The bedrock of the insurance industry is quaking. For decades, large North American insurers got bigger by dominating distribution and methodically mastering information technology. But the confluence of changing customer demands, hundreds of insuretech startups and non-traditional competitors sniffing around the business of insurance is messing up the long-standing insurance equilibrium. Insurance carriers--and their agents and brokers--must go digital or go bust.
During the second half of 2016, my fellow Forrester analyst, Oliwia Berdak and I interviewed digital business strategy executives with traditional insurers and hot startups around the globe to get their take on the role that digital will play in the business of insurance over the coming decade. What were the big takeaways from our conversations? Consider that:
Digital technologies have enabled new insurance models, threatening incumbents. Digital disruption threatens to reduce many insurance companies to low-margin utilities, with limited engagement with or relevance to customers.
Legacy insurers are struggling to respond. Even though nearly one in three insurers told us in a separate survey that they were in the midst of massive disruption, insurers are being thwarted by their business silos, legacy tech, disconnected business partners, their scramble for skills, legal and compliance, AND the fact that except for auto, other business lines are profitable.
Vertical integration will break apart. The vertical integration that served insurers so well in the past has become an obstacle to the rapid change unleashed by digitally empowered customers. The insurance value chain will fragment as companies build new partnerships, pursue new revenue streams, and seek new ways to create value for customers.
Did someone forget to tell the mainframe it was irrelevant?
For many years, the much lauded death of the mainframe has been espoused by many pundits. Many believed the end of the mainframe would be further accelerated with the rapid growth of cloud adoption. I am sorry to report to those naysayers, the mainframe didn’t get the message, and lives on, alive and well as the beating heart of many large businesses. For instance, the mainframe is leveraged by 92 of the top 100 banks worldwide, 23 of the top 25 US retailers, all 10 of the world’s 10 largest insurers, and 23 of the world’s 25 largest airlines.[i]
Mainframe is part of the digital business ecosystem
The drive for speed to counter competitors and deliver new and agile solutions has never been more evident. Successful digital businesses have found the secret to unleashing the data and business processes within their mainframe-based applications. Starting with “ad-hoc” integrations between systems of engagement and systems of record, they soon find the ability to define innovative products and services is limited by an inability to evolve and improve their mainframe applications. For instance, a simple mobile insurance application is actually just the gateway to a complex set of applications that must work seamlessly with the mobile application and with each other to provide customers and prospects with great experiences.
The race to digital is heating up in financial services (FS) organizations; increasingly, the engine making this happen is Agile. Why? Quite simply, it is software that makes any financial business truly digital. Organizations are therefore in a rush to become great at rapidly innovating, developing, and delivering new software products to win new clients and retain and serve existing ones.
Oliwia Berdak and I have just published twin reports — one for eBusiness and channel strategy professionals, and one for AD&D leaders — that share our findings on how FS organizations are trying to ramp up their digital innovation capabilities rapidly by leveraging Agile and other innovative models.
Our key finding comes in response to a question: Are you building a digital lab that contains great developers but is isolated from key business leaders and other technology management teams? If the answer is yes, don’t! If separate digital units pursue disruptive opportunities, they will often end up with just front-end apps or proofs of concept that are impossible to integrate and scale with same speed they were developed.
If you're one of my regular readers, you may remember a post from August 2015 – "The Future Of Retail Is Digital" – in which I highlight key findings from a report on the future of retail experience. One recommendation was that retailers should begin to experiment with augmented and virtual reality technology early, so that potential use cases can be piloted in-store. Well this week, Microsoft announced a partnership with Lowe's to demonstrate the viability of Microsoft's Hololens to help Lowe's customers visualize custom kitchens.
While VR/AR is a long way from widespread market adoption (see this March 16 post by J.P. Gownder), the time needed to pilot and experiment with this technology means tech and CX teams in retailers need to be piloting use cases now in order to figure out what, if any, business impact the technology will have. (See also my comments from CES 2016).
As all organizations operating in Australia understand, the line between brand, marketing, and customer experience (CX) disciplines has blurred as people gain access to companies, services and products on their own terms. How can you thrive in this dynamic environment? Start by effectively coordinating between brand, CX, and marketing teams.
We’ve filled our agenda with senior CX and Marketing professionals from leading organizations across Australia, and beyond. Key topics they’ll cover include:
Driving business results, competitive advantage, and growth by delivering the right customer experience.
Identifying the key practices and behaviours that fuel CX innovation.
Building and maintaining a brand in a digital world.
Instilling an understanding of customer emotions into design experiences and branding strategy.
Systematically improving CX through effective measurement.
What’s the difference between a digital bolt-on and transformative digital disruption?
In the two years I’ve been on the road talking with executives around the world about digital business and delivering keynotes on digital transformation, I’ve been most frequently asked about bolt-on vs. transformation; what’s the difference?
A digital bolt-on is a digital project that is added to the existing business model that might improve the customer experience in a small way, but doesn’t fundamentally change how value is created for, and/or delivered to, the customer. For example, when a company updates a website and provides customers an electronic ordering platform, they are not changing the existing business model; they are simply providing an alternative channel through which the customer can buy products. The value proposition remains the same: buy and experience our product and you’ll gain value from the experience. Digital (in this case an online sales channel) has been bolted to the existing business model in much the same way a teenager bolts a spoiler onto an old car to make it "go faster".
Retaining and delighting empowered customers requires continuous, technology-enabled innovation and improved customer insight (CI). The logic is simple in theory, but that doesn’t make it any easier to implement in practice.
In my recent report, entitled “Applying Customer Insight To Your Digital Strategy”, I highlight the top lessons learned from organizations in Asia Pacific (AP) that are successfully leveraging CI to fuel digital initiatives. It all starts by ensuring that data-driven decision-making is central to the digital strategy. With that in mind, I want to use this blog post to focus on two key lessons from the report:
Lesson One: Establish A Clear Mandate To Invest In Customer Analytics
Successful companies serve empowered customers in the way they want to be served, not the way the company wants to serve them. When building a mandate you should:
■ Expect natural tensions between various business stakeholders to arise. To secure buy-in from senior business decision-makers, start by illustrating the clear link between digital capabilities and data as a source of improved customer understanding. Identify measurable objectives and then link them to three to four scenarios that highlight where the biggest opportunities and risks exist. Continue to justify data-related investments by restating these scenarios at regular intervals.
In “Unleash Your Digital Business”, I highlight the need for all companies to embrace digital business as a new business model – one in which the nature of the value exchange with customers is fundamentally changed. Since then, CIOs frequently asked me what they should be doing to help their firms become a digital business.
The answers lies in the difference between Business Technology (BT) and Information Technology (IT). BT focuses on the systems, technologies, and processes to win, serve, and retain customers. Whereas IT focuses on the systems, technologies, and processes to support and transform an organization’s internal operations. To become a digital business CIOs must adopt the BT agenda.
Our research on digital business highlights the need for the organization to focus on six core digital strategies that drive digital customer experience and digital operational excellencein support of customers. Each of these strategies is an integral component of the CIOs BT agenda:
Digitize the end-to-end customer experience
Digitize products and services inside the customer’s value ecosystem
Create trusted machines
Digitize for agility over efficiency
Drive rapid customer centric innovation
Source enhanced operational capabilities within a dynamic ecosystem
Over the past two decades, the Internet has triggered a tectonic shift in the concept of networking — one that has redefined how companies market and sell products. More recently, social media, mobile, and cloud have fundamentally changed the concept of collaboration, enabling businesses, employees, customers, and partners to continuously interact with each other to create innovative new products and services and enhance existing ones. Rising customer expectations and faster product life cycles are forcing companies to adapt to a new style of business: “the collaborative economy.” My new report outlines the core dynamics of the collaborative economy and the implications for CIOs and their business partners:
Collaboration is much more than unified communications. It’s not sufficient for the CIO to roll out a unified communications solution; technology solutions alone do not change business processes or support employees’ changing collaborative behavior — let alone alter business models. A modern collaboration strategy requires CIOs to make organizational adjustments in addition to technology planning.
Collaboration is becoming part of the corporate strategy. A modern collaboration platform is the foundation for better innovation, faster processes, and greater employee satisfaction, which lead to happier customers and new revenue opportunities. We believe that modern collaboration is part of competitive advantage — and leading CIOs must support it as part of their group strategy.