Why customer experience is central to digital transformation in insurance
The insurance industry is facing enormous pressures. Customer expectations are rising, regulation is increasing and digital transformation is fundamentally changing how insurers operate, while lowering the barriers to entry for new competitors. No wonder that a new article from McKinsey is headlined “Time for insurance companies to face digital reality.” It goes on to point out the positive impact of digital on consumers, giving them more choice and flexibility – but also outlines the potential risks to insurers’ survival if they do not respond to changing market dynamics.
As McKinsey sets out, insurance customers have clear expectations when it comes to dealing with insurers:
- They want simplicity
- They want 24 hour access, across every channel
- They want to be able to quickly find relevant information, particularly in relation to policy details and premiums
- They want innovative services, tailored to the digital age
Insurance is normally a grudge purchase, bought either because it is mandatory or to deliver peace of mind. This means that consumers want to spend the minimum effort to get a good deal, and the customer experience they receive is at the heart of that. At the same time they have high expectations across every industry – they expect the same level of service from insurers as they receive when making a purchase through an ecommerce site.
How can insurers deliver the right digital experience and create ongoing conversations with their customers? McKinsey believes there are five pillars to successful digital transformation in insurance:
Insurers need to lead the market, embracing technology with new services and new ways of building relationships with consumers. This has to span the entire customer journey – from making buying policies simple and straightforward, to new digitally based products such as those that involve the Internet of Things, wearables and GPS sensors in cars, all the way through to the claims process, such as by allowing consumers to upload images through their mobile phones.
2. Customer ownership
The balance of power between consumers and insurers has shifted, and loyalty is a thing of the past. Insurers need to own the relationship and deepen it, particularly as new competition, such as startups and non-insurance brands, enter the market. Understanding customer needs is a vital part of this – insurers have to be able to demonstrate empathy with consumers, whether they are making contact to renew their policy or to make a claim. Digital technology is central to this. By using artificial intelligence and natural language processing to analyze digital interactions, insurers can provide a faster, more personalized service to their customers, driving increased loyalty.
3. Efficiency and effectiveness
Digital transformation delivers benefits as well as threats to insurers. By digitizing processes and switching to lower cost channels such as the web and chat, they can become more efficient when interacting with customers, while still improving the overall experience. The data generated by digital CX also gives unparalleled insight into customer needs and behavior, enabling them to operate more effectively, boosting margins and the bottom line.
As has been seen in other industries, digital platforms enable companies to scale quickly, with network effects potentially concentrating revenues in the hands of a small group of businesses. Insurers therefore need to focus on building stronger relationships with consumers, both to protect their existing business and to bring in new customers. The current market landscape could change rapidly, as digital leaders attract more and more customers at the expense of those that lag behind.
5. Speed and agility
For many insurers, their existing technology is holding back their ability to compete. Systems have grown up over time, and processes can still be paper-based. Digital removes barriers to entry, meaning more nimble, new companies are able to set up quickly and target specific, profitable insurance niches. Insurers therefore need to adopt new, digital-first ways of working that may be very different to how they currently operate. This may be difficult given current technology, company structures and processes.
For insurers, digital transformation provides both an opportunity and a threat. It shakes up existing business models and opens the door to increased competition, yet promises greater efficiency and stronger customer relationships. To succeed, insurers need to focus on the digital customer experience, and ensuring that they build long term relationships with consumers through meaningful conversations built on empathy, speed and innovation.
To find out how insurers are coping with digital transformation, and to read more on how to improve the digital customer experience download our Insurance Multichannel Customer Experience Study here.