To gain the full benefit of new digital processes and technologies, insurers need to go further than simply enhancing their existing ways of doing things, to transforming their operating and even their business models.
But one of the problems has always been making the business case for transformation. In order to address this, Accenture set out to answer some key questions:
What are the value levers that digital transformation will allow insurers to access?
What is the potential upside from investment in each lever?
How will insurers develop their digital strategy and road map to capture this value without losing ground on their traditional business and overall strategy?
What is the potential value to be obtained from becoming a high-performance digital insurer?
Working closely with Accenture Research and our insurance digital teams, we identified – for the five largest European markets – the precise value levers that digital transformation can activate on the revenue side as well as on the cost side.
We found that digital transformation can help increase sales and revenue by as much as 10 to 15 percent. Fully digital online sales can increase premiums by 2 percent to 3 percent, but the most important levers are cross-channel conversion rates and cross- or up-selling from traditional channels that represent most of the sales volume.
When it comes to direct profit improvement, the range is in the region of 4 to 7 percentage points in the combined ratio. Among the most significant levers are cost effectiveness based on the ability to select the right customers and risks, the reduction of fraud and the improvement of retention ratios and pricing.
When these percentages are applied to our calculations of the combined ratios and then to the absolute figures in monetary terms, it becomes apparent that insurers could potentially double their actual profits. In the UK this figure could even be bigger, given the larger volume of current online sales.
The reason why most insurers would struggle to achieve improvement on this scale is that they lack a holistic digital transformation strategy that covers the entire value chain. Based on our experience, we believe companies should apply four guiding principles as they develop their transformation road map:
Get the basics right.
Define a clear strategy and business model.
Develop and nurture a customer-first digital culture and organization.
Test and learn continuously to fine-tune all elements of the road map.
Digital transformation is, by its nature, a moving target and will endure as long as the company remains in business. For insurers, the key will be to achieve a level of digital maturity in four important areas that underpin a resilient and agile digital business model: analytics, the customer experience, digital strategy and transformation, and marketing and sales effectiveness. Those that succeed, and apply their efforts to the value levers we have identified, should achieve industry-leading levels of profitability.