Insurance: Get Digital Upgrade or Disappear

The cake in the insurance industry is being redistributed, the order of the day is: upgrade digitally!
What matters and how “digital mobilization” works in practice, is explained by Jan Webering, CEO of Avenga.

Although it was spared for a long time, digitalisation has now meanwhile come to stay and is rapidly changing the rules of the game and market demands which have applied till now. By ‘it’ we mean the insurance industry. Especially in the past two or three years, insurance companies have recognized the need to change towards a digital future. Whether it’s concluding new contracts or managing old ones, comparing dentists’ offers, submitting bills or reporting a car accident – it’s now possible to do all this online. These are the two reasons for this: costs and customers.

“We need to further reduce costs. In this respect, there is inevitably pressure in the industry to continue to improve efficiency,” Alexander Erdland, President of the Gesamtverband der Deutschen Versicherungswirtschaft (GDV) explained. He also knows how to reduce costs: “To do this we need more employees in new technologies”.

Policyholders demand both a modern approach and service offerings

However, being able to digitally optimize processes and thus reduce costs is by no means the only driver of digitization in insurance companies. Additionally, we have the changing demands of policyholders. At the end of 2013, the study “Versicherungen: The digital challenge” carried out in Germany by the Management Consulting Company Bain & Company, astonished experts: not only because 40 percent of the insurance customers surveyed stated that they were willing to change. But above all, because at that time already around 60 percent considered web-based communication channels as being the most important means for future interactions with insurance companies.

In the press release on the study, it was aptly stated at the time: “Whether it’s advice, conclusion of contract or notification of loss, customers expect a comprehensive digital offer from their insurer. And this goes far beyond the classic web page. For the insured, smartphones, tablet PCs and mobile websites, as well as apps, chats and online communities, are important ways of making contact with their provider.”

Leading insurance companies react to changing requirements

Numerous discussions at specialist conferences and with customers show this trend has intensified further in recent years. Policyholders transfer their experiences from other areas of life, such as convenient shopping on the Internet, and adjust their expectations of insurance providers accordingly.

What great importance the insurance industry now attaches to the topic of digitization, both with regard to internal processes and to the end customer business and service, is demonstrated not least by the example of Allianz SE. On the one hand, the Munich-based global group created the new Board of Management Department “International and Digitization” at the turn of the year 2016/17. And on the other hand, Allianz intends to invest 650 million in its digital conversion. Mind you: not just once, but annually!

Complex back-end structures slow down innovation

But no matter how much money insurance companies earmark for digitization, practically all of them face the same challenge: historically evolved IT landscape. Around two-thirds of the world’s general non-life and life insurers still use systems from the 1970s and 1980s. The structure and organization of the systems often reflect complex corporate organizations, and data silos are common practice. This is problematic for two reasons at once:

First, policyholders at the digital interface between them and the insurance providers (the front-end) often have to spend time resolving complex solutions which are dominated by back-end processes instead of being able to concentrate exclusively on their own needs.

And secondly, technology projects in companies with a historically grown IT landscape generally take a very long time to run, often years, since the existing systems must continue to be maintained and supported. In particular, changes to a running system pose a major challenge. Newly developed solutions often become obsolete before they even go live. As a result, many customers perceive their insurance policies as inflexible and not very customer-oriented.

Insurance companies which want to offer their customers a positive experience in the front-end must therefore drastically increase their speed of innovation. Flexibility and the willingness to try out different solution options are also indispensable. This means, depending on customer feedback, you expand your successful measures further or either optimize or discontinue less successful measures altogether. For the insurance industry, which has been operating in silos for decades and over very long periods of time, this agile digitalization requires a fundamental rethink according to the trial and error principle – certainly no child’s play. And no rocket science either.

How this works: Stability in the back-end, agility in the front-end

In order for digitalization to quickly lead to initial successes with traditional insurance providers, the entire digital offering must be conceived and developed from the end customer’s point of view. In principle, technological development at the front-end is very dynamic and constantly generates new requirements. Since the updating capability of a historically grown IT system is often unpredictable, and restarting the entire infrastructure is very cost- and time-intensive, we recommend implementing a powerful middleware which uses existing APIs (interfaces) and HTML sources. In this way, “temporary” solutions can be created in the front-end which evolve with customer needs and market changes, while the systems in the back-end remain untouched.

When developing the front-end, it is recommended to start with a Minimum Viable Product (MVP), which means “a product with minimal requirements and features”. If successful, the temporary solution can later be converted into a permanent solution. A further advantage is that based on the concrete use case, companies see which assets they should digitize immediately (core assets) and which can still wait. The back-end does not follow the front-end blindly, but the company transforms itself gradually success- and customer-oriented. Basically, the back-end must guarantee security and stability. In the front-end, trial and error is the key.

Implementation: It has to be quick and easy

We spoke with insurance providers in Germany to find out how the first steps on the path to successful digitization could be taken. A common need for most insurers is to support brokers in their day-to-day sales activities by providing a unified solution for personal customer advice and online direct sales. This is why we have developed a prototype which enables just that.

Instead of carrying a thick file of papers as before, brokers can now visit their customers with a tablet in their hands. A front-end solution implemented on it, if available, shows the already existing insurance coverage of the customer and thus supports the brokers in providing optimal advice.  Additionally, they are able to offer meaningful extra insurance.

Both brokers and end customers benefit from the graphically appealing modern interface, a result of a playful implementation, which makes handling much easier. Ultimately, for our prototype we kept the front-end so simple, clear and self-explanatory so that the end customer could also inform himself independently on the optimization of his insurance cover – for example on the B2C website of the insurer.

However, the solution is not only convincing because of its smart front-end, but because it also fulfils the legal requirements, and facilitates the sale of insurance products through fast data processing. At the end of the interview, for example, it automatically creates a consultation protocol in which the products offered and what the customer selected, are recorded. So as to guarantee speed and data security, we have also implemented the option of end-to-end black box processing. On concluding an online direct contract, our front-end can initiate a fully automated process which cannot be influenced or tracked and through which the data is processed internally by the insurer. This functionality can communicate via interfaces with various established systems used in insurance companies’ data centres. The advantages of black box processing lie in the reduction of the processing time while simultaneously increasing the processing quality of standardized processes which do not require any interaction. Automation also reduces distribution costs.

Anyone who now thinks that the development of this prototype would have taken months, if not years, is wrong. It took no more than six weeks from the idea to version 1.0. And the possible connections to different insurers’ back-ends have already been taken into account. We can maintain this speed at any time when implementing concrete applications for insurance companies based on our prototypes. This is made possible by our powerful middleware, coupled with agile project management.