Céline Heinl
25 August 2021 8 min read

How digitization has forced change in insurance 

Like so many other industries, insurance is increasingly reliant on digital technology to deliver and manage critical business areas that include products, claims assessments, and providing a satisfying customer experience. Digitization has become an integral production factor, and the growing suite of insurtech solutions has given companies a glimpse of what cutting-edge digital technologies can offer. Doubtless, insurance companies can reap significant benefits from overhauling their core IT systems and developing dynamic digital platforms that extend their scope of services, deliver powerful customer experiences, and improve key business processes 

However, a surprising number of processes across the insurance landscape continue to rely on decades-old technologies. As major industry players have pursued consolidation of their technical systems in previous years, their IT back-end often lags behind their front-end. Quite a few insurers have decided to focus their technology investments on selective front-end tools that have an immediately visible impact. As a result, this has left many large insurers with parallel or redundant systems, driving up maintenance requirements and new feature development costs. 

Clearly, as digitalization accelerates and encompasses an ever-wider share of the insurance value chain, front-end improvements alone are not enough for insurers to retain their competitive advantage. Fully realizing the benefits of digitalization requires core tenets that include real-time data access and agile features development in core systems. To fully embrace digitalization and reap its benefits, insurers need to substantially overhaul their core systems and—in parallel—transform their overall business models.  

Modernizing legacy IT and adopting proprietary platforms and software packages 

There are three key areas you can overhaul to modernize your practices: modernizing a legacy IT platform, building a new proprietary platform, or investing in a standard software package. While each option has its pros and cons, choosing the right path based on a thorough cost-benefit analysis is essential to deliver on IT modernization and subsequently reap its benefits. 

Unfortunately, insurers often treat systems transformations as stand-alone IT projects—rather than treating them as overall business transformations. As a result, this can result in rebuilding old functionalities within new systems and lead to budget overruns and missed opportunities to modernize. Indeed, modernizing core IT systems has potential ripple effects throughout an organization, revealing to insurers how they can adapt their operating model to become more dynamic, agile, and competitive. 

Insurers need to address the question of how to best shape their integrated business and IT transformations framed within the overall complexity of their business’s internal capabilities while taking external trends into account. Answering that question begins with understanding how to modernize your core systems. 

Naturally, deciding which modernization approach to take depends on a range of considerations. These include the state and stability of your legacy system, the level of your ambition, the availability of a mature standard solution for your market, the effectiveness of your IT capabilities, and your available resources. 

Typically, insurers with low internal IT capabilities who hope to benefit from market standards for IT, products, and processes can benefit most from subscribing to a standard software package. However, there are exceptions to this of course. For example, insurers with idiosyncratic requirements or strong beliefs in the differentiating nature of a core insurance system may opt to build a new platform using either prebuilt components or by combining parts of a preexisting system. Similarly, insurers with relatively stable, well-maintained, and incrementally modernized systems that still rely on outdated technologies may prefer to modify their existing platforms and upgrade other components to capture sought-after business value. 

Modernizing IT: approaches and opportunities 

Alongside choosing between the three modernization options described above, the timing and extent of an overhaul need careful consideration. For instance, many insurers develop a platform for both their existing and new business, whereas some carriers opt to start with a greenfield implementation specifically for new business with the option to migrate existing business processes at a later date. 

Choosing the right path for your business depends on several important factors including your starting point, transformation preferences, capabilities, and business-model objectives. To begin your digitalization journey on the right path, challenging questions need asking about the current health of core systems, investment ability and appetite, business and IT capabilities, and the extent of your organization’s digital ambitions. 

In sum, insurers must overhaul their core IT systems to achieve the full benefits of a digital transformation. Given the digital advances in insurance—especially in personal lines—transforming core IT systems is the benchmark in modernization. By combining refreshed core IT systems with an overall business transformation—through an appropriate and considered approach—you can reap the significant benefits of modernization. 

The rise of insurance platforms: growth, connectivity, and advantages 

Looking beyond legacy IT systems, platforms, and software are insurance ecosystems standing at the forefront of digital transformation. By rethinking their traditional roles and adopting an ecosystem mindset, insurance companies have the opportunity to become industry disruptors and create new sources of revenue. 

The ongoing drive toward digitization is transforming the insurance industry. What’s more, the pace of change has accelerated thanks to tremendous increases in the volume of electronic data, the ubiquity of mobile interfaces, and continual advancements in AI. These advancements come together with society’s increasing appetite for seamless customer experiences and our increasing reliance on digital technologies. As a result, these factors are reshaping customer expectations and redefining boundaries across many industries. Regarding insurance, as traditional industry borders fall away, the future of the insurance industry stands to be greatly influenced by platforms and ecosystems. 

Choosing a platform or an ecosystem 

But what exactly is the difference between a platform and an ecosystem, and what places an ecosystem higher up the value chain? An insurance platform is a business model that allows multiple participants (producers and consumers) to connect to it, interact with one another, and create and exchange value. An ecosystem, meanwhile, is an interconnected set of services that allows users to fulfill a variety of needs in one integrated experience.  

To succeed in ecosystems, insurers must understand how ecosystems will shift value pools and change the nature of risk. Adopting an ecosystem mindset has its challenges, but if you embrace this evolving landscape you can take your first steps to create new revenue sources. 

Migrating to an ecosystem mindset 

Shifting from an industry perspective to one that’s ecosystem-focused requires a significant change in how you define your role in the economy. At present, most insurers primarily act as risk aggregators. As a result, they have a passive and limited relationship with customers. This increases their exposure to disintermediation, disaggregation, commoditization, and invisibility. If insurers lost their distribution and customer relationships, they would be left with few options to reinvent their business model. By contrast, adopting an ecosystem perspective can reinvigorate your digital strategy by reevaluating traditional business practices and developing strategic partnerships with players within and outside the industry. 

In ecosystems, insurers can play multiple roles. You can build capabilities in several areas including mobile sensors, analytical tools, and customer interfaces. Building capabilities like these will establish you as a true ecosystem player and show other stakeholders your disruptive position. At the same time, it’s important to understand that while insurance products and related security services will always be at the core of the insurance business partnerships will be critical for effective ecosystems to operate and stakeholders to mutually benefit from them. 

Forging partnerships is a priority for building functional ecosystems. Insurance has already seen many high-profile partnerships between established insurers and tech and analytics startups. For example, Progressive partnered with fleet tracking company Zubie to offer customers visibility into how their driving habits affect their premiums. Elsewhere, Manulife is collaborating with enterprise process automation firm Indico to develop a deep-learning tool that analyzes unstructured financial data. 

Insurers have been targeted in all parts of the value chain by insurtech companies as much as by other industry players. Although these newcomers are populating every part of the value chain, their focus so far has been on the more easily accessible entry points of the industry, notably distribution (particularly in property and casualty insurance). Since innovation from insurtechs aims to contribute to the insurance value chain (except distribution for large players), it is well worth viewing potential partnerships with insurtechs as a positive force. The rise of ecosystems involves multiple firms coming together in symbiotic relationships to achieve greater value for themselves and each other than they could capture alone. 

Open a life insurance distribution channel and gain a revenue source 

With Gambit, you can reinforce your life insurance distribution channels and offer better life insurance products to your customers. Low customer interest in life insurance products, more stringent regulations, and increased competition from insurtechs has intensified the need for the insurance industry to digitally scale up their services. The key elements to improving your distribution network’s efficiency and customer engagement include increased automation, client-centric processes and services, and open architecture—all of which Gambit solutions deliver. See how Gambit’s life insurance products can open a digital distribution channel directly to your customers, reduce costs, and increase your bottom line.  

View our digital insurance products and request a demo to see how they can help you adapt to the new distribution model.