Insurers must create new business models to be truly innovative
It is more important than ever, that insurers can evolve and remain relevant in a world where being data-driven and digitally enabled is vital. This message is supported by latest industry trends and reports, including analysts such as Gartner.
For incumbent insurers, the message is clear: you have to act boldly and think big.
“While many insurers talk about ‘innovation’, few are taking a radical approach to innovation to drive business transformation,” says Gartner. They add, that "Innovation has become a main priority of insurers as they fulfill their digital ambitions and seek to identify new business models that will drive success in their market. However, Gartner research has found that most insurers focus on incremental innovation, without focus on business transformation or cultural, talent or process change, which will fail to provide the desired results.".
Modeling the future
Without a clear digital strategy and a commitment to business transformation, piecemeal changes will only scratch the surface. So, what’s the solution? What must incumbents do to future-proof their businesses and remain competitive?
Gartner says, "Insurance CIOs responsible for digital business strategy and innovation should understand and follow the three types of business model innovations:"
Product and distribution innovation. As per our understanding, this is where insurers must identify platform and data/analytics requirements that are beyond the capabilities of most current IT systems. For example, innovations to support embedded insurance and ecosystem platforms.
Customer value proposition innovation: We feel, this implies better data acquisition and processing to enhance customer experience. Benefits include preventative insurance and more tailored offerings for customers.
Organizational vision innovation. We belief, this covers long-term planning that reflects changing values (eg, ESG) and will lead to new business models. For example, a business model shifts from life insurance to wellness.
We feel insurers are still wedded to process improvements rather than transitional innovations that include business model changes. For insurtechs, innovation and business model developments are easier because they are not encumbered by legacy systems and other constraints. However, incumbents can evolve and reinforce their positions if they embrace the three models by Gartner.
Magnolia for insurers
How established insurers can strengthen their role and stay ahead of challengers with a digital experience platform (DXP) that enhances every customer touchpoint.
Product and distribution
This first model may involve new products and channels, via digital platforms or partners, and provide personalized insurance or embedded solutions. Gartner says that “with these strategies, companies will seek to reach customers in new ways,” adding that “CX platforms will be necessary.”
“Composable business architecture and open insurance will assist in enabling this vision,” says Gartner, “and become core strategies of innovative CIOs as they support transformation.”
Gartner further highlights: “to achieve open technologies to enable this product and distribution innovation, Gartner also recommends that insurance CIOs should:
Work with business leaders to outline future product and distribution aspirations, and identify platform and core system requirements
Build an ecosystem to support the product and distribution vision, ensure openness to facilitate connectivity and integration, and harness APIs and composable business
Build a platform strategy and consider working with platform partners, plus focus on open technologies to enable this.”
Customer value proposition
As customers become more demanding and insurers need to build stronger customer relationships, Gartner says incumbents need to improve their value propositions. Gartner mentions claims prevention as an example.
The 2021 Gartner Customer Experience for Financial Services Survey found that 64% of consumers wanted their insurers to provide information to help with claims and loss prevention. “Claims transformation has become a hot topic in insurance as P&C insurers look to adopt no-touch processing CX through improved risk identification and engagement,” says Gartner. “Instead of solely focusing on how to improve claims processes, many innovative insurers are using data and analytics to identify risks and implement prevention programs.”
The same survey found that “72% of consumers want their insurer to provide them guidance on the right products or coverage needed to cover their risks. Insurers need to realize this is not just about the right insurance product, but overall risks associated with living — including healthy living, financial wealth or home safety. Many insurers lack this intelligence,” says Gartner, “which will prohibit them from advancing.”
Draft a long-term innovation strategy with business leadersCreate agile IT environments to connect with partners, including implementing strong analytics platforms
Build new metrics to assess business impact of innovation initiatives by identifying new outcomes associated with growth and risk of new business ventures, strategy changes and social initiatives.
Create agile IT environments to connect with partners, including implementing strong analytics platforms
To reflect consumer and employee values, insurers must embrace social responsibility and be good corporate citizens, says Gartner. Above all, insurers must build trust across all their activities and promote the right organizational vision, says Gartner.
Magnolia and insurance innovation
In our opinion, a digital experience platform (DXP) will provide a firm foundation for the business innovation models proposed by Gartner. Magnolia’s DXP can help insurers transform their businesses and improve every stage of the insurance journey Find out how Magnolia can improve distribution and enhance quotes, and discover how it can prevent claims and reduce loss ratios by helping insurers educate their customers on risk mitigation.
For further information on the role of DXPs and how to choose the right transformation partner, see Magnolia’s white paper: Choosing a digital experience platform (DXP) for insurers.
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