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Author: Dinesh Kalidoss |08/07/19

Will Digital Operations Help Traditional Insurers Compete with Digital natives?

“Has the insurance industry encountered its Amazon moment?” Yes, says Daniel Schreiber, CEO of Lemonade. The impact Amazon has had on brick-and-mortar retail companies is likely to replicate in the insurance industry.

What are the lessons to be learnt for traditional insurance players from the retail industry?

Digital native companies are built ground-up using building blocks of digital operating model i.e. digital engagements such as:

  • Back office BOTs built using robotic process automation tools
  • Chatbots and voicebots
  • Mobile apps and portals
  • Big Data platforms
  • Machine learning
  • Cloud infrastructure

According to the CEO of Lemonade, this digital ecosystem gives them the ability to settle claims starting at 3 seconds, premiums are 60% less costly than their competitors in certain segments of renters’ business and expand into newer states much faster than what a brick-and-mortar company could achieve. He goes on to add that data which is a significant entry barrier for any new player in insurance can be bridged faster as Lemonade collects 100x more data than traditional insurance companies.

Given the disruption by digital native players, how will traditional insurance companies respond?

Let’s take a look at some of the challenges facing traditional insurers:

  • Digital natives have disrupted the insurance business model, thus forcing the centuries old industry to transform
  • Pressure on reducing the turnaround time to respond, benchmarks set by digital native competitors
  • Data collected through digital foot print of customers provides more data points for personalization, underwriting and claims
  • Natural calamities create spike in volumes on work inflow, how does one scale on demand
  • Re-defined cost structures of digital native companies posing challenges for companies operating at 35-40% expense ratios of which 8-12% is operational expenses
  • Changing expectations of customers leading to demand for anytime, anywhere service models
  • Regulatory changes and business expansion demands agility, inhibited by legacy systems and business models

In summary, traditional insurers are faced with transforming their business models, operations and IT to stay competitive in changing landscape.

Strategic Choice for Insurers?

Most traditional insurance companies operate through an intermediated distribution model, manpower intensive front office and back office operations, supported by legacy systems hosted on a on-premise infrastructure. In order to compete with digital native companies, traditional ones must resort to one or all of the following initiatives.

  • Improve efficiency of business and IT operations by converting into a state-of-the-art core system (core system refers to policy administration, billing , claims and reinsurance)
  • Building a digital engagement layer comprising of portals, mobile apps integrating with legacy systems through services layer
  • Achieve incremental efficiency in a short to medium term scenario by adopting robotic process automation tools.

Are these Initiatives Mutually Exclusive?

In our opinion, the answer is NO. Each of these initiatives have both independent as well as overlapping objectives. Let us analyze each of the choices and outcome they produce:

Core Transformation: Transforming to state-of-the-art core systems provide insurance companies with agility and efficiency. However, such transformations are complex, take anywhere between 3-4 years to complete the migration from legacy, and involve a significant capital outlay.

Characteristics: Long term, complex, capital intensive

Benefits: Agility, efficiency

Digital Engagement Layer: This involves stitching together the legacy core applications through a digital engagement layer. This will give a jump start for digital presence by providing self-service capabilities to agents, brokers, and customers. However this does not eliminate the underlying manual processes residing in legacy applications.

Characteristics: Medium term

Benefits: Digital presence

Automation: This involves transforming back office operations without changing existing systems. This will provide efficiency. The benefits can be achieved incrementally by each business process. A business process can be automated in 6 -12 weeks timeframe often resulting in better efficiency.

Characteristics: Iterative, short to medium term

Benefits: Efficiency, process turnaround time, scale on demand, consistency, quality

These initiatives could be sequenced together as part of an enterprise-wide transformation. The benefits from one initiative can provide a jump start as well as feed in to investment of other initiatives.

What is Intelligent Automation?

Insurance industry is back office intensive and given the legacy ecosystem, sizeable human effort is involved in running front and back office operations. Traditionally automation is targeted at repeatable tasks acting on structured information. This is achieved through robotic process automation tools.

Taking Insurance as an example, these activities span across the value chain starting from new business to claims. The activities include data entry from input excel sheet, structured data information/forms received through e-mail or as physical forms, monitoring of task inflow and allocation of tasks, verification of information, processing of invoices / payments, copying/updating information across systems, downloading reports from third-party systems, storing/saving documents in dedicated folder location etc. It has been observed that these activities are dependent on extracting information from structured source such as application forms, extracting information from unstructured sources such as e-mails, extracting and interpreting images such as pictures of damage, surfing through other data sources to collect information such as social media, websites of corporates, etc. Thus in order to achieve holistic automation outcome, it is necessary to bring together other technologies in addition to robotic process automation tools.

Visualization of How Intelligent Automation Works

Let us explain this with a practical scenario – “John Smith is driving back home. Due to slippery road condition, he meets with an accident. It is late, and he is not sure if he could reach the insurance company to inform of his claim. He seeks assistance through the conversational assistant on his phone. Chatbot on his phone enquires on his safety. Ensuring there is no injury, it collects the damage information necessary to provide immediate attention. This information is processed by a back office BOT which suggests repair centers based on location collected through John’s phone. Once John choses the repair centre, the communication is sent across to the repair centre. The BOT further enquires if any assistance is needed to take his car to the repair centre.”

Analysis of this scenario indicates the following:

  • John gets assistance outside normal operating hours at the place of accident (Anytime Anywhere support)
  • Ensure assistance is available from human staff in case of any injury (Empathy)
  • Information collected including images and location sent by chatbot is processed by back office bot to ensure best possible assistance is provided. (Immediate response)
  • Information collected by conversational assistant is processed to register the claim. Any further information required to process the claim is requested. (Automation)
  • Claim is processed further and settled once the BOT is convinced there is no further investigation required. (Faster settlement)
  • BOT keeps John informed on updates to repair of car (Proactive assistance)

Thus, intelligent process automation brings together robotic automation, conversational solutions, natural language processing, character and image recognition techniques and third-party data extraction and enrichment tools to bring in a holistic approach to automation. The below diagram depicts the key blocks of intelligent automation.

Intelligent process automation

Why Intelligent Automation?

We have seen the following benefits delivered by virtue of intelligent automation:

  • For a personal lines insurer in the US, automation of back office processes has resulted in close to 50% improvement in productivity thus enabling them to focus on customer engagement
  • For an Australian insurer, the processing time for claim payments was reduced by half of what it was before
  • For a major US insurer, simple conversations were enabled through chat and voice bot. This resulted in a 40-50% reduction in call volumes for conversations.

In addition to above, it has overall resulted in improved customer experience, quality & consistency, and responsiveness.

What Should Organizations Do?

Insurers need to evaluate the choices before them and the time frame each of them takes to deliver business benefits. Most often, there is no one solution to reach the targeted end state. Insurers need to look at intelligent automation as a short to medium term solution. Companies that have either embarked or yet to embark on digital and / or core transformation, can utilize intelligent automation to free up resources as well as achieve immediate results without overhauling their applications and infrastructure.

Mindtree enables its customers on their automation journey by defining a roadmap from current state to target state. This will encompass identifying processes suitable for automation, interventions required for holistic automation, sequencing initiatives by business functions and determining business case from these initiatives.

For more details, please write to our Mindtree experts here


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