKinsey, insurance companies have never been data-driven. Most insurers thought they had enough data about their clients and therefore never felt the need to have a customer-centric digital strategy. These organizations have never realized the importance of investing additional time and resources that will help generate value for the customer.
The culture of existing workforce within insurance companies is quite rigid, and insurers still depend on legions of agents to conduct their business. These companies have not been able to take advantage of their computing environment because existing systems have never been designed to integrate data stored in different silos of the organization.
Need for a paradigm shift
It is clear that the digital strategy of many insurance companies is not aligned with the company strategy because the IT landscape has been developed around its workforce rather than its customers. Insurance companies must undergo a radical paradigm shift if they want to survive by achieving sustainable growth.
McKinsey reports that only insurance companies will survive, whose digital transformation initiatives aim to generate value for customers. Realizing that only fit will survive, the insurance company must make efforts to harness the value of digital data by accurately understanding the lifestyles, preferences, behaviors and psychography of various clients.
CIOs will need to formulate customer-centric digital frameworks that will help define the scope of the transformation exercise. The organization must also consider the skills and strengths of its staff and other stakeholders when formulating the strategy. The strategy needs to be implemented slowly and gradually in order to succeed and build trust between the different stakeholders.
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Evolution of Trends
McKinsey suggests that insurance companies must focus on the following five key areas while generating customer value using digital technologies:
1. Development of self-service dashboards
Data generated by digital channels can help customers choose the right policy, make claims, and track damage assessment as well as the repair process from any location.
2. Faster processing of claims
Policy owners must rely entirely on their respective agents to follow the heavy methods of handling complaints. Opening digital channels will allow the customer to report an incident as soon as it occurs, and the fast flow of information will help process claims faster.
3. To offer a transparent experience
Insurance companies can collect and share customer data on relevant distribution channels, so that the customer has the opportunity to interact with multiple members of the chain while consuming the services. The convenience offered by the digital platform particularly helps customers who often move from one region to another.
4. Personalization of services
The customization is without doubt the mass effect without exception. The data analysis will help insurers to have a holistic view of their customers and to customize the offer. The digital platform will help customers compare and evaluate different options when buying a policy. The insurance solutions offered by technology partners and cloud service providers enable insurance companies to reduce their time to market and create new differentiated assets.
The digital initiative will reduce customer dependence on the agent and allow them to make informed decisions that will really help them. Companies like Nationwide, Grange Insurance and Safeco have teamed up with Amazon to leverage its cloud services to help their customers find local agents and offer them valuable advice. In addition, companies like MassMutual use analytics to identify different customer segments.
5. Provide a service assurance platform
Until recently, the reimbursement of benefits was considered the main function of an insurance company. The adoption of digital technologies has allowed insurance companies to come up with new business models. Emerging technologies such as the Internet of Things, large data analytics and cloud technologies can be used and used together to accurately calculate and predict risks. Now, an insurer can pre-calculate risks and prevent any unfortunate incident that could harm his life, health, property and vehicles.
According to Deloitte, the advent of the IoT will give the insurer the opportunity to collect data from sensors embedded in smart wearables, cars, consumer durables , building management systems and industrial automation systems. Alerts can be sent if risks are detected in terms of health, property damage or a likely car accident based on the data analysis. In addition to analyzing different classes of risk, risk analysis will help insurers to determine the prices of various policies. Insurance as a service will be the way of the future and it will be a key differentiator while providing services to the customer.
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With the rapid evolution of customer demographics, insurance companies find it difficult to align their services with changing customer preferences. Gone are the days when customers had to rely on a unique insurance company to meet their insurance needs.
The changing competitive landscape is forcing insurance companies to launch initiatives for the adoption of the digital future. Today, insurers who have successfully focused their digital strategies to enrich the customer experience offer the best insurance services in their category.
In the end, a sustainable competitive advantage can only be achieved if the digital strategy is focused on improving customer loyalty.