Are Insurance Companies in Danger of Digital Disruption?

A major analyst firm that will go unnamed thinks so. According their research, digital disruption is one of the most important factors impacting the insurance industry today. Making matters worse this firm’s industry assessment shows that only a small fraction of insurance companies are what it classifies as digitally leaders.

InsuranceIf there is good news, it is that some insurance companies do have a sense of urgency about fixing things. A year ago, I met a 150 year old insurance company’s marketing and IT leadership team. To my surprise, this team said a key element of responding to digital disruption, customer experience, was the highest priority initiative for their company. What woke them up? It was the threat of Amazon and Google entering insurance. In this company’s case, they determined that they had one shot of selling existing customers new products. In particular, they determined they could no longer treat the customers of one product division as brand new customers for the company. Specifically, they needed the ability to deliver customized offers to existing customer when they were inspecting a new product.

What limits insurance companies from delivering customized offers to their existing customers? Simply put it is data. They often lack a single view of customer. This fact makes it difficult for them to take advantage of the macro market changes that are increasingly the basis of a sustainable competitive advantage. And it seems clear that being disintermediated from either existing or new customers is extremely dangerous proposition.

What is holding back the industry with data?

dataThe data problems for insurance impact more than the ability to cross sell and upsell existing customers. They limit the ability to also comply and protect, automate and modernize, and even effectively merge and acquire. Insurance organizations often lack the robust data management and governance capabilities needed to respond to each of these challenges. This limits their ability to respond to customers and to run their business holistically.

So what are the data challenges of the insurance industry? Insurance organizations lack the ability to collect and integrate their customer data and make this data relevant. Without addressing this challenge, they cannot improve their customer intimacy or increase their ability to upsell/cross-sell. What is needed is the ability to deliver a complete and cross-organizational view of their customers’ financial portfolio. Doing this will enable insurance companies to perform more meaningful customer segmentation. It will, also, enable improved customer engagement; for example, the ability to access an up-to-date and an accurate view of a customer and their product, account, and transaction data on demand.

Beyond this, fixing the industry’s data problem will enable better compliance assessment and reporting. Most insurance organizations do not have the robust capabilities needed to ensure the quality and completeness of their data. And given the value of data collected, most do not have the ability to serve up data to appropriate risk models and calculations. At the same time, with sensitive data always under the potential of attack, they lack the data capabilities to protect data and treat it like the corporate asset it represents.

disruption 2At the same time, as they respond to potential disruptors, insurance organizations need to free up expenditure on legacy environments for systems that will support the business transformation. With this in hand, insurance organizations can go after the monies spent on historical legacy systems. It is important to realize that this investment involves more than applications. It includes all the costs that support the legacy environment including hardware, storage, and the network. Hard costs can be eliminated every time a legacy application is eliminated. Therefore, it is essential that insurance organizations move data to new and more modern applications and, as legacy data is archived to have their source systems retired and turned off.

Finally, insurance companies need the ability to manage through the complexity and risk of business mergers or acquisitions. This often starts by aligning the business models of the organizations. M&A activity requires accessing customer and product data from across multiple organizations—which may have different data and process models—and then aligning them across environments to reduce the impacts on the customer.

Parting remarks

Like other industries, data has become the limiter of insurance companies. It limits them competitively and limits them at responding to regulation and compliance. Without fixing things, insurance companies are at risk from disruptors which will change the go forward business model and strip away how existing players add value.

Further Reading

Customers buy experiences not products

Will Fintech disrupt your favorite bank?

Life Science about to experience Digital Disruption?

Geoffrey Moore weighs in on Digital Disruption

Competitive Strategy: Being “stuck in the middle” doesn’t have to be permanent

How a 100 year old company uses analytics to retain its right to win?

The Importance of data in Digital Disruption Via @ComputerWorld

Are you acting like a software company? Your business may depend upon it

Leadership in an age of digital disruption

Business model change: how does digital disruption drive the need for it?

Twitter: @MylesSuer


  • All the arguments and consequences are right. On other hand is good to mention that Insurance is extremely complex business (number and complexity of processes), so its not easy to change legacy systems and processes. The situation is complicated by old fashioned management where IT is considered as necessary evil only producing the costs… the world where Data Governance, Data Management or Data Quality was swear word… at least Solvency II forced them to improve in this area a bit… and shed some light in this business.
    But … not only to criticize … there are positive changes slowly ongoing, but heavy reluctance to invest into new and modern technologies and also experts is still very strong. We just might speculate why. And if they invest, the outcome is very questionable…
    Additional article going more in deep will be welcome … 🙂

  • Srivatsa Nandanavanam

    Days are just around the corner where actionable insights will be driven purely by data. This will be a huge trend in Insurance domain as Car, health, Property and other insurance companies have to listen omni channel to capture new customers and also hold on to existing customers.

    IOT only increases the available data present with Smart cars, Smart houses and Smart human beings drive how business are going to be modelled.

    There could be a usecase where auto insurance may be changed as early as weekly based on how a driver drives the car, what route the car is going. There may be a case where additional insurance will be given only for a road trip