Although Digital Transformers recognize the importance of riding the digitalization wave in order to keep up with trends, stay current and connect with customers, they’re not only in it for those abstract reasons. As well-run, successful businesses, these insurers want and expect a significant return on the heavy investments they’re making in the digitalization process.
Indeed, Digital Transformers expect more bang for their digital buck, predicting they’ll boost their premium income by 8 percent, compared with 4 percent for Digital Followers. They also target a 2.3 point combined ratio improvement, compared with only 1.4 point of COR improvement for Digital Followers.
However, even Digital Transformers are far from what we believe is within reach through digitalization in terms of value generation, as outlined in our recent report, “Double the profits: How high-performance insurers can create business value from digital transformation.” This suggests the possibility of a combined ratio improvement of 4 to 7 percentage points over a three-year period.
One might also argue that this report, based on delivered projects for insurers, might also be conservative compared to what can be achieved–and is already being achieved by some of the most innovative digital insurers and brokers we discussed in one of my previous blog series.
This digital value generation gap is huge, as aggregate EALA insurers are probably underestimating the potential of digital’s impact on profitability by $15 billion to $30 billion.
Why such a huge gap?
Let’s take a closer look at the areas in which insurers expect to see the biggest combined ratio improvements.
As you can see, insurers expect their digital initiatives to improve their combined ratio primarily by lowering operating costs and, to a lesser extent, applying analytics techniques to risk selection, pricing and fraud detection loss ratios. Lowering distribution costs comes a distant third.
All of these approaches make sense and are clear value generation opportunities for insurers. I would argue that additional value generation opportunities should be considered to help bridge the
- Increasing the efficiency of cross-channel transformation, and particularly the speed and efficiency of transforming digital leads and quotes, where we still see huge differences in transformation rates which can significantly impact acquisition costs
- Optimizing customer processing channels, both by improving customer experience and reducing costs of servicing, and leveraging new service channels options like social media and remote video support
- Improving customer retention, probably the highest prize in terms of value generation given the continued growth of the switching economy (see our last Customer Driven Innovation Survey ).
The last theme I would mention is sharp focus on the ROI of digital investments. An interesting finding of the survey is that despite having significantly enhanced value generation expectations, Digital Transformers are actually not investing that much more than the Followers: the real gap is on the ROI focus more than on the investment size.
I believe that the message is clear: Digital Transformers are expecting a bigger bang for their digital buck, and might actually look for even more bang looking at a broader set of digital value generation levers.
Next week I will continue to examine how the Digital Transformers view their digital strategies as part of their overall business plans, particularly in the area of differentiation from their competitors.
For more information download the report: Accenture Digital Innovation Survey 2014: Seizing the opportunities of digital transformation
Other papers on the topic that you might find useful: