Laurie Shotton, Research Director, Gartner talks about the impact of digitalization on the insurance industry
The insurance industry in India has been slow to embrace digital. For the consumer, insurance was something that was perceived as an afterthought. It was always a push approach from insurer to consumer, and never a pull approach. Insurance was bought mostly in the later stages of life, and often with the objective of financial returns rather than risk cover. However, with the advent of social media, mobile phones and even Internet of Things, the notion and perception of insurance is fast changing. Traditionally, there was a heavy dependence on sales agents and brokers. But today, it is moving to self-service — insurance policies can be bought online from websites and even from social media pages.
Yet the industry is struggling to transform itself in the digital age and is bogged down by legacy processes and infrastructure. As if that wasn’t enough, insurers are bogged down by frequent compliance mandates in a heavily regulated industry.
We met Laurie Shotton, Research Director, Gartner on the sidelines of the Gartner Symposium and ITXpo in Goa recently, and he told us how insurers around the world are embracing digital, notwithstanding all the challenges in the industry. He says the way forward for organizations in this sector is the Bimodal approach.
Bimodal means organizations will run legacy processes in Mode-1 but will introduce digital processes in Mode-2. Both modes run concurrently.
How is the insurance industry shaping up in the age of Digital? What’s holding it back?
Laurie Shotton: When you look at the insurance industry as a whole today, we see it is quite constrained by legacy. Over the years, we have measured the cost and effort that goes into running a business across the globe, and we see that it is between 61 – 65 percent of IT budgets. But when you look at digital on top of that, the business focus of digitalization has typically been about building on the existing business model of today. It’s about building on digital transactions, straight through processing, customer experience management, reducing operational costs. This is not radically different, it is just about improving your existing business model.
(To get round this) more organizations are going into Biomodal mode to stretch budgets to allow that innovation to happen when you’ve got that massive constraints of your legacy holding your budgets. They are approaching bimodal projects and separating the organizations between those that are approaching Mode 1 and Mode 2 for delivery. The problem exists in trying to push people to the next step, to embrace digital business. It’s about engaging with partnerships and ecosystems to really push where insurance is going into a new innovation and a new way of thinking.
Where do you see a lot of traction or potential for digital technologies in the industry? Where are the opportunities for the insurance industry?
Insurance is sold and not bought. It is perceived as a need for protection. But the Internet of Things, the use of data, and understanding individual needs is transforming insurance from being about protection to being about prevention.
For instance, if you look at start home technology, rather than protecting a home through home insurance, what if I could actually prevent those accidents from happening in the home by actually switching off the gas stove before a fire started? What if I was able to monitor and identify potential gas leaks that may occur?
We are starting to see different business models evolving around IoT, data and knowledge about customers to personalize products and engage them better in a digital world. This is a start of a journey.
The insurance industry always lagged when it came to adoption of technology. What will be the fallout of this in the age of Digital?
Other industries have absorbed technology first. But you only have to look at the other industries, like the taxi market with Uber coming in, for instance. If you are not prepared for transformation and disruption in your industry, you risk being one of those that get left behind. Our predicts in 2015 stated that over 100 insurance companies globally will cease to exist in the next few years. They will be confronted with the decision to outsource a significant part of the business, cease operations or sell off unless they tackle their legacy issues. We also believe that regulations need to catch up. Regulators will be hit from the blind side with someone doing something different. Insurance companies that are being compliant will not be able to compete if they don’t adapt.