The challenges in digital advancement begin with the simple task of defining what the term actually means. To some insurers, digital means e-commerce. To others, it may indicate a more mobile strategy. How can insurers measure their digital advancement when so many interpretations exist? Celent explores the answer in its new report, "Hunting for Extreme Digital" (registration required).
"If you want to talk to an insurer about digital, you need to figure out what they mean by digital first," said Craig Beattie, a Celent analyst and author of the report. He defines digital advancement as a continuum of having more digital services and information. "The more information that remains in a digitized format, the more digital it is."
The continuum Beattie describes consists of five parts:
- Not digital: paper-based transactions
- Adopting digital: recording information digitally, automating some processes
- Basic digital: making processes more digital (for example, replacing paper with mobile apps)
- Advanced digital: processes that do something different and are not available in basic digital (telematics, usage-based insurance)
- Extreme digital:digitization of almost all information and interactions
Today, some insurers operate with no typing of data at quote, no claims forms, and no loss adjusting or any other kind of paper communication. Those at the forefront of the digital continuum are not mature carriers, as many may believe, but insurers in developing markets.
"The conclusion I came to was that microinsurance, and some of the very poorest regions of the world, were actually far more digital than what we were seeing in mature markets," Beattie said.
Microinsurance uses small transactions to offer financial services to a previously unserved population, which increases both profits and jobs. Its margins are lesser by necessity, so marketing, selling, and administration must be fast, cheap, and low-touch. Its approach to extreme digital emphasizes lowering unit cost and capturing data only as it is needed.
Beattie illustrated the digital strategy behind microinsurance with the example of crop insurance for Kenyan farmers. When they purchase seeds or fertilizer, farmers' mobile numbers are captured and stored. They then receive SMS updates for policy confirmation, payment details, and notification when payments are automatically debited from their mobile phones.
The interface of extreme digital is not a high-end mobile app or complicated interface, Beattie said, but a text message consisting of less than 30 words. This finding took him by surprise; he was expecting to find that the future of digital would hold adaptive user interfaces and improved analytics.
Microinsurers' approach to extreme digital is "a huge threat to mature markets," he said, but insurers across the globe are making progress. Increasingly, smart automation and digitization are driving down the cost of insurance for customers, and more carriers are placing greater focus on customer interaction.
In developing an engagement strategy, Beattie acknowledged the importance of striking a balance in customer communication. People do want information on reducing risk, but nobody wants constant messages from an insurer. Risk management interest depends on the customer. The Kenyan farmers, for example, receive advice about responding to poor weather.
Finding a communication balance is a challenge for insurers, but digital presents the opportunity to better understand their customers' digital footprints. If everything is going well, insurers know they don't need to make contact. If there a problem or potential problem, they can reach out and provide information.
North American insurers are already adopting new technologies for the future of extreme digital. Investments in new portals and mobile strategies are on the rise, he said, with necessity driving their purchases. Those who are serious will continue to invest.
Kelly Sheridan is Associate Editor at Dark Reading. She started her career in business tech journalism at Insurance & Technology and most recently reported for InformationWeek, where she covered Microsoft and business IT. Sheridan earned her BA at Villanova University. View Full Bio