Insurance carriers pushing for a digital transformation in their operations won’t go anywhere without the vision, follow-through and commitment of their CEO and senior leadership team.

McKinsey & Co. ranks this – securing senior management commitment – as the first guiding principal toward making digital transformation a reality, as part of a new report on digital transformation among insurers. The consulting firm notes the statement seems obvious but emphasizes it is a key, and often overlooked, element of the digital transformation process.

“But the CEO cannot simply sanction a digital transformation,” the McKinsey report said. “He or she must communicate a vision of what needs to be achieved, and why, in order to demonstrate that digital is an unquestionable priority, make other leaders accountable and make it harder to back-track.’

Once that vision is put in place,” the McKinsey report said that “relentless daily engagement” helps make those goals a reality.

Along with that vision and commitment, McKinsey said that executives and the carriers they run must set clear, ambitious targets for digital innovation goals to help inspire the company and its employees to succeed.

“It signals the magnitude of what digital technology can deliver. Without targets, people who find it hard to accept that the old ways of doing things were massively inefficient might be content to sign up for a 10 percent improvement in cycle time, for example, when 100 percent is possible,” the McKinsey report states. “External benchmarking can help in this respect by reinforcing the conviction that cutting the time it takes to, say, process a claims submission from 90 minutes to 20 is not good enough if someone else has reduced it to four. A company can be certain that if it does not match that benchmark, others will.”

What’s more, McKinsey said, setting those clear, ambitious targets helps prevent backsliding when challenges hit, and it also keeps the process disciplined in terms of deciding which digital initiatives can have the most impact.

Of course, without a secure investment source, digital transformation goes nowhere. The McKinsey report suggests that companies dealing with outdated systems may end up having to double current spending over a five-year period.

This will require patience, McKinsey said. That’s because investing in a digital transformation would likely dampen profits in the short term. The alternative, however, is a longer-term profit decline as other carriers that modernize zip ahead.

“Companies will need to allocate investment both to improve the current business and to build new businesses as the insurance model involves,” McKinsey said. “To acquire expertise in new fields and keep abreast of innovation, for instance, insurers will need to invest in partnerships or a venture capital arm, perhaps both, as well as in their own innovation labs.”

McKinsey’s other guiding principles of a digital transformation:

• Start with lighthouse projects. To get early support, McKinsey said it is important to start with projects that can give a company “significant rewards with manageable risk.” This could include a focus on customer service and the redesign of all parts of a claims process.

• Appoint a high-caliber launch team. Such an effort can help avoid duplication, for example, after a customer service redesign is launched and then expanded across an organization. Such a team could include designers, data scientists and developers familiar with modern IT processes. McKinsey said that an insurer with more than $5 billion in premiums should hire between 20 and 100 new specialists over the first 18 months of a transformation. People leadership skills are important here, too.

• Find ways to promote new, agile ways of working. As always, McKinsey said, organization is key. One thing to consider: creating a digital unit independent of the whole company that would promote new ways of working well in a digital environment. Concepts to consider: agile product development, ways of testing and learning new ideas that create progress but still keep a customer focus, and cross-functional teams that blend key skills.

• Nurture a digital culture. McKinsey recommends nurturing digital working methods that include speed, collaboration and empowerment, so they can become part of the entire company. Some of this includes continual focus on customer feedback, testing, and trial and error. The goal is to encourage an environment where the top team and board push for more digital advances after initial ones succeed, but also being confident about jettisoning approaches that don’t work well.

• Sequence initiatives for quick returns. The idea here is to “thoughtfully pursue a manageable number of digital initiatives to tend to the performance of the core business while cultivating future sources of growth.” McKinsey said that sequencing with an eye on quick returns is important in order to build quick scale – starting in a measured way. A transformation begins to generate value as it progresses and at some point becomes self-funding, generating more support and room for expansion. The key is to prioritize initiatives that matter strategically, create a quick pay-back and help reduce complexity.

• Build capabilities. Insurers working to digitize their operations need to be aware of developing skills to go with their new IT systems. This will require creative recruitment (technology conferences, developer communities) and a larger internal job training effort. The longer goal is helping all employs to rethink how they work in the context of a digital transformation.

• Adopt a new operating model. This means moving away from traditional silos that don’t mingle or mix. McKinsey said that new corporate structures should organize fluidly, giving managers the ability to make decisions across functions and using temporary teams that form and dissolve around individual tasks or projects. The key here is agility.

McKinsey’s full report is called “Digital disruption in insurance; Cutting through the noise.”

Source: McKinsey