Other parts of this series:
Smart investment decisions have enabled some insurers to generate impressive returns from their spending on digital technology.
Insurance companies that improve the effectiveness of their investments in digital technology could increase their underwriting profits by as much as 100 percent. To achieve such gains, insurers need to focus on converting their digital capabilities into strong financial returns.
Our global Digital Performance Survey, as I mentioned in my previous blog post, found that only five percent of insurers have been able to combine significant investment in digital technology with strong financial performance. Around 10 percent of insurance companies have invested heavily in digital technology but have been unable to translate this expenditure into more robust financial performances.
The differences between these successful investors in digital technology, the Digital High Performers, and insurers yet to achieve significant value from their digital expenditure, the Digital Leaders, are startling. We found that these Digital High Performers have achieved 64 percent higher revenue growth than Digital Leaders and a 48 percent better return on equity. Digital High Performers such as Ping An and Progressive have shown how to apply digital technology to improve the performance of established businesses and also capitalize on new opportunities.
By applying our Digital Performance Index to our survey data, we identified three key differences that set Digital High Performers apart from their peers.
First, Digital Leaders are struggling to realize significant value from their digital investments because they’re tied to traditional, very diverse, local distribution models. They often allocate funding and other resources to multiple channels. This increases complexity and makes it difficult to achieve economies of scale. Digital High Performers, in contrast, are either operating at scale in one large geography or have adopted a very global approach to their funding of innovative technologies such as analytics, the Internet of Things and artificial intelligence.
Second, Digital High Performers usually have a structured and integrated approach to their investments in digital technology. Most insurers, particularly Digital Leaders, lack such cohesion. They tend to support a variety of disparate initiatives. This was very apparent when we compared insurers’ ratings on our Digital Performance Index with those of organizations from other industries (see illustration below).
The top 40 insurance companies performed below the cross-industry average in all but two of the metrics – the extent to which they see the growth of digital technology as a key trend in their industry, and how they use digital technology to engage with their customers. Furthermore, few insurers achieved good scores across all of the four main sectors of the index. Their commitment to digital transformation is usually skewed towards a few activities.
And third, Digital High Performers often adopt a “geo-specific” approach to portfolio management. While they look to achieve economies of scale in their application of digital technology, they also recognize the importance of tailoring their resources to suit local geographies. A cross-market platform allows them to support specific market needs while also avoiding unnecessary duplication.
In my next blog post, I’ll discuss five key steps that will enable insurers to multiply the value they generate from their investments in digital technology. In the meantime, take a look at this link. I think you’ll find it very helpful.