Other parts of this series:
- Perfect storm threatens to sink insurers’ earnings by nearly 40%
- Smart digital strategies enable insurers to double their earnings
- Insurtech firms show big insurers how to thrive in the digital economy
- Defensive digital strategies help insurers strengthen earnings
- Insurers should prepare themselves for constant digital transformation
Aggressive digital strategies designed to disrupt key markets will help insurers drive up earnings. But they should be balanced with defensive strategies that will further strengthen earnings by improving the efficiency and effectiveness of the organization.
Powerful new digital technology is fast changing all facets of the insurance market. Tech-savvy start-ups have launched an abundance of innovative digital products. They’ve been quick to capitalize on new markets and the clamor among consumers for highly-personalized on-demand digital services.
Traditional insurers, as I’ve mentioned in my previous blog posts, can dramatically improve their financial performance by emulating agile insurtech start-ups and disrupting key markets. Some big carriers, such as Allianz, Generali and Ping An, are already using advanced digital technology to successfully implement innovative business models. And they’re reaping the rewards of such innovation.
To maximize their earnings potential, traditional insurers should not only deploy digital technology to enhance their business operations. They should also apply advanced technology to improve the efficiency and effectiveness of their operations. This would enable them to complement their market-focused offensive digital strategies with inward-looking defensive initiatives.
Defensive digital strategies typically focus on three key business activities:
Optimizing balance sheet management: Companies such as Aeolus Re are enabling traditional insurers to access alternative sources of capital. The Bermuda reinsurer helps property catastrophe insurers manage their risk exposure and capital more effectively. Other methods of improving balance sheet management include using analytics solutions to optimize pricing, strengthening wealth management activities, and acquiring high-yielding assets such as syndicated loans and real estate investment trusts. Chinese firm Anbang Insurance, for example, has made direct investments in New York real estate.
Reducing costs and increasing business agility: Strategic partnerships allow traditional insurers to better manage their legacy IT costs. AXA, for example, has outsourced the administration of its life policies to Accenture. It pays an annual service fee that is calculated according to the number of policies that are administered by us. To improve their agility, it’s essential that insurers overhaul their IT strategies. IT architectures, for example, must be open, inter-operable and compatible with the technology of potential partners. This is especially important for insurers looking to conduct business across fast-changing digital ecosystems. Workforces will need to be realigned to support more agile operations. Increased emphasis on innovation and distributed decision-making is essential. Greater use of external talent, to manage peak workloads and accelerate key projects, will further enhance the agility of insurance providers.
Becoming a digital insurer: Digitizing operations and claims activities can result in significant earnings improvements. Australia-based global insurer QBE, for example, boosted the productivity of its workforce substantially during a recent robotic process automation (RPA) trial. Another good example is the InShared service launched by Achmea. The Netherlands insurer has dramatically accelerated claims processing at InShared by building this business around an electronic end-to-end transaction platform.
Defensive digital strategies may not be as eye-catching as aggressive product launches that seek to overturn traditional markets. However, they’re an essential component of digital transformation. Without them, attempts to emulate high-performing insurtech firms and become truly digital insurers will flounder. What’s more, defensive digital strategies, when implemented successfully, deliver a strong fillip to the bottom line.
In my next blog post I’ll discuss why insurers need to follow the example of highly-successful technology start-ups and pursue relentless digital transformation.