Insurance companies have traditionally been slow to embrace the latest technologies for product innovation due to regulatory limitations and dependence on outdated legacy systems. However, a shift towards digital insurance models has emerged in recent years, driven by the desire to create personalized customer experiences and meet their expectations at every touchpoint.
With digital insurance solutions, insurers can streamline internal processes and provide exceptional customer service throughout the entire policy lifecycle. But with numerous new technologies available, questions arise about how to proceed:
- Build bespoke digital products or buy existing solutions?
- What are the best ways to navigate legacy system complexity?
- What agile testing approaches to employ?
Raluca Moldovan, Business Manager at Zitec, has distilled the top insights from the recent Insurance Innovators Nordics 2023 conference into five critical insurance topics identified by industry leaders. Her compilation provides a valuable resource for those seeking to stay abreast of the latest trends and challenges in the insurance industry.
1. Product development: Build or buy digital products?
In the insurance industry, companies are frequently faced with a challenging choice: should they build or buy digital products? This decision is critical, as it can impact factors like time to market, costs, customization, integration and, ultimately, control.
Each of the solutions have their advantages and disadvantages, therefore there is no best generic fit for all. Companies will have to weigh the following factors as to choose wisely:
The advantages of building digital products
- Customization: By building a bespoke digital product, insurance companies can create a solution that is tailored to their specific needs and the needs of their customers. This level of customization can provide a competitive advantage over off-the-shelf products that may not fully meet the unique needs of the company or its customers.
- Differentiation: A bespoke digital product can help insurance companies differentiate themselves from their competitors. By creating a product that is unique and innovative, companies can stand out in a crowded market and attract new customers who are looking for something different.
- Branding: A bespoke digital product can be a powerful branding tool. By creating a product that reflects the company's values and brand identity, companies can reinforce their brand messaging and enhance customer loyalty.
- Control: Building a tailored digital product provides insurance companies with more control over the product's development and features. This can be especially important in a highly regulated industry where compliance is critical. By having full control over the product, companies can ensure that it meets all regulatory requirements and aligns with their specific business needs.
- Competitive advantage: A custom built digital product can provide insurance companies with a competitive advantage by offering unique features and functionalities that are not available in off-the-shelf products. This can attract new customers and help retain existing ones by providing a superior customer experience.
- TCO: Of course, there's also the financial argument - building bespoke digital solutions is often more cost-effective in the long run. While the initial investment may be higher, building a digital solution means that companies won't have to pay ongoing licensing, which can result in significant cost savings over time.
Creating truly innovative digital products in the insurance industry requires a mindset shift from a one-size-fits-all approach to a more customized solution. By embracing customization and investing in tailored digital products, insurance companies can not only meet the evolving needs of their customers but also differentiate themselves from their competitors.
Insurance companies aiming to drive innovation must be willing to take bold steps, experiment and continuously learn and improve their digital offerings.
That being said, the decision to build or buy should be based on a thorough analysis of the company's specific needs, capabilities and strategic goals. On the other hand, there are also solid arguments for buying digital products in the insurance industry:
The advantages of buying digital insurance products
- Faster time to market: One of the main advantages of buying a digital product is that it can be faster to market. Rather than spending time and resources building a product from scratch, companies can purchase an existing product and customize it to their specific needs. This can result in a shorter time to market and faster return of investments.
- Moderate risk: Buying a digital product can also be less risky than building in-house. By relying on an external vendor, companies can benefit from their expertise and experience. Vendors often have a proven track record of success and companies can rely on the functionality and scalability of their product.
- Cost-effectiveness in the short run: Finally, buying digital products can be more cost-effective in the short run. Rather than investing in building a product from scratch, companies can purchase an existing product for a lower upfront cost. This can be especially important for smaller insurance companies with limited budgets.
In the end, the decision of whether to build or buy digital products in the insurance industry depends on several factors. Companies must carefully consider their specific needs and take into consideration aspects such as the regulatory environment, time to market, cost-effectiveness and the competitive advantage of each approach.
By weighing these factors, insurance companies can make an informed decision that will help them succeed in today's rapidly changing landscape. Whether building or buying, the key is to be agile and innovative, embracing new technologies and ideas to stay ahead of the curve.
2. Modernizing legacy systems - Tackling the spaghetti
Modernizing legacy systems is a complex challenge for many industries, including insurance. These systems are often referred to as "spaghetti" due to their intricate and convoluted nature, which can make maintenance, integration with modern technology, and upgrades difficult.
The challenge of modernizing legacy systems was discussed at the conference, where the speakers provided insights into effective strategies. Breaking down the system into smaller, more manageable components can help streamline the integration process, while gradually migrating to a new platform can minimize disruption to operations.
But, modernizing legacy systems requires buy-in and support from all levels of the organization, as well as a commitment to investing in necessary resources and expertise.
Successfully tackling legacy systems requires a clear understanding of the challenges and opportunities they present and leveraging modernization strategies that fit the unique needs of each organization.
This way, the intricate spaghetti can turn into efficient systems that support a business in the fast-paced digital world among digitally driven insurance companies.
3. Infusing technology innovation through POC and MVPs
Innovation is a vital aspect of any business, particularly in today's ever-changing technological landscape. However, implementing new technologies can be a challenging and risky endeavor, which is why proof of concepts (POCs) and minimum viable products (MVPs) are becoming increasingly popular.
POCs and MVPs allow companies to test new ideas and concepts in an agile and cost-effective manner. By developing a prototype or minimum viable version of a product, companies can quickly validate assumptions and gain feedback from potential users or customers before committing to full-scale development. This approach helps minimize risks and costs associated with larger, more complex projects.
Rapid experimentation and continuous learning are critical components of the innovation process and the insurance industry is benefiting enormously from POCs and MVPs for this purpose. By quickly iterating and refining based on feedback, companies can accelerate the development of their products.
It's important to note that while POCs and MVPs are useful in testing new ideas, they should not replace a thorough and well-planned development process. Companies should still conduct market research, define goals and objectives and ensure the product aligns with the company's overall strategy.
4. Balancing innovation in ambidextrous organizations
While it's important to innovate, it's also important to avoid the echo chamber effect, where ideas get stuck in a small group without being tested and refined.
Innovation has become a crucial aspect of the insurance industry and companies need to integrate ambidextrous practices to future-proof their business and stay relevant.
Ambidextrous companies are those that can operate in two modes: exploratory and exploitative. In the exploratory mode, organizations focus on discovering new growth opportunities, while in the exploitative mode, they focus on supporting and maintaining their core business functions.
There's no one-size-fits-all approach to becoming an ambidextrous organization, but different businesses can adopt unique strategies to promote flexibility, diversity and growth. One of the strategies can be involving diverse teams and stakeholders into the innovation process. The goal of ambidexterity is to create an environment that allows for the integration of different strategies simultaneously.
5. Fail fast and kill your darlings
In the innovation process, it is essential to have the willingness to accept failure as a normal and even beneficial aspect. This can be especially difficult for the risk-averse insurance industry.
Yet, experts suggest that embracing failure can lead to growth and success. One strategy is to establish a culture of experimentation and learning that encourages taking risks, trying new ideas and learning from mistakes.
The concept of "fail fast" and "killing your darlings" emphasizes the importance of recognizing when a project is not working and being willing to abandon it quickly to move on to more promising endeavors.
The Insurance Innovators Nordics conference shed light on the crucial role of innovation in the insurance industry, emphasizing the need for ambidextrous practices to balance exploration and exploitation.
Companies must embrace failure as a part of the innovation process and leverage POCs and MVPs to infuse technology into their products and modernize legacy systems. To future-proof their business and stay competitive, companies must carefully weigh the decision to build or buy digital products.
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