Towards insurance 4.0


03 January 2017

Following the release of his new book: ‘Digital Insurance: Business Innovation in the Post-Crisis Era’, Bernardo Nicoletti, lecturer in procurement management at the University of Rome Tor Vergata, outlines his vision for the future of the insurance industry.

Why did you decide to write ‘Digital Insurance: Business Innovation in the Post-Crisis Era’?

I have been working for a long time in the financial services industry, initially as an executive and later as a consultant. When I started to work for an insurance company, I was struck by the low level of digitisation and the abundance of manual work done in the company. That situation was justified by the higher margins in the insurance industry.

With the 2008 economic and financial crisis, the world changed. Four challenges were increasingly impacting the industry. The book describes them as the 4 Cs: customers; competition; compliance; and cost. Customers are ever-changing and the younger, digitally native generation (Millenials) are becoming more important. Competition is becoming more aggressive and increasingly global. Compliance with an increase of regulations in defence of the customers (such as Solvency 2) is impacting on reporting to regulators. And there’s a great push on cost reductions.

The only way out for insurance companies is to embrace digital transformation. This is the profound and accelerating transformation of business activities, processes, competencies and models to leverage fully the changes and opportunities of digital solutions and their impact on society in a strategic and prioritised way. The content of the book, concisely, is to embrace and exploit digital transformation to sustain the growth of the insurance companies (and in some cases their survival).

How important is a digital transformation in insurance?

In order to face the challenges of the current socio-economic environment, it is essential to change and be more effective, efficient, economical, and indeed ethical (the 4 Es). The only way is to embrace digital transformation and therefore support innovation in terms of products/services, processes, platforms, and people (the 4 Ps). The book goes into details on these aspects. It describes new products (such as pay-per-use policies), new processes (like selling through the mobile), new platforms (how to digitise, both in terms of traditional automation and in terms of advanced solutions), and how to train, motivate, and transform people at the different levels of the organisations. These are big challenges but there are ways to overcome them. The book provides methodologies to support the digital transformation but also a wealth of real case examples of organisations that have been successful in transforming these challenges into opportunities. The business cases in the books clearly demonstrate that insurance companies that have embraced digital insurance have been able to reach margins substantially higher than the laggards.

How can insurers reduce costs while improving the quality of service?

The book goes into detail about how to cope with the challenge of doing more with less. It describes the types of new products and services to be offered in a digital age. It also underlines how to change the processes to cope with the new challenges. It describes the new way of organising the companies and finally underlines the new business models and how to design and decide on them. A business model is a plan for selecting the target customer base, adding value to them, defining the channels and the best customer experience, designing processes and selecting resources and partners/vendors, identifying sources of revenue and the best pricing, and details of financing. The book details how to use the new technologies such as internet of things, social networks, cloud computing and mobile. Particular attention is paid to describe big data analytics. This is the way to use the increasing amount of data available to companies and how to exploit it to better describe, predict and prescribe the best decisions. The book presents in detail the best methods to use, based on leaning processes and digitising them.

What do you believe will be key to the future of the industry?

The book has a specific chapter on the future of the insurance industry. Much like what is happening to the manufacturing world with the impact of Industry 4.0, there will be an Insurance 4.0. This will be characterised by a higher level of digitisation but also from a higher level of automation and interconnection.

In the case of automation, robot process automation (RPA) will be used more and more.  RPA is the application of technology that allows employees in a company to configure computer software or a robot to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses, and communicating with other digital systems. At the same time, RPA uses physical robots to perform the physical operations. RPA is similar to a person. They have a ‘hand’ – means to perform physical operations such as answering a phone or opening an envelope, and a ‘brain’ – a software application that can recognise the content of a document and take action by, for example, answering via email or printing a letter, putting it in an envelope and sending it.

The push on interconnection will support the complete redesign of the processes necessary to take into account digitisation and automation and provide end to end straight through processing.

Finally, insurance will start offering services in addition to the basic policies they issue today. For instance, in the case of property and casualty (P&C) insurance, they might start offering services of monitoring, repairing and servicing the insured assets.

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Geography : International