Insurance is shedding its reputation for stodginess in the wake of massive digital disruption across the value chain. While a growing insurtech cohort is contributing to the change, incumbent insurers are beginning to assert themselves as leaders and define the direction of the industry going forward.

“We’re definitely seeing an evolving trend toward incumbents playing an active role in transforming themselves and the industry as a whole,” says Samantha Chow, senior analyst with Aite Group. “The actions of major players have grabbed the most headlines, but we’re seeing many innovation efforts at smaller carriers too.”

Insurers have begun to consolidate efforts under executive-level leadership, with mission statements and budgets to match. Some have installed newly minted “chief transformer” roles, who report directly to the company’s CEOs and are tasked with moving their business and, by extension, the industry toward a more nimble future. Carriers are also launching a range of innovation labs to ideate faster and easier across the enterprise.

As Guardian’s Andrew McMahon puts it, establishing a formal transformation role creates a permanent agenda item among the top brass. “It ensures everybody continues to talk about our innovation agenda and what we need to do as a 158-year-old company to transform ourselves and our industry,” says McMahon, who was named EVP of strategy and customer development late last year and charged with developing enterprise strategy and bolstering the life insurer’s digital customer experience.

In fact, industry experts say the move to giving transformers a seat at the C-suite table is fundamental to innovation leadership success. “Support from the very top of an organization is critical,” emphasizes Robert McIsaac, SVP of research and consulting for Novarica. “CEOs and presidents must create an environment where it is culturally okay for things to be tried that are different, new and unique. This includes making it just as safe to fail, learn and move on – even if the investment is significant – as it is to succeed.”

Despite these common headwinds, Guardian and others are committed to transformation leadership by also making Silicon Valley practices a priority. McMahon’s company is focused on becoming more data-driven and is preparing to unveil a number of transformation-related projects later this year.

“We’re working toward creating a culture where we’ll have the human capital to allocate as quickly as we can allocate financial capital,” McMahon says. “To start, we’re training all 9,000 of our employees, spread across the country, in agile methodology. Then, we’ll begin to apply that to all areas of our business.”

“We’re definitely looking at ways to combine historical data with third-party sources for looking at leading indicators, rather than only lagging indicators, to determine potential policy holder behaviors and provide relevant customer experiences,” McMahon continues. “In the end, we want to have a more satisfied client.”

Squads fail fast at Argo

One key for incumbents that aspire to transformation leadership is adopting the fail-fast Silicon Valley operating model insurtechs have introduced to the industry. A pioneer in this is Argo Digital, which was formed in August of 2016 with the hiring of Andy Breen for the new position of SVP of digital for Argo Group.

Externally, Argo Digital is pursuing the increasingly common strategy of supporting a venture capital unit for driving innovation while also supplying potential technologies the carrier can use via partnership or outright acquisition.

Internally, however, Argo Digital takes a far more novel approach. Small teams, called digital product squads, tackle business problems of all types by applying iterative methodology to quickly determine which ideas could solve the problem and which should be learned from, but abandoned.

“For instance, we discovered many small businesses customers are actually more time sensitive than price sensitive,” says Breen. “Customers express frustration with the historical commercial insurance quoting average of more than two days as it delays projects, loans and other imperatives. Our charge was figuring out how to reduce quote times to two minutes.”

Functionally, Argo Digital’s squads are composed of about five people. “Teams beyond that size require overlaying structure, process and associated reporting,” Breen explains. “This inhibits creativity, interpersonal relationships and — due to activities like reporting — output.”

While composition varies depending upon needs, each squad is formed at a project’s outset, rather than working from provided documents, and is led by a product owner. Other expertise includes business analysts, designers, data scientists and engineers.

When squads complete their work, successful projects are transitioned to IT and team members move on. In practice, about half of Argo Digital’s current projects incubated out of a previous one, where a new opportunity was uncovered. “In such cases, one or two individuals from the original project will stay with the new one, with others added to fill out the needed skill sets,” Breen says.

The genesis of Argo’s squads occurred about five years ago, when CEO Mark Watson looked to implement a plan to get a jump on the digital revolution. Watson tapped into Breen thanks to the expertise he demonstrated as an adjunct professor at the NYU Stern School of Business, combined with his 20 years of past experience bringing digital products to market for various companies — none of which were insurers.

“During my academic work I created an ‘impact vs. complexity’ framework that we’ve expanded at Argo for vetting new ideas,” Breen says. “Essentially, we assess the impacts on our customers and our business of an idea versus the technical, operational and regulatory complexities to execute it.”

Interestingly, Argo discovered the outcome of its vetting framework is non-binary. “Instead, it’s definitely no, definitely yes and not now, meaning it’s worth re-evaluating quarterly until it becomes one of the other two,” says Breen.

With the market competition for related talent high, Breen must go beyond compensation to entice candidates. “We present our industry as one of the few that hasn’t been disrupted and tell them ‘if you’re interested in disruption, you’ve a chance to do so at scale,’” he says.

It’s a particularly compelling argument for veterans of startup companies, says Breen. “They’re still passionate about disruption but have been burned by chasing the stock options dream,” he explains. “We offer concrete compensation and a work-life balance, while still working on cool technology, such as AI and machine learning, in a cool environment. That really resonates.”

AmFam’s transformation hub

Another way of leveraging Silicon Valley lessons is evident in American Family Insurance’s new digital transformation office (DTO), headed by the insurer’s first chief digital transformation officer, Todd Fancher.

With an expected staff of as much as 90 once hiring is completed, the DTO is bringing discipline to defining business problems and then helping the associated unit collaborate with others, both internally and externally, to determine which technologies, partners and ecosystems are needed for the solution. Part of that could be determining that the solution isn’t viable for AmFam after all.

“We want to ensure an individual project isn’t addressing step four before completing steps one, two and three,” Fancher explains. “The goal is building an overall infrastructure where our technologies not only integrate with each other, but also provide us with a flexible, robust and adaptable environment that enables us to offer the ultimate customer experience, regardless of what comes next.”

Functionally, the DTO is carrying out its mandate via the activities of three teams: strategy, portfolio management and ignite.

AmFam's Digital Transformation Office will have a staff of as much as 90 and focus on bringing the business to the next level.
AmFam's Digital Transformation Office will have a staff of as much as 90 and focus on bringing the business to the next level.

“Although we expect the size of each teams to fluctuate over time, mirroring enterprise needs, every business initiative will flow through the three teams,” says Fancher. “During the process, initiatives will also tap into expertise from other departments, including our innovation team, data science lab, AmFam Ventures, IT staff and various other centers of excellence across the enterprise.”

At the start of an initiative, the strategy team assists a business unit with laying out a vision and roadmap. This involves breaking down a challenge, formulating a business case and creating a cross-functional team to work on it, which the DTO calls a “pod.”

The skill set of strategy team members is akin to a business architect, says Fancher, with individuals having specialized expertise within each of AmFam business line. “At any given time, a strategy team member will understand a line’s profit and loss plan for the year, what the operational struggles and customer pain points are, where the gaps are and what initiatives are currently underway or necessary to close those gaps,” he explains.

Picking up from the strategy team, portfolio management determines what resources are required to address each pod’s requirements, such as collaborating with a data scientist, as well as developing and monitoring key metrics that drive results. “Portfolio management team members have experience in human-centric design, lean start-up and project management,” says Fancher. “They know how to break down a problem into an iterative approach in order to create a minimum viable product.”

The net result of the portfolio management phase is determining whether a pod should stop, pivot or persevere. “Examples would be stopping a pod because the solution path is proving insufficient, pivoting because assumptions about the customer pain point proved incorrect or persevering because customers have confirmed that the MVP addresses the pain point,” Fancher explains.

Ignite team members take persevering pods through lean customer value and lean start-up processes by applying their direct experience lean methodologies. “The ignite team works with the business to ensure a pod only digitizes needed processes,” says Fancher. “Then, using lean start-up, ignite helps the business maximize outcomes while de-risking potential solutions.”

For 30-year AmFam veteran Fancher, the DTO holds game-changing potential. “Among other projects, we’re helping our business marry historical and real-time data to create something more powerful,” he says. “Overall, the goal is establishing new, data-driven ways of working to become more proactive and valued in our customers’ lives. With the possibilities that new tools and technologies offer us, it’s an exciting time.”

The road ahead

No matter which specific strategies incumbents pursue, the trend toward transformation leadership is expected to advance even as insurtechs continue to push the envelope.

However, it’s also important for incumbents to realize that not all insurtechs, no matter how groundbreaking their innovations may seem, will survive. “Frequently the insurtechs fail to respect all of our industry’s challenges, particularly around regulations that are in place to protect carriers and consumers,” Chow says. “Many insurtechs will eventually hit the same brick walls that incumbents face every day.”

For incumbents, this means transcending the industry’s preoccupation with insurtechs to also consider and address the impacts of coming generational shifts.

“It’s common for the existing dominant cohort to assume the next generation will grow up to be like them, but it’s just not the case,” McIsaac says. “For example, the upcoming generations are far less interested in automobile ownership. This will likely cause a shift towards insurers contracting with automakers, rather than consumers, with coverage coming packaged within payments made for leasing, or renting, a vehicle.”

But for life insurance, say the analysts, upcoming cohorts seem more oriented to products that can adjust or adapt to changing life stages, creating dramatically different product needs and processes than selling and administrating fixed 50-year contracts.

The bottom line is that transformation leadership goes beyond improving existing business models and processes. “For incumbents across all business lines, it’s critical to move away from the outdated concept of being all things to all people and decide where you can be competitive,” says McIsaac. “This enables focusing capital and human resources effectively to truly be a leader in the transformation to digital.”

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