Despite the insurance industry’s reputation as a laggard when it comes to technological innovation, it is undergoing massive change as traditional providers race to digitally transform. The change is being driven by the enormous pressure that insurers are facing on all fronts. On one hand, consumer expectations have soared to new heights as customers demand seamless experiences across channels and the ability to interact with insurers in new ways. The advent of connected devices such as home-automation systems and in-car telematics is creating whole new ways of delivering insurance products to customers.
On the other hand, insurers are under pressure to respond to new insurance models and products being introduced by insurtech startups, such as pay-as-you go offerings from the likes of Cuvva and cyber-insurance policies from companies like Hiscox. According to a PwC poll, more than half (56 percent) of respondents estimate that up to 20 percent of traditional insurers’ revenues are at risk from the new breed of micro-specialist insurtech startups that are emerging. Not to mention the recent news that Amazon is hiring insurance professionals to enter the market, adding further fuel to the fire of competitive pressure.
With all the change impacting the insurance industry, it’s imperative providers put disruption at the heart of their digital strategies and specifically hone in on their connectivity strategy—both internally and externally with third parties. Especially in today’s micro-specialist environment, traditional insurance providers need to stop thinking about how to own the entire value chain and instead need to partner with insurtechs to offer the experiences their customers are expecting.
Putting disruption at the heart of digital strategies
To respond to these pressures and meet the need for change, research found that 52 percent of insurers are putting disruption at the heart of their strategy. Across the industry, insurers are rolling out digital transformation strategies, creating digital teams, investing in insurtech startups and looking for new partnership opportunities. Innovative companies are exploring ways in which digital technology can enable them to build closer relationships with their customers by opening up new channels for a constant dialogue.
For example, Vitality Health offers customers a free Apple Watch to monitor and share their fitness levels as a reward for reaching a certain exercise threshold, creating a regular communication channel in the process. Others are using new technologies to deliver more convenient experiences for customers. For example, Snapsheet enables insurers to let customers take a photo of a car accident on their smartphone and send it to be adjudicated much faster than traditional processes can allow.
However, many insurers are still falling short of expectations, as they struggle to implement these innovations at scale. It’s not enough to create digital capabilities in isolation, as insurers need to ensure their new and existing systems are fully integrated to drive the seamless experiences that customers expect. MuleSoft’s Consumer Connectivity Insights 2018 report found that more than half (58 percent) of global consumers feel insurance companies provide a disconnected experience. What’s more, 56 percent say they’d consider switching their provider if things don’t change. The findings illuminate that many insurers are missing one vital ingredient in their digital strategies: connectivity. In an increasingly commoditised sector, insurers need an agile way to integrate their often disparate internal systems, as well as connect to their larger external network of partners, disruptive start-ups and more to offer the connected experiences their customers want.
Connecting the dots in the insurance ecosystem
To offer seamless customer experiences, respond rapidly to change and foster strong partnerships with insurtech startups, traditional insurers need to rethink the way in which their organisations are structured. Most are organised in silos with compartmentalised processes or products, slowing the speed of innovation and limiting their ability to partner with insurtechs. The difficulty of understanding the way that services and processes have been connected and unravelling them so new capabilities can be introduced makes it difficult to integrate their own offerings with those of others across the wider insurance ecosystem.
As such, insurers need to reimagine their organisation as an ‘Insurance as a Platform’ model, by unbundling and repackaging their assets as a discrete set of capabilities that are exposed via APIs. In this approach, every service, process and component is productised and becomes discoverable for the broader ecosystem to reuse. This liberates resources so lines of business can innovate and move quickly, and insurance products can be quickly composed and recomposed using capabilities in the whole partner ecosystem.
A new network at the heart of insurance
As insurers embrace this new ‘Insurance as a Platform’ model through API-led connectivity, they will naturally begin to create what is known as an application network, one building block at a time. This is a network of applications, data and devices that are connected via APIs to make them pluggable and reusable across a shared digital ecosystem. By its very nature, this creates the perfect foundation for rapid innovation and closer collaboration with insurtechs, future-proofing insurance companies for success in the years ahead.
Additionally, with application networks, each API node is designed with security built in from the very beginning. APIs are standardised, accessible and well-defined entry points that are easy to visualise and, therefore, secure. Given one of the guiding principles of the new General Data Protection Regulation (GDPR) is data protection-by-design, an API approach will help keep regulators happy.
Insurance companies must understand that going it alone in today’s market will not result in value for customers. There are huge gains to be made for those bold enough to partner with insurtech disruptors. However, these gains can only be achieved if traditional insurance companies adopt an API-centric mindset that accelerates integration and innovation to ultimately provide a seamless customer experience.
This article first appeared on IT ProPortal.