10 Years of Digital Insurance

Jul 31, 2020—To start with the good news, we've finally made it to the point we were originally hoping to start from ten years ago: building a modern, customer-oriented e-commerce platform for insurers from the ground up. It turns out that the industry has a future after all. Soon, insurance buyers will be able to enjoy products that aren't lagging hopelessly behind their requirements.

So what has been holding us back? The answer is: digitization.
Seriously.
I know what you're thinking: that digitization is exactly what was supposed to solve the problems of the lumbering giants of the traditional insurance industry. Away with the old IT infrastructure, away with processes stuck in a rut, and away with rigid corporate structures! Long live modern platforms, reformed product and services portfolios, and agile workflows!
If only that's how it had happened. Unfortunately, the industry's approach has been anything but rigorous, the past few years having been squandered on digital showcase projects running on shoestring budgets and lacking any real strategic vision. Where there ought to have been courage and innovation, instead the industry has contented itself with a timid, exploratory approach to the digital realm, lulled into a false sense of security by the belief that its financial strength and its complexity can protect it forever. Sure, innovation labs, weather-balloon projects, and investments in alternative IT systems are reasonably constructive measures in principle, and they can lead to some measure of success.. But let's be honest: Lacking substantial changes in the overall corporate culture, the use of state-of-the-art technologies, and the willingness to invest significantly more resources, they function more as distractions. In fact, insurers' core business activities have barely changed in the last ten years. Any motivated innovators and digitization projects are elaborately showcased while being deliberately kept limited in scope, serving to prop up a company's digital story while in actual fact being little more than sidenotes.

It couldn't last forever. After so long tuning out societal changes and failing to build up their knowledge on contemporary topics and technologies, the insurers' financial padding is all but used up. Other industries have noticed the way customers' expectations are changing, and they've pulled far ahead of the insurance industry. The coronavirus pandemic has only served to highlight this all the more clearly. It's inconceivable to modern society that certain products and services can't be obtained online, that many services are only available during office hours, and that transactions have to wait on signatures transmitted by snailmail.

Unlike those of other countries, Germany's insurance market is characterized by a high number of insurance providers, including a handful of gigantic corporations. Profound changes will be necessary to secure the survival chances of the smaller market players and prevent monopolization of the market in the hands of a few large companies with deep pockets. Yet it's the small and medium-sized companies who are able to reorganize and adapt – much more quickly than the sluggish structures of the heavy hitters. Any company willing and able to muster the courage and rigor that any serious shot at digitization demands will be able to leave the big corporations in the dust and start building a solid foundation for the future.

1. Modern decision-making and oversight structures

Never-ending innovation and flexibility is possible only with agile project management and fast decision-making. The decision-makers and oversight bodies of the insurance companies need to find ways to serve their functions without standing in the way of new developments. Management and executive boards ought to be using modern, data-based tools and methods as a matter of course. Rather than putting politicians in executive positions, we need capable, enterprising experts at the reins who know how to learn from mistakes quickly and move on – how to fail to get better.

This study by McKinsey's Paris office, entitled "Unlocking Success in Digital Transformations", provides impressive evidence to back up this analysis.

2. A quantum leap in technology

The internal IT departments of the insurance industry are too busy with operating and maintaining the existing infrastructure; they lack the skills necessary to implement state-of-the-art technologies and solutions. And while the external system providers do have configurable standard solutions at their disposal, often those solutions are not yet suited to the purposes of modern e-commerce. The market should be concentrating on the few modern providers who offer service-oriented IT systems with feature-rich interfaces and combining them intelligently with the future-capable solutions of successful insurtech companies.

3. Interdisciplinary product and project development

Nearly every division and department of the conventional insurers ought to be dissolved and reformed into interdisciplinary product and project teams. Under this approach, the isolated department silos of yesteryear would be transformed into service centers tasked with facilitating and overseeing the work of the development teams by providing technical, organizational and staff support. Interdisciplinary, self-directed organizational structures promote goal-oriented, efficient working and greater acceptance of responsibility in the individual. In addition, they create solutions that continue developing in response to the demands of consumers and sales partners.

4. Collaboration and partnership

The sales and operating costs of the insurance industry are inflated by saturated markets and the inherent complexity of the business. Market players need to start working together to solve problems and investing in building industry standards and development and sales alliances. By taking inspiration from the success stories of the internet, the industry could open up new technologies, too. It's time to dispense with traditional ownership models. Open source has proven to be the key to digital success in many industries; it also provides every participant in a development alliance a high degree of flexibility and added value.

In this blogpost, Dan Kohn of The Linux Foundation describes the criteria that determine the success of an open source project – and confirms that the long-term commitment of leading institutions plays a key role.

5. The customer experience at the forefront

For years now, the assumption prevailing in the insurance industry has been that the merits of the product and good prices are the keys to customer acceptance, with the customer experience considered to play a role in securing customer loyalty or even recommendations only in those cases where claims are actually filed. However, recent studies performed by international insurers leave no room for doubt: consumers don't work that way anymore. For many insurance buyers, a digital platform with a feature-rich self-service portfolio à la Amazon is decisive in securing their loyalty and obtaining their recommendation. The industry needs to pay attention to such international market investigations and apply the lessons to be learned there. As Michael Trochimczuk of Sollers Consulting wrote in an article on July 30, 2020: "It's almost fatalistic the way German insurers have resigned themselves to their poor image. In my opinion, it's unproductive to get hung up on the topic of claims settlement. In fact, what's crucial is the direct customer interface. That's where the ability to provide customer-oriented digital services plays a decisive role."

6. Lean process design

Digitization in the classic sense – i.e. reducing costs by optimizing processes using automation technology – is failing in the insurance industry because of a widespread reluctance to let go of established processes and methods. In the absence of the willingness to try out new sales, administration and service processes, any new software can only do the same thing as the old. Machine learning and artificial intelligence have the potential to unlock a new era of innovation, but when they're combined with fossilized process landscapes, all the new potential merely serves to make developing new systems more complicated.

But now back to the good news. While the industry is neither willing nor able to make such sweeping changes overnight, experience in other industries has shown one way for a company to participate in digital commerce without having already finished restructuring its core to meet future requirements: online store platforms. That's exactly what set the stage for the success stories of the internet. Digitization in the technical sense is ordained to become a standard task, disappearing into the background and paving the way for a rigorous approach to e-commerce.

But so far, no such online store platform has been custom-tailored to the needs of insurers, their sales channels, and above all their customers. In the new internet society, online stores were the key to success in almost every other industry, while in the insurance business, their absence has resulted in cost-intensive custom development projects running on systems inconsistently and poorly extended to accommodate them. The otherwise capable specialists of the business consultancies, digital agencies, and IT system vendors have made plenty of money on attempts at an industry-wide solution, but none has been successful so far.
Typically, an online store handles all business transactions involving the customer and sales channels. Inventory management, as well as any systems specific to specialized operational or service processes, chugs away silently in the background. An online store system for the insurance industry would significantly reduce the role of the traditional administrative systems (transforming them into the new inventory management, so to speak) while as a natural consequence, a new landscape would arise of processes able to adapt to the requirements of the individual use case.

However, an online store for insurers needs to be capable of more than those that exist in other industries, including:

• Configuration and administration of complex insurance products
• Representation of complicated technical and contractual details
• Flexible, comprehensive sales and administration processes
• Specialized services relating to damage claims
• Conformity to extensive regulatory standards
• Providing various industry-specific interfaces and standards (such as BiPro)
• Securing complex subledger accounting
• Allowing various systems for commissions and remunerations

Combination of these capabilities with the customary marketing and communication features of modern e-commerce platforms results in both a streamlining of existing systems and the ability to offer products and services in keeping with the times. So in effect, all the insurance industry and its ecosystem of service providers and partners have to understand is what has already brought digital success in other industries. Of course, this will involve redrafting a corporate strategy here and there, but the signs of the times ought to be reason enough.

About the author:

Björn (Freter) is the founder and one of two managing directors of sum.cumo. He has been working in e-commerce for 22 years, and for the last fifteen he has been concerned with the digital development of the insurance industry.

For ten years now, sum.cumo has been developing state-of-the-art system landscapes for the German-speaking insurance market, including everything from digital front ends to interface-driven inventory management systems based on internet technologies and available under open source licenses. Building on this depth of expertise and its extensive range of products and services, sum.cumo has created and is continuing to develop **SCIP Sales, the first online store system for the insurance sector. **