To remain competitive in a disruptive market and drive growth, insurance companies must recast IT leaders as strategy partners.
When Property and Casualty (P&C) insurance companies position themselves for growth, they generally focus on acquisitions and the exploration of new products and markets. Such expansion involves integrating new information technology (IT) platforms with the intention of creating value for the business.
Most of the time, however, a value-based approach is not truly taken because business leaders tend to delegate this responsibility to their IT centers rather than partnering with them to develop a technology strategy.
The disconnect between business leaders and their IT departments creates roadblocks to innovation and makes companies vulnerable to market disruptors – companies that leverage new technologies to exploit the inefficiencies of traditional business practices.
One of the most notable examples is Esurance, a startup that burst into the market in 1999 on the dot-com wave, establishing itself as the first online insurance company. The new business model made buying insurance private, efficient and paperless for consumers.
The absence of a commissioned insurance agent allowed the company to offer competitive rates and the online platform empowered consumers to do comparison shopping. In short, Esurance used a new technology to undercut the traditional insurance model, which resulted in a significant loss of market share for many companies.
In an industry that is predicated upon the use of information, disruptors render the P&C insurance market exceptionally precarious because they force the need to innovate around information technology. To remain competitive in a disruptive market, companies must recast IT leaders as strategy partners to help them stay ahead of the technology curve and drive growth.
Positioning Insurance Companies to Drive Growth in a Disruptive Market
Since the insurance industry is a business of risk aversion and risk mitigation, companies tend to be resistant to change and are seldom positioned on the cutting edge of technological innovation. Building a strategic partnership between business and IT leaders enables insurance companies to find new and innovative ways to use their data to create timely and competitive insurance products.
To accomplish this, they must acquire the technological agility to meet shifting market demands. Naturally, this comes with significant challenges.
Given the data-driven nature of the industry, insurance companies become highly vested in their existing systems which must maintain and process huge stores of data. Therefore, the costs and hassles of adopting and integrating new technologies can become a daunting prospect.
Although there is no “one size fits all” solution, there are common requirements for enabling insurance data systems to be stable, nimble and efficient. These requirements include:
- Collecting data in the most user-friendly way
- Immediate availability of data in a way that can be understood and used
- Integrating external, non-insurance data to understand hidden patterns & find marketing opportunities
- Effectively combining and integrating insurance data from acquired companies
Multi-Level, Multi-Phased Integration: A Value-Based Approach to Change
To create the most value for their business in shorter time frames, companies must determine which technology changes will bring the most value at any given time.
Together, business and IT leaders must work together to build a prioritized growth strategy that incrementally adds value to business operations. Insurance companies that successfully position themselves for value-based growth generally embrace the following strategies:
- Conduct a Strategic Evaluation of Systems and Markets: Business and IT leaders must work together to create a strategy for using technology to create business value. It is a best practice to choose technologies that can evolve or scale up with business growth rather than locking into rigid systems that create data storage or maintenance burdens. For this reason, many insurance companies are choosing to move to cloud-based platforms.
- Preserve Source Data in its Original Form: Companies must take great care to preserve the original shape of the data that is generated in their systems. It is common for different applications to use the same data differently, and no company can anticipate how they may need to use data in the future. Instead, companies can use the concept of contextual modeling – conforming data to fit a particular use case. For example, a billing system may use the same data as a claims administration system, but each system will process the data differently and follow a different timeline. The system’s ability to use the data in its repository must not be restricted, and the original source data must remain intact and be reusable.
- Create a Scalable Integration Strategy Based on a Minimum Viable Product: Companies can begin their technology transformation journey by developing a minimum viable product (MVP) – a product that is built with just enough features to immediately add value to the business. For example, if a company is launching a new insurance line, they may not need to immediately integrate their claims system, since most claims applications allow data to be managed manually. The claims systems integration can instead be rolled out later as part of a scalable, multi-phased strategy. Taking the scalable approach allows companies to launch experimental products into the market within short time frames using only high-level data (such as financial reporting) rather than integrating a complete hierarchy of data that includes risks, coverage levels and other factors. Instead, they can begin with a basic systems integration which can scale up based on feedback from the MVP launch.
By forming strategic partnerships between their business and IT organizations, companies are better able to align their business goals with innovative technology strategies, select and implement appropriate platforms, and develop scalability strategies for future growth. Scalable integration strategies help to reduce unnecessary costs, mitigate risks, and position companies for growth and innovation.
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