While some might say the term “digital transformation” is overused and sometimes confusing, the premise behind it is very clear: In our current and future marketplace, digital technologies — and how we use them — now form the foundation for insurers’ ability to not just compete, but to survive.

For smaller insurers in particular, however, the odds seem stacked against them. Some of these carriers believe that their aging technology, coupled with increased costs and regulatory pressures, are challenges that are too comprehensive and too far-reaching to be able to solve all at once. Plus, for some self-insured, risk retention groups, smaller captives and mutual companies with strong — yet small — books of business, it’s common to consider large changes in technology a risk too great to take. Finally, executive decision-makers at smaller carriers are often judicious when it comes to betting on what looks like future economic uncertainty, making investments in technology difficult.

But experts say that smaller insurers can, indeed, achieve digital success if they first recognize and then respond to the drivers — that is, the need for efficiencies, cost reduction, organic growth and innovation-related disruption. The bottom line is that there are now forces pointing to the need for a new way of doing business, and with new processes and technologies to support them, it makes acceptance by insurers of any size of the old status quo a death sentence.

Disrupt or be Disrupted

Some insurers question whether it’s enough to embrace a move to digital processing with only incremental initiatives that may drive limited performance improvements in siloed functional areas, such as digital delivery of mail, portal access, or giving customers the ability to log on to view a PDF of a policy app, assign their signature and return the digital document for processing.

“Insurers need to consider how these drivers are affecting the entire enterprise, and then create a digital strategy that addresses, step by step, the needs of the enterprise,” notes Deb Smallwood, Founder and CEO of Strategy Meets Action. “In other words, digital transformation strategies can and should ultimately be applied broadly across the enterprise and encompass a number of related disciplines, and you have to start somewhere. But by only addressing small problems or one specific part of the business, the return will be of limited value.”

Tanguy Catlin, senior partner with McKinsey & Co., agrees that reverting to a strategy of incremental improvement is not the answer for smaller companies. “Companies that procrastinate over such bets risk disappearing," he says. “Understanding the catalysts of change has to be the starting point, helping to reveal where value-creating opportunities lie and where value is at risk, and ensuring companies disrupt before they are disrupted.

Catlin argues that in insurance, as in other industries, it takes a while for customers and companies to embrace digital technology, but as the pace of change accelerates, incumbents’ scope to adapt diminishes.

“There comes a tipping point where those that have not adapted their strategies fade away—as in traditional print media, for example. The insurance industry might have been relatively slow to feel the digital effect, but personal lines in P&C cover look set on a steep trajectory toward the tipping point, with small commercial lines just behind. Life insurance and large commercial insurance, with longer-term, often more complex contracts, have further to go,” he says.

That said, for many smaller carriers, the desire for digital processing is omnipresent, yet an all-or-nothing approach to execution isn’t reasonable or feasible. “For smaller carriers, it’s typical that one issue or problem will arise, and force them to rethink how they are capturing and processing information,” notes Smallwood.

Internal and External Operations

SMA’s Digital Maturity Model, based on both primary and secondary research spread over years of working with insurers trying to create digital strategies, notes the importance of evaluating and designing around both the internal and external aspects of an insurer’s operations.

“The insurer’s journey typically begins by digitizing internal assets that impact external customer facing,” says Smallwood, “and for the last 10 years, insurers have been digitizing assets, creating PDF documents, email, and other digital documents.”

Michael Allen, CIO and information director at the Virginia Automobile Dealers Association (VADA) Group Self-Insurance Association (GSIA), can relate to the need to digitize assets, and is in the process of converting data from his organization’s policyholders, products, and services to the cloud. One of six organizations within VADA, GSIA opened its doors in 1981, has grown to include more than $15 million in annual premium, and is now the second-largest self-insured group in Virginia, providing its members with workers’ compensation coverage.

“We represent more than three-quarters of Virginia’s franchised dealers, which made the decision to put together a digital strategy a no-brainer,” notes Allen. Initially the call for digital modernization centered around disaster recovery and business interruption. With headquarters in an old Victorian building in the heart of Richmond, Va., the organization had been plagued with power outages for as long as Allen could remember.

Like many smaller insurers, GSIA also realized that by moving to a digital environment, they could do more than solve their disaster recovery and business interruption problems. The move away from paper to digital processes became part of a larger strategy to upgrade their core systems and take all six of VADA’s operations to the cloud. “Like a lot of SIGs, we’ve had a policy administration server in place for more than 25 years, and our workers’ comp system was built by a company that went out of business 18 years ago, so moving to the cloud just made sense,” says Allen.

Value Begets Value

The move to CHSI’s Connections suite of policy administration, CRM, claims management integration tools, billing and receivables software on Microsoft’s Azure platform solved many problems at once, notes Allen, primarily related to the company’s near- and long-term opportunities for efficiencies.

“We saw initial value with our loss control services, namely our active risk prevention team,” notes Allen. “We can replace paper reports, so when our team sits with clients during a risk audit they can help visualize benchmarking in real time.” The company is also leveraging CHSI’s expertise in developing a customer portal as well as integrating claims management with the organization’s third-party administrator.

“The good news is that many early adopters and fast followers [of digital technologies] have already demonstrated the potential to generate value by embedding digital capabilities deeply and directly into their business models,” notes “Digital Transformation in Insurance,” a report published by EY.

Indeed, SMA’s Maturity Model notes that those efficiencies tied to the external, i.e., customer experience, have roots in an insurer’s internal (operational) experience so digitization that supports workflows and services is critical.

For example, a huge part of the success behind Utah Business Insurance Company (UBIC), which provides workers comp insurance to homebuilders and contractors, relates to loss prevention efforts that include safety education programs, training, and personalized service.

A younger firm that never fully relied on paper, UBIC has had a digital strategy in place since its launch some 12 years ago and is currently heavy into execution of their current digital strategy, leveraging additional efficiencies in workflow, underwriting and policy management using a combination of digital resources including Connections, Valen Analytics, and Power BI.

Operationalizing the Digital Experience

“We focus on workflow and processes,” notes Tyler Nielsen, UBIC’s VP of operations, “and have several important digital initiatives underway that will speed up our internal processes in order to dramatically increase our speed to market. For example, we are allowing agencies to submit in a better digital fashion, we are giving people access to their policies, safety and HR forms and information, and more through our portal.”

Like GSIA, UBIC’s decision to leverage newer digital technologies was related to ensuring safe and secure transmission of data, as well as access to the software’s most recent version. “We are a small carrier; if we have critical services in-house and have a major event, we will have a much harder time recovering from that,” Nielsen says.

Smallwood points out that digital transformation requires moving from digitizing assets to creating an entire digital experience, but that historically as an industry, insurers have not operationalized to their portals, apps and other digital assets. “It’s like having a smart phone out of sync,” she says.

Allen agrees, stating that the nature of a self-insured group calls for its members to actively manage their own accounts. “Operationalizing the portal should help with that,” he says.

Smaller insurers are also discovering that they can create a new digital experience for their customers, “so instead of a PDF product fact sheet, it can be a video, pictures, and more,” notes Smallwood.

For companies of all sizes, a successful digital strategy must overlay and elevate the insurer’s business and IT strategies, explains Smallwood. “For example, if you have problems with invoice errors, in the name of digital, you should be thinking beyond just fixing the error issue and evaluate how to provide more clarity to the customer with improved customer communication.”

UBIC didn’t experience errors, but instead leveraged the configurability of its Connections’ underwriting and billing modules before the company went into production. “We have some policyholders that report payroll monthly, and by setting rules proactively, we were able to adapt it to 10 installments instead of 12 for certain customers. It’s gone a long way toward improving customer service,” notes Nielsen.

Smallwood believes that for workers’ comp insurers, the end game of digital transformation is related more to improving services and leveraging insurtech opportunities,” says Smallwood. “We are seeing some carriers embracing emerging technologies, IoT, and support for wearables. Some carriers are looking at virtual reality, such as Texas Mutual’s Safety in a Box training tool. For many carriers on the digital path, it’s services first, then products and pricing.”

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