In Focus: Digital Insurance - Q&A with Daryl Henwood, Hitachi Solutions

Faced with the onset of digitalisation, how has the insurance industry faced up to this challenge?

The response has been varied. There are some new entrants to the market that have built their business models around the digital revolution and while they are still learning exactly what does and does not work, they are making really good progress.

But the majority of established players have their work cut out to transform historically conservative and policy-centric organisations into more adventurous and customer-centric ones.

Some are doing better than others and insurers have to be completely committed if they want to overcome the challenges of digitalisation.

How does the insurance industry compare with other financial services and retail brands in adopting new customer engagement strategies?

Insurers often get presented as slow adopters, but the truth is that in certain areas they have been incredibly quick to respond to changing technologies and opportunities. This has been particularly prevalent in the way underwriters use technology to track and assess people's movements, activities and lifestyle preferences.

Like any market there are leaders and there are laggards and how they compare against other financial services and retail brands is not as important as how they compare against each other. Insurers need to concentrate on their direct competitors and make sure they can outperform these companies before they worry about anyone else.

Yes, insurers can learn lessons from other sectors, but the most important battle is the one with their peers.

What pitfalls should insurers avoid when working out their customer engagement strategy?

There are four that I often come across and the first is treating customer centricity as a commercial tactic instead of really taking it to heart as an ingrained operational philosophy. Without genuine commitment to customer centricity, insurers are essentially putting lipstick on a pig and they will potentially waste a lot of time and money.

The second is going too far the other way and treating customer satisfaction and customer advocacy as ends in themselves. They are definitely important, but they cannot come at any cost or the business will become unsustainable. Happier customers are not always worth the cost of making them happier. There's a link, but the relationship has to be carefully balanced.

The third is thinking that an all encompassing customer engagement strategy can be created in a single step. It cannot and in reality it is an ongoing, evolving process that must be worked on continuously.

The final mistake that insurers and many others make is treating digital as something separate instead of something that is an integrated part of their overall customer engagement strategy. If digital considerations are kept on the sidelines it is impossible to make them a success.

What do you think is holding back insurers in terms of their digital adoption?

In most cases it is legacy infrastructure and culture that makes digital development difficult. Prioritising the required investment can also be problematic when there are so many other immediate calls on funds to cope with.

The speed at which technology is evolving also makes it very tricky to make the case for specific investments in digital projects and then deliver a return on them.

Some are also be held back because they see a problem that has to be dealt with in a linear fashion. For example, waiting until legacy systems are converted/replaced before making progress with an engagement strategy. In fact by starting both in parallel the gain in time and incremental improvements in customer engagement more than make up for any efficiency challenges.

How do you see the insurance market potentially being disrupted - whether internally or from external forces?

Evolving technology improves customer choice and education. That is opening the door for more niche players to offer very specific products and services at a time when there is continual pressure on margins and more transparency on charges.

These niche offerings are coming from both internal and external sources. To combat them insurers have to prevent becoming completely commoditised and maintain their value in the eyes of their customers.

What can insurers and brokers learn about servicing customers from disrupters and other sectors?

A lot of insurers have trialled new ideas in niche sectors using separate brands, to test things in an agile way just as new entrants do. But the problem with this is that they can create new silos that are not easily incorporated into the core brand.

They also have to accept that successful companies are always evolving. This means continually adding channels to their core offering, providing different channels of communication, creating new ways of accessing documents and improving online functionality.

Also they can learn not to try and use back office systems as customer engagement systems. It always leads to trying to make the customer follow your own processes and restrictions rather than your business working the way your customer wants to engage. Use specialist agile front office solutions built around CRM, and apply a data integration layer to make sure of a full single customer view.

But to be successful all of this activity has to be done in a way that improves customer satisfaction and commercial performance.

What steps can insurers and brokers take to move away from a focus on products to the customers?

Insurers cannot throw the baby out with the bath water and they must find ways of evolving what they have got into something that caters for their customers on a more holistic level.

Essentially it boils down to using their existing product and operational structures and then layering on additional capabilities that let them collate all of their customer information into a single view. From here it becomes easier to put customer needs first and then match them effectively to commercial considerations.

Don't wait for policy systems to be changed or overhauled and don't be too idealistic about needing a master data management strategy implemented before you start. Use CRM as a single customer view along with modern data management solutions that can match together customer information from multiple sources and making this available in all customer engagement strategies.

What role do you see social media playing in insurer's customer engagement strategies?

There is simply no place for insurers to hide and social media magnifies the impact of an unhappy or dissatisfied customer enormously.

Poor service, sloppy communications or suspect products can, therefore, have a disastrous effect on an insurer's customer base, profitability and reputation. If insurers do not manage social media, it will manage them.

Social media will test the flexibility of insurer CRM and contact centre systems. So social media will drive forward flexibility in customer engagement through necessity. It is a completely different dynamic to 1:1 communication when that went digital. Email and SMS was still very traditional - social media is not.

If you could look into your crystal ball and make one prediction for the future of digital in insurance, what would it be?

The accelerating pace of change is a given, as is the fact that the number of customer communication channels will increase.

In the face of these changes the insurers that will succeed are those that integrate all of these new channels into both their business plan and their customer engagement strategy.

Each new channel creates opportunities for new entrants just as it creates issues for established players to deal with. It's the ability to deal with these issues that will keep insurers in the vanguard of their chosen market.