6 Reasons Companies in the Insurance Sector Lag on Digital Execution
The promise of digital transformation is reshaping the business world across all sectors, including the insurance industry. In practice, though, when the consultants have been paid and the solutions identified, the resulting digital execution often stalls out. The C-suite, as well as others in leadership, were sold on the idea of digital transformation, but it has never translated to impactful digital products or improved digital execution throughout the enterprise. Too often digital execution is an afterthought in transformation initiatives, rather than the primary channel for value delivery.
There are, of course, bright spots and success stories. According to a report from McKinsey, automating can reduce the cost of claims processes by around 30%. The 2022 Tech Trends report from Deloitte notes that 70% of data-driven decision-makers — those who leverage data strategy, API platforms, and composability — are looking to expand their organizations’ access to data so that business decisions grow even more aligned with market and consumer needs.
These examples show the value that following through on digital execution can bring. Yet the insurance sector tends to lag behind leading industries when it comes to digital transformation. For IT leaders and others within the industry, dealing with this lag can be frustrating — particularly when business-side goals often aim for success that requires digital transformation.
Diagnosing the Lag
The first step in creating more movement for digital execution in your organization is discovering the root causes of the lag. Many IT leaders or other digital champions in insurance organizations often don’t know why digital strategies aren’t taking off; they may not see any problems, or they may see challenges everywhere they look.
Neither of these situations is ideal. You can’t address issues and begin catching up to and surpassing the competition with digital strategies unless you know why your company lags in digital execution. What follows are six reasons insurance companies can lag in digital execution. Chances are, one or more of these reasons is the root cause behind the digital execution struggles in your organization.
1. A Natural Tendency Toward Risk Aversion in the Sector
The natural and necessary traits of companies, leaders, and processes in the insurance industry are often what get in the way of digital adoption. That’s particularly true with a culture of risk calculation, which may conflict with the need for digital experimentation.
Insurance itself is all about managing risk. The mindsets that can develop around that work are in direct contrast to digital transformation practices. In the digital world, experimentation and innovation are required. The idea of failing fast and iterating quickly — of trying things that may not work because every third thing will work — can, at first, be frightening to stakeholders who are immersed in risk aversion culture and processes.
After all, insurance is a challenging business to break into. While there are certainly startups and new entries into this sector, they may struggle to self-insure because it requires a lot of capital and other resources. This environment has led to a natural inclination for businesses to move more slowly in the sector than in other industries. Historically, there was more time for industry-leading organizations to consider their next move or to innovate due to a lack of fast-moving competition and growth among smaller companies that did not push the bar.
So IT leadership and others should consider whether one issue leading to digital lag is that stakeholders throughout the organization are looking at digital innovation with an underwriting lens.
2. Bulk of IT Spending Going to Legacy Systems
Many insurance companies find themselves dealing with outdated technology and legacy systems, often because IT organizations were historically viewed as cost centers that hamper profitability. Innovation was an afterthought.
Larger insurance companies with their own legacy systems face additional hurdles to comprehensive digital transformation when they acquire smaller insurance companies through M&A activity. These acquisitions often bring their own outdated technology to the table and add to the backlog of systems that need to be modernized and updated. While strangler patterns can aid modernization, many of these legacy solutions are business critical and cannot be replaced with incremental greenfield development.
As a result, large insurance companies find it hard to keep up with efforts to modernize legacy capabilities, let alone add new innovative features or experiences. And, often, insurance companies of all sizes end up spending excessive time and money on maintaining legacy technology platforms and systems. Smaller companies may have less baggage, but they also have smaller budgets to address those needs. Legacy systems are often required to drive revenue, so they must be supported until new systems can be developed and integrated. But if a company is spending 70% of its IT budget just to maintain current platforms and pace, innovation and development for future growth are constrained.
With fractions of IT budgets allocated to new capabilities, features, and technologies, digital adoption is likely to be slow unless IT leaders can focus on exactly the right things.
3. No Aligned Vision and Measurement Across Divisions
Without the right strategic vision, any enterprise can flounder with digital execution when there seems to be too many fires and not enough hoses. This is a common problem with businesses that realize digital innovation is the right path toward growth but haven’t yet invested in strategy. As a result, numerous competing priorities are crying out for technology solutions — though focus and prioritization are absent.
It’s not enough to ensure that leadership is thinking and acting strategically when it comes to digital execution. Insurance companies must also align visions and measurements across divisions. Mature digital product strategy involves close collaboration between business and IT, with both providing critical thought leadership.
It’s common in enterprises that one area — or a few — have good strategic thinking and push strategic measurement. But if you don’t have strategic measurement shared by IT, business stakeholders, data groups, digital product groups, and customer experience teams, the measurement is limited in value..
Ultimately, transformational digital execution — the kind that makes the biggest impact on the bottom line and other critical metrics like customer satisfaction — only occurs when business and IT organizations are completely aligned.
It’s actually common in the insurance sector for this not to be the case, in part because of disruption and transformation within businesses, as well as IT’s historical role as an internal service center. IT has traditionally focused on efficiency, making moves to adopt operational tooling and methodologies, while eschewing a more strategic role in digital product prioritization.
If tech and business structures have been long siloed within an organization, getting to a place where business and IT have a shared vision, measured across all digital products, can take time.
4. Immature Digital Product Organizations Within Mature Business Organizations
Many insurance companies are obviously mature organizations. They have structures, hierarchies and processes that have come to maturity over decades.
But within those organizations are immature digital product organizations that often grew in an environment of poor business and IT collaboration. Within such contexts, it’s often unclear where digital product roles should sit and who should be responsible for architecting a digital product organization.
Additionally, digital product roles are often split between business and IT. This can create additional confusion and is a direct contributor to weak or immature digital product strategy, as ownership of organization structure, role definition, measurement strategy, and prioritization can be unclear.
This is also related to the siloed growth of digital product roles in companies that have scaled organically, without a purposeful (strategic) approach to building a mature digital product organization.
Understanding that there may be deficits in the maturity of digital product roles and structures within an insurance company — and addressing them with digital product operations thought leadership and investment — can help mitigate digital lag.
5. Generalist Staff Can’t Meet Transformational Needs
Insurance organizations, like enterprises in any sector, often need to do more with less. Economic stresses of the past few years have only made this a more apparent need, and it’s common for leadership to champion a management framework that finds and rewards generalists. People who can cross-train and move up in an organization by developing a wide set of skills are often valued — and the business may be more successful because its staff is full of generalists who can respond to organization and growth changes in an agile manner. These are not, however, always the people that should lead digital transformation within the company.
For example, an individual may have started as an underwriter before moving into a senior business analyst role. They might have since moved on to a product role, picking up some technical skills along the way. Such individuals have a deep understanding of insurance products, but their background in building transformational digital products is limited. Industry knowledge is incredibly valuable, unless it comes at the expense of building an innovative digital product culture.
IT leaders and stakeholders championing digital progress in insurance organizations must be aware of the skill sets of staff and identify sources of critical thought leadership.
6. Hurdles Created by Regulatory Requirements
Regulatory requirements can also be a blocker for digital execution — this is common in any highly regulated industry, including health care, finance, and insurance.
In the insurance industry, organizations must conform to regulatory requirements for underwriting insurance products. They also have to protect consumer and business information and ensure that processes and practices align with a whole host of federal and state laws.
Compliance in most organizations requires a certain level of resources, including technology, for support. Insurance companies have overhead and costs related to maintaining compliance that you don’t find in many other industries. That burden on the budget can mean less money for innovative digital development.
The need to attend to regulatory compliance creates potential obstacles for digital execution. There’s always a worry that digital changes may land the organization or one of its processes outside the parameters of compliance. To that end, insurance organizations may push digital execution projects through tedious and excruciatingly slow compliance checks or be slower to adopt bleeding edge technology; by the time a development is deemed compliant, it may be obsolete.
In short, it’s important to understand whether stakeholders feel hamstrung by the requirements or costs of compliance so tech leaders can find solutions for these barriers.
Moving Forward With a Clear Plan for Digital Execution
Digital execution is not the sole burden of tech organizations within insurance companies.
Taking a holistic look at challenges, leveraging deep digital product expertise, and working across divisions to drive digital transformation are critical to succeeding with those initiatives and keeping up with the competition.
