Insurers must go full-bore on cloud to support digital transformation

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I’m convinced that many insurers are tired of hearing research analysts say how slow the industry is in responding to modern technologies and how far behind it is in the race to capture digital market share. Evidence of insurers’ struggle with transformation is especially notable in the customer experience arena, where there’s plenty of data citing customer preference vs. actual experience across a host of online and offline channels.

Those who don’t heed the digital readiness warnings of research firms may be in for a jolt. Incumbent insurers are struggling to play catch-up — not just to compete, but to survive ­to players that are both funding and snatching innovation-based start-ups to make their customer experience vision a reality. This flurry of insurtech activity is a new development for the industry, and represents innovation opportunities for both insurers and start-ups alike. Further, the size of carriers making significant investments is no longer restricted to publicly held Tier 1 players: CUNA Mutual and its SafetyNet business unit recently joined the list of insurers with official, named innovation units.

At the same time, there is a sense of growing urgency in meeting the ever-changing needs of the customer. For example, the customer wants to be able to conduct business 24/7, which means insurers at a minimum must provide them with secure, real-time access to their information. And although customers want to conduct business online, they want tailor-made, clear, instant and easy-to-understand pricing and claims information. Few would argue that digital technology — and specifically, cloud computing — is the means to this end.

The challenge remains in how insurers are responding. Boston Consulting Group (BCG), which queried insurers of all sizes on a global scale last year, reports that approximately 35 percent of all applications in the industry still run on legacy technology stacks that are not “cloud-ready.” A similar percentage of incumbents continue to rely on static HTML-based digital channels that do not work well on mobile devices—the consumer’s digital device of choice.

The same research found that only 35 percent of insurers use a central customer-data repository or CRM application to engage with clients, and only 64 percent have mobile apps. Further, the average age of core insurance systems in those insurance organizations was 13 years, BCG found.

But insurers are making progress, with more opting for software-as-a-service (SaaS) cloud solutions for use in non-core functions such as financial management, human resource management systems, and CRM, according to Timetric’s global Insight Report, “Digital Innovation in Insurance.” However, in looking at the role cloud plays in digital transformation, insurers still don’t seem to understand that it has the potential to support the full insurance business.

So, the use of SaaS for core activities such as product development, underwriting, claims and fraud detection remains low, notes the report. Speaking of urgency, introducing cloud to back-end core systems and integrating that new platform with the front end is not an overnight endeavor. In the big picture, catching up means rapid investment in the build-out of a digital infrastructure that will result in the use of new business models over a digital platform. It’s a big deal, and it impacts the entire enterprise.

This takes me back to the unremitting criticisms leveled at the industry’s technology-averse culture, and reminds me of the “Road Runner” cartoon from my childhood (yes, I’m dating myself). In each predictable segment, Wile E Coyote (aka “The Coyote”) applies what can only be described as the Rube Goldberg approach to catching the fast-running ground bird (the Road Runner) … his elaborate pursuits of the bird include using clumsy, unsuitable and even absurd contraptions backfire, leaving the failed Coyote to conjure up his next hunt.

The notion that digital technologies can be leveraged to improve product strategy and development, operations, underwriting, sales and marketing, claims, and customer engagement is a forgone conclusion that requires aligning both budget and business/technology strategies with current and future business objectives. The challenge is in thinking about how it can transform the business. What do you really want to do?

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