TATA - Digital Transformation of the Insurance Indurstry


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TATA - Digital Transformation of the Insurance Indurstry

  1. 1. Insurance White Paper Digital Transformation of the Insurance Industry — Driving Efficiency, Effectiveness and Growth
  2. 2. About the Author(s) Vinod Kachroo CTO, Insurance & Health Care Vinod has over 26 years of experience in the financial services industry, and held roles of increasing responsibility. He has worked in high scale and complex environments at AIG, Prudential and MetLife, driving business and IT transformations. Vinod leads the technology, industry solutions, innovation and domain consulting practices for the Insurance and Healthcare business within TCS, with special emphasis on leading digital practices that include Big Data and mobility. He brings his comprehensive experience in business, applications and infrastructure leadership to every client engagement. Arunashish Majumdar Chief Architect, Insurance Arunashish (Arun) leads the TCS Insurance Technology Practice in North America. He specializes in transformation initiatives aimed at improving customer experience, business agility, operational efficiency, and technical currency. Arun has handled strategic initiatives to define and deliver enterprise digital strategy, IT portfolio simplification and core systems modernization for several TCS customers. Arun is a CPCU, a Distinguished Architect (from The Open Group) and holds a Bachelor's degree in Engineering.
  3. 3. Driving efficiency, effectiveness and business growth are top business priorities for insurance companies today. However, inconsistent customer experience across channels and products, and a high degree of complexity in business processes and systems prevent insurers from achieving these goals. Transitioning to a digital enterprise can help insurers develop new business models to address the disruptive changes occurring in the economic, social and technology environments and drive profitability and growth. Based on our experience in digital insurance enterprises transformations, we have developed this whitepaper to debunk some of the myths around such transformations, and delineate the USER approach developed to help companies metamorphose into digital insurers of the future.
  4. 4. Contents Introduction 5 Digital Insurer – What does it mean? 5 Digital Insurer - drivers 6 Characteristics of a Digital Insurer 7 Debunking the Myths about the Digital Insurance Enterprise 8 The USER (Unify, Simplify, Engage and Respond) Approach to becoming a Digital Insurer 10 Conclusion 15
  5. 5. Introduction Revenue growth through retention and acquisition of customers remains a top priority for insurers, even as increasing regulatory and risk management requirements force the industry to explore new ways to achieve operational excellence. Disruptive changes in the economic, political and most importantly in the technology environment are collectively impelling the industry to innovate. Digitization, as an avenue, enables insurers to equip themselves to face the future — transforming into a digital insurer calls for an innovative approach. Social media Four generations of users co-existing Global reach Multi-channel experiences Digital Insure r Evolving technology Customer centricity Yesterday Traditional Insurer Next gen genomics, autonomous vehicles, internet of things & intelligent cities Today & Tomorrow Digital Insurer Figure 1 – Forces Necessitating the Evolution to Digital Insurer Digital Insurer – What does it mean? Digitization has different meanings for different industries. However, broadly, a digital enterprise is one that strategically and deliberately uses technology to improve its business models, make its internal and external operations more effective and thus derive competitive advantage. Digitization has significant potential to enhance and optimize the value chain across the insurance industry. The retail or consumer-facing side of an insurance company can use digitization and technology to drive customer 5
  6. 6. engagement and provide a superior omni-channel experience. For more complex products, such as annuities or retirement products, digitization can aid in distribution. Commercial insurers, brokers and reinsurers can use digitization to glean insights from data, both big and small. In many cases, technology can help an organization move from being document-focused to becoming data-enabled, with corresponding advantages — better decision making, improved productivity and better quality of products and services. Digital Insurer – Drivers for transformation The many market drivers behind the emergence of the digital insurer will result in the creation of newer business models and require several changes to both processes and systems in the immediate future. (See Figure 1) Today, companies insure an automobile driver or the life or health of an individual. Tomorrow, this may change drastically, with the advent of self-driving cars and the increasing trend of car-sharing in the US or car rentals in Japan. These trends will force auto insurers to revisit how they interact with their consumers and underwrite new forms of insurance. Would insurance based on the number of driver-hours instead of individual driver-based insurance become more relevant? Advances in genome and stem cell research can offer huge volumes of genetic insights that can radically alter the way life insurers underwrite and/or handle claims Think about this – can an individual be refused insurance based on his genetic disposition? For instance, can an insurance company insist on genetic prescreening and refuse to cover a person who has the BRAC1 gene (signaling a predisposition for breast cancer? Insight mined from social data could soon play a role in analyzing workers' compensation and/or directors' and officers' policies and claims, especially in fraud — the infamous case of the 'injured' worker who was caught when she posted photos from a skiing trip on Facebook comes to mind. Customers' social personas will significantly determine what products insurers sell to them and how insurance companies service them. Insurers can proactively approach a person announcing the birth of his child on a social media channel with offers for additional life insurance, college savings plans and so on. Companies are using the increasing amount of data available to generate insights and apply it to develop constant value-added offerings for customers. In short, the insurer's organizational focus must shift from working with 'Systems of Records' to creating 'Systems of Engagements.' Insurers will also have to leverage the digital enterprise to retain talent. Unlike more 'glamorous' industries that 1 offer hefty paychecks, the insurance industry has struggled to attract young talent. According to a recent study, there is a talent crisis in the insurance industry caused largely by impending baby boomer retirements. About half of the industry's work force will retire within the next 15 years, and a scarcity of employees in the 30-to-40 age range is causing a demand for new talent unlike any the insurance industry has experienced in decades. The war for talent to attract Gen Y will be won by insurance companies that leverage technology for day-to-day operations and for continuous training, learning and development. Insurers will have to review their internal business processes such as onboarding, travel and time booking into more social media-like collaborative systems that the new generation of workforce can relate and adapt to. [1] www.irmi.com, The Insurance Industry Talent Crisis: Investing in Risk Management and Insurance Graduates, by Dr. Brenda Wells, accessed October 2013, http://www.irmi.com/insights/articles/2009/insurance-industry-talent-recruiting.pdf. Reproduced with permission of the publisher, International Risk Management Institute, Inc., Dallas, Texas, from the Expert Commentary section of IRMI.com, copyright International Risk Management Institute, Inc. Further reproduction prohibited. For more information or to schedule a free demo of IRMI Products, visit www.IRMI.com 6
  7. 7. Characteristics of a Digital Insurer Based on our experience, we have identified six main characteristics of a digital insurance enterprise (see Figure 2): 1. Ability to draw on the new technologies to develop new business models with products and services that can be created, distributed and underwritten in innovative ways. 2. Ability to create innovative products and services – for example, providing auto insurance by the hour rather than for the individual, thus tapping into the new trend of car-sharing. 3. Simplified internal and external processes. 4. Ability to provide a unified multi-channel customer experience that can be accessed on any device, from anywhere and at any time. 5. Use of data, both big and small, internal and external, along with analytics, to develop insights that drive business decisions. 6. A digitized workplace, that uses social collaboration tools and capabilities to enable employees to connect, communicate and collaborate with each other as well as their external stakeholders. Characteristics of the Digital Enterprise New Business Models Innovative Products & Services Simplified Processes 1010101010101 1010101010101 1010101010101 1010101010101 Omni-Channel Experience Customer Centric Insight Driven Next Gen Efficiency Digitization of Workplaces Improved Effectiveness Growth Improved Compliance New Business Outcomes Figure 2 – Digital Enterprise Creates New Business Outcomes 7
  8. 8. Debunking the Myths about the Digital Insurance Enterprise There are a few myths about what it takes to becoming a digital insurer. Based on our experience in working with several leading companies in insurance and in other industries such as financial services, retail, travel and hospitality, we have identified three common myths that need to be dispelled (see Figure 3). Myth Reality Use of only direct channels Customer segment of one “It’s all about big data” n n n 1 n n n n n n Omni-channel Flexibility for customer to use preferred channel Ability to switch between channels without losing context It will never be for “1” Better customer insight for finer segmentation Contextualized offers & next best action recommendation Use both structured & un-structured data Use externally available data wherever it makes sense Use data from social to complement internal CRM data Figure 3 – Common Myths about being a Digital Insurer 8
  9. 9. Myth 1: Use of only direct channels to reach consumers Reality: Going digital does not mean only direct connect to consumers (i.e., without the use of agents and intermediaries). Insurers sell to and service four generations of customers and the way these segments use technology and engage is different. While Gen Y and Millennials (born between 1984 to 2002) may be more inclined towards a web-enabled self-service model, Gen X (born between 1965 to 1983) and Baby Boomers (born between 1946 to 1964) prefer dealing with humans at least for a part of the sales or service process. The latter two groups like to do their research online, including getting inputs from their social connections, but eventually prefer talking to an expert or advisor before making the final decision. This is even truer for complex financial products such as annuities or retirement solutions. Similarly, agents and insurance sales people also tend to switch between channels; while some agents like to access all insurer applications through their tablets or smartphones, there are others who prefer to close the biggest of deals on the back of a napkin. Hence, digital insurers must focus on enabling omni-channel capabilities that provide consumers as well as distribution and advisor groups with contextualized information and tools. What really matters is how insurers create a unified and integrated experience across all channels. Companies that are able to set up their IT architecture to provide an integrated omni-channel experience will not have to worry too much about the changes in distribution patterns or consumer engagement patterns, as their systems will be able to handle such shifts easily. Myth 2: Customer segment of ‘one’ Reality: With the availability of large volumes of data and the means to manipulate this to classify their customers into different segments, it makes business sense to understand the behavior, needs and expectations of each segment and customize products accordingly. While the industry does not have to go as far as to develop personalized pricing for each individual policy, insurers definitely need to review their underwriting, scoring and marketing models and fine-tune them to address the needs of different customer groups. Usage-based insurance (UBI), a type of automobile insurance where the costs of motor insurance are dependent upon the type of vehicle used, measured against time, distance, behavior and place, can be the outcome of such an approach and may be the apt offering for those customers who frequently opt for car sharing. Myth 3: It’s all about Big Data Reality: Historically the insurance industry has not been very quick to exploit the huge volumes of available data for better decision making. Information in unstructured data captured as underwriter or service representative notes and customer/agent letters or forms has not been tapped. It is but natural then that insurers view the utility of the additional ‘big data’ from external sources such as social media with skepticism. However, insurers need to realize that the future is going to revolve more and more around data and data-driven insights. And that data, whether it is ‘small’ or ‘big,’ ‘structured’ or ‘unstructured,’ is going to be of tremendous business value. So the smart thing to do is to mash data from all sources to derive new insights. Insurers can progress from predictive to prescriptive modeling by combining internal customer and policy information with external social, demographics and/or environmental data to draw actionable insights. External data on how buildings in a particular residential area have switched from traditional roofs to solar panel-enabled roofs can provide valuable insight into the right catastrophic models to be adopted, when combined with internal insured property data. 9
  10. 10. The USER (Unify, Simplify, Engage and Respond) Approach to becoming a Digital Insurer Though the industry has traditionally been slow to adopt technology, many leading insurance companies have already begun their journey towards digitizing their enterprises. Many insurers have a digital strategy (some more complete than others) that captures the company's vision of where they want to be, and they have created strategic teams to drive the digital agenda at the enterprise level. In many companies, the CMO and his/her team unit own this initiative, while in others, new organizational divisions has been set up to spearhead digitization. To ensure success, however, the initiative needs to be a truly well-orchestrated partnership between the CIO, the CMO, and the business organization. That said one area that insurers find challenging is the construction of a realistic roadmap to achieve their outlined vision. Here, it is useful to remember that digitization of the enterprise is but one of the steps to achieving business and operational excellence. Also, it is useful to adopt a methodical approach to transition from a traditional to a digital enterprise. Based on our experience of participating in this transformation journey with some of the leading insurance companies in the world, we recommend the USER (Unify, Simplify, Engage, Respond) approach that can serve as a guide for companies embarking on a digitization initiative (see Figure 4). Insurers can opt to break down the initiative into a number of small projects that deliver incremental business value in an agile fashion rather than waiting to complete a traditional 18-24 month program. The approach reinstates focus on technology enablement and the adoption of new technologies that in turn can lead to optimization of operations, efficiency gains and the development of innovative products and new business models. It allows insurers to fight fire with fire, by addressing the digital challenge with a broad array of technological and digital initiatives. Unify: Ability to provide a consistent customer experience across brands, products, and channels Simplify: Ability to achieve operational excellence in both business and IT E R Engage: Ability to create and sustain customer engagement Engage Respond: Ability to sense and react to customers timely S U Respond Simplify Unify Figure 4 – The USER Approach 10
  11. 11. n Unify: Insurance companies typically operate in silos for each line of business, resulting in lack of data sharing across both product lines and channels and a high degree of inconsistency in customer experience. As insurers embark on their digital journey, one of the critical requirements is to bring consistency across brands, products and channels and tear down the silos pervading the organization. Omni-channel experience management, brand unification and integrating data across organizational silos are the three key pieces of this unification process. Customers should be offered the flexibility to bundle products and/or switch between channels. If a customer abandons a transaction that he/she started on the mobile device, an agent should be able to pick up the lead and connect with the customer to close the sale. Or, if the customer needs help while completing a self-service transaction, he/she can call the contact center and the service representative should be able to pick up from where the customer left off to enable a seamless user experience. Agents & Brokers Self Services & Social Channels Contact Center + + Various Product Line Systems + By adopting a holistic digital strategy, a large insurance and financial services company was able to achieve three-fold increase in product density per household. The insurer unified multiple lines-ofbusiness websites into a single consolidated customer website, enabling customer self-service, innovative mobile solutions, state-of-the-art collaboration technologies, active brand management though social media and near continuous availability of digital hosting environment , thus achieving 10% reduction in operational costs. The constant focus on omnichannel experience and continuous improvement achieved through multichannel analytics has helped the company maintain a leadership position in customer experience over the years. + Enterprise CRM Social Networks Figure 5 – Unified Customer View A unified customer view is a prerequisite to providing a unified user experience (see Figure 5). Insurers can take advantage of the immense impact that social media has had on purchasing behavior and develop a unified single view of the customer. By establishing a social customer relationship management (social CRM) system, 11
  12. 12. they can use social media services, techniques and technology to effectively engage with their customers. A social CRM will also help digital insurers identify social ambassadors and promote their brands using word of mouth. Integrating social CRM with enterprise CRM can provide a 360o view of customer interactions across all channels and offer valuable insights to contextualize customer service. Big Data can play a huge role in this by enabling the merging of structured and unstructured data from within and outside the enterprise, run analytics and glean customer specific insights. n Simplify: Achieving operational excellence is critical for the sustenance of any organization — this is true for insurance companies as well. A key lever to attain this is through business simplification. Insurers need to reassess their processes and simplify them to make them suitable for the new digital era. Initiatives such as establishing unified processes across brands, offering services through mobile devices and creating a single customer identity across the enterprise will both provide and demand opportunities for simplification. Digitizing all paper based transactions can not only deliver significant cost savings but also result in considerable efficiency through workflow digitization. Simplification initiatives can be measured using different metrics — count of steps eliminated in a business process, count of business processes rationalized/consolidated into a single process, and average time reduction in completion of the process after simplification. To ensure the success of such an initiative, it is important to have strong executive sponsorship; defining measurable results to quantify the success of the initiative is also critical. The responsibilities of business, IT and operations teams should go well beyond mere process simplification. Most insurance organizations are hampered by the proliferation of disparate underlying IT systems acquired haphazardly over time without retiring older ones, or through mergers and acquisitions. While IT portfolio simplification is a large program in itself, it is the responsibility of the group owning the digital initiatives within the organization to ensure that they set this up as a critical dependency and manage the risks appropriately. A large health insurer implemented a strategy to unify multiple sub-brands and move to a single wellness-focused brand to deliver uniform customer experience. By unifying five sub-sites into one single website, the company was able to improve awareness of all its offered products and services and achieve a significant increase in crosssell and up-sell opportunities. The company has been ranked highly on customer experience by industry analysts on account of its uniform brand experience, self-service capabilities and communities for consumers, constant product improvement achieved through analytics, and strong focus on web and mobile channels. 12
  13. 13. n Engage: In the increasingly competitive insurance market, reaching, engaging and retaining customers and/or independent agents are key focus areas. Customers expect insurers to understand their context and provide relevant services just as they would from a retailer or an airline. Improving the stickiness of customers and agents through innovative engagement models will be a critical success factor in the transition from a traditional insurance company to a digital insurance enterprise. Insurers should invest heavily in enabling such engagement through contextualized, collaborative solutions, integrated with the rest of the enterprise IT systems to provide superior customer and agent experiences. Enabling advocacy (such as healthy living or safe driving), collaboration (with customers, agents and other key stakeholders) and providing reward-based (free financial advice along with a new product sale) engagement models will help improve the value of the digital insurance enterprise in the eyes of today's social media-empowered customers. Providing consumers and agents with the right value-added tools such as financial calculators and commission planners can also help improve customer/agent stickiness. But, as companies evolve into their digital avatars, it is important that they revisit these tools. They must not rely on the old calculators made available on their website a few years ago, as user expectations have changed along with technology innovations. Insurers need to keep up with the times and provide a rich user experience using newer techniques such as gamification and rewards. n Respond: Finally, the insurer's digital platform should be responsive to the needs of the user. Today, users expect a split-second response to their requests, and assume they will be able to complete any insurance transaction from anywhere and at any time, in a manner most convenient to them. Delivering an interactive and intelligent user experience across a wide range of devices and channels requires insurers to modernize their legacy systems to handle dynamic requests, integrate multiple disparate systems to provide end-to-end straight-through processing, and improve the availability of their highly batch-oriented legacy platforms to support real-time 24x7 transactional requirements. A large global insurer providing life, annuities and retirement developed a single company portal by unifying its public, retail, wholesale and finance websites. Given the complex nature of its financial products and the customers' need for advice in decision making, the single website that provided financial advisors and consumers with productivity tools, the ability to view the full book of business, and single signon capabilities across applications and web analytics greatly improved business and operational effectiveness. The comprehensive website has helped the insurer achieve significant reduction in operational costs by reducing call volumes at the contact center and increasing productivity for agents and customer service representatives, thereby allowing the company to maintain its leadership position among the top global insurers. 13
  14. 14. Any Channel, Any Time Analytics and Insights Driven Next Best Actions High performing, Continuously Available Infrastructure Responsive Social Listening and Response Seamless Integration across Systems Figure 6 – Responsive Digital Insurer In the new environment, insurers must adopt an enterprise integration strategy that connects multiple points to enable information exchange and provide a seamless customer experience (see Figure 6). Real-time systems integration will help insurers use core application services and data to improve responsiveness to customer requests initiated using different channels. Such integration will also ensure a consistent channel-independent experience by making timely and accurate data available and accessible. Data will be available irrespective of whether a user initiates a transaction or communicates using a mobile phone or web browser, or via a call center representative or an agent. Multi-channel analytics will also play a key role in building a responsive digital platform. Marketing campaign often show indications of being successful in one geography, or more effective through one distribution channel (say social media and not TV ads) and not another. In a digital enterprise, the insurer will be able to obtain this insight not after the campaign is over, but while it is going on, so that funding can be diverted to realize better yields. To evaluate the relevance of this digital enterprise transformation journey, insurers must think not just for the present but also for the future. For example, while putting in place a strategy for currently popular devices like mobile phones and tablets, insurers should also anticipate and account for futuristic devices like Google Glass. Similarly from a business perspective, insurers must not only plan for current processes and business models, but also develop strategies to address upcoming trends such as car sharing vs. ownership of auto and property, or the influence of advances in genome technology on life insurance. 14
  15. 15. Conclusion Insurance organizations will have to transition to digital enterprises to remain competitive and profitable in this age of constant disruption. While the ultimate goal of insurance — providing financial stability and protection for customers at various stages of their lives — will always remain, how insurers achieve this goal will evolve constantly. Repositioning for this new normal must be looked upon as an opportunity and not as a threat, since digitizing the enterprise can help drive efficiencies and innovation, use data more effectively and create newer and better business models. Insurers have the opportunity to extend their portfolio into newer adjacent eco-systems —tying up with auto companies to use vehicle telematics to create new insurance products based on shared data is just one example. Technology is a key enabler in the transition to a digital enterprise, and insurers must invest in a robust business and technology architecture with the relevant tools to create an agile and flexible organization. Insurers saddled with large legacy systems must consider eliminating, consolidating, migrating and in some cases orchestrating that complexity while continuously investing in generating innovative business models. Insurers can use the digitization opportunity to deliver greater value to their customers and gain competitive advantage, engaging more intensely with existing customers and attracting newer customers with innovative products, improving both profitability and growth. 15
  16. 16. About TCS' Insurance Business Unit With over four decades of experience in working with insurers globally, TCS delivers solutions and services to help insurers meet rising customer and agent expectations, address non-traditional competitors, manage low investment yields, and drive growth in emerging global markets. TCS has built an unmatched track record in enabling insurers transform, enhance business agility, improve operational efficiencies and increase customer engagement, while ensuring regulatory compliance. 7of the 10 world's largest insurers and over a hundred insurers globally partner with TCS. Our state-of-the-art innovation labs and global solution centers, and cutting edge solutions and technologies set clients apart from their competitors. We leverage the combined expertise of our industry trained and certified (LOMA, LIMRA, CPCU and so on) consultants to support the entire value chain for Life, Annuities and Pensions, Property and Casualty, Health, Commercial and Reinsurance companies. Contact For more information about TCS' Insurance services, contact global.insurance@tcs.com Subscribe to TCS White Papers TCS.com RSS: http://www.tcs.com/rss_feeds/Pages/feed.aspx?f=w Feedburner: http://feeds2.feedburner.com/tcswhitepapers About Tata Consultancy Services (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery ModelTM, recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. IT Services Business Solutions Consulting All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright © 2013 Tata Consultancy Services Limited TCS Design Services I M I 11 I 13 For more information, visit us at www.tcs.com/insurance