2017 represents a journey towards self-disruption for insurers

Rapidly changing customers’ expectations combined with regulatory pressures and the introduction of new technological innovations all signal that 2017 will be a year where insurers must re-evaluate how they do business, according to Onno Bloemers, insurance partner at consultancy Delta Capita.

Customers increasingly expect seamless digital interactions in other aspects of their lives, and will come to expect the same when it comes to insurance, Bloemers said.

“So what’s the problem? Shouldn’t a healthy insurer be perfectly able to cope with some adversity while making the change to become a more digital and customer-minded organisation?” asked Bloemers.

But he cites a number of reasons insurers are slow to transform. Top of the list is the fact that many are still running on legacy applications.

“Not only does this limit organisational agility dramatically, but it also means that available change capacity is predominantly used to keep the legacy infrastructure up and running,” he said.

Furthermore, regulatory pressure is dramatically increasing the cost of doing business, Bloemers suggests, with complex risk and compliance requirements in legacy-dominant environments reducing the ability to transform.

This is made worse by pressure on product margins, combined with historically low interest rates reducing returns.

“And while incumbents struggle with internal inefficiencies and adverse conditions, we see fintech and insurtech initiatives starting to emerge, based on fresh thinking and modern application architectures,” Bloemers observes.

“These new initiatives relentlessly exploit inefficiencies in the value chains. And with the rise of the sharing economy, new ways to manage risks like usage based or p2p insurance are becoming increasingly important."

Bloemers said that there is no doubt the insurance sector needs to adapt to a new world, but simply embarking on a journey to implement one of the ‘Top-10 Insurtech solutions’ is not going to cut it.

He suggests the real challenge lies in first removing the legacy culture from organisations.

“This journey towards self-disruption requires courage and leadership. To reach the desired destination, boards may consider numerous approaches in order to rebalance ongoing change programs,” he said.

Last year, the EIOPA stress test revealed that a large portion of European insurers remain vulnerable for one or both the tested scenarios.

Bloemers suggested scenario planning and storytelling can be powerful tools for coping with a large number of uncertainties.

“Scenarios are perfectly suited to translate into compelling, vivid images of the future, using powerful storytelling as an effective way to convey messages,” he said.

He also believes that insurers will be contemplating changing the composition of their innovation mix in 2017.

Whether that mix is product, process or business model focussed, he said it should be in line with the lifespan of an insurer’s dominant business model, implying that now might be the time to direct more resources towards more radical forms of innovation.

Replacing incentives blocking change is another approach to consider, said Bloemers.

“If a board’s primary responsibility is to facilitate the presence of a long term viable business model, then this implies that they should worry about anything in the organisation that blocks this purpose.”

Finally, Bloemers believes that a constant process of internal creative destruction is required to avoid becoming the victim of an external, competing creative force.

Citing the likes of General Electric and Johnson & Johnson as those who have mastered this, Bloemers suggested that carefully applying these design principles in the insurance sector might be a critical activity.

“The insurance sector has a long way ahead adapting to a new world. There is a critical role for current and upcoming leadership. We see insurers increasingly partner with insurtech companies, hoping to find fresh thinking, agility and entrepreneurship.

“We’ll have to find out if this brings sufficient change. Otherwise the EIOPA double hit scenario might be a blessing in disguise – it could in fact provide the required burning platform for the long awaited fundamental transformation.”

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