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How insurers can realize value through digital transformation

With new cloud-based technology platforms and the right talent, insurers can promote ongoing innovation and generate sustainable value.

In brief

  • Digital transformation remains imperative for insurers, especially if they are to remove pain points for customers and develop new offerings.
  • Future growth requires new capabilities in key areas, including data science, experience design, innovation management, product development and the cloud.
  • To take advantage of generative AI, the cloud and other powerful tech, insurers should embrace plug-and-play platforms that streamline innovation.

Insurers have been talking about digital transformation for a decade or more, but it’s still a relevant – even urgent – topic. Yes, many processes have been digitized and automated and some insurers have replatformed core systems. But true breakthrough innovations have been relatively rare. Often, great ideas never advance beyond the proof-of-concept phase.

Because most technology estates feature both modern and legacy systems – and typically insufficient use of cloud-based tools – insurers may not be able to move quickly and nimbly in keeping up with evolving customer needs. Overhauling legacy systems is simply too time-consuming and too expensive for most insurers to undertake. However, every insurer is under pressure to become digital-first and technology-led in establishing lean, low-cost operations. So, what’s the best way forward?

More insurance executives have come to recognize that transformation equates to more than simply deploying technology. After all, anyone can buy technology. And insurers are definitely buying technology.

Gartner research has found that European insurers’ IT budgets have been increasing at a compound annual growth rate (CAGR) of 11.5% since 2020, with the biggest jumps in infrastructure and application implementation and managed services. Software spending has grown even more, 12.3%, in the same time period.

According to Gartner research
CAGR is the rate at which European insurers’ IT budgets have been increasing since 2020

So what technology are insurers buying? An ISG survey found that 77% are focused on developing digital channels. The EY Tech Horizon Survey found that a majority of insurers are looking to data and analytics to provide the most value.

EY Tech Horizon Survey
proportion of European insurance executives that believe data and analytics will deliver the most value in the next two years

Download the full article: The new prerogatives for digital transformation in insurance (pdf)

For senior business leaders, the question is how to make sure those investments deliver optimal returns. In our experience, the difference maker for successful, tech-driven transformation is in the ‘why’ and ‘how.’ The most effective transformations are motivated by a clear understanding of customer needs – that’s the ‘why.’ The ‘how’ is about cultivating an ability to change incrementally and continually, because no insurers can stand still.

This article will highlight leading practices (covering both technology and talent) for driving transformation that delivers against essential business objectives and specific outcomes.

Focusing on the customer: subtract pain points to add value

Successful transformations start with a focus on customer needs and preferences and the elimination of friction points that can frustrate customers. That’s addition by subtraction. Consider how application processes can be made smarter and faster by chatbots that pre-fill forms and predictive analytics that streamline applications down to just a few questions. For the vast majority of policies in personal lines, underwriting should be fully automated.


In claims, chatbots can be used for timely notification of loss and status updates. Here again, automation must be the rule, because it helps to increase the speed of claims management, which is what customers value most. However, insurers must strike a balance by providing options for both intuitive self-service and access to human support when necessary. Empathetic representatives can help customers navigate complex or emotionally difficult claims.


This is the equation for successful digital transformation today: creating value by combining high degrees of efficiency via automation with differentiating, high-touch experiences that customers appreciate. Put another way, automation makes it possible to enrich offerings and personalizing experiences at scale and on a repeatable basis.


To make that vision a reality, insurers should seek to design processes that are built around customer needs and, where possible, based on direct customer inputs. Experience design teams should examine customer journeys to devise plans to optimize each interaction. Customer feedback should be captured constantly via surveys, focus groups and other means. Those inputs can help prioritize areas for improvement and identify new features that will increase customer loyalty and reduce churn.


Ideally, customers should be viewed not just as constituents but as co-creators of new solutions that reflect how people actually live and work today, such as usage-based policies and flexible coverage for workers in the gig economy. Holistic offerings that merge life and health insurance with personal coverage and retirement planning can help promote physical and financial wellness alike. There’s no doubt insurance can help people lead happier, healthier and more confident lives, but the entire business has to be transformed to deliver such outcomes.

Mastering the technology: adopt new tools and development approaches

In the past, many transformation programs were oriented toward a target end-state. Today, however, continuous advances in technology place a premium on an organizational capacity for agility, connectivity and ongoing change. Innovation often happens via new technologies (e.g., the cloud, generative AI) and collaboration with new partners.


Optimized infrastructures feature flexible, cloud-based architectures to handle massive data flows, and to add and subtract components as technology improves over time. The key is to be creative in working around the constraints of legacy technology. Some insurers struggle to implement new tools from InsurTechs or plug into third-party data streams largely because core systems make it too difficult. Many insurers also face the “greenfield-or-not” dilemma – that is, to build out entirely new companies or to reboot existing business. Each approach offers advantages.


In either case, firms will need new capabilities (e.g., rapid prototyping, seamless and secure data sharing with development and distribution partners) and a backbone of highly efficient and effective operations. Typically, a modernized and modular technology platform provides the backbone for both operational excellence and breakthrough innovation.


Preparing the organization: get the right people working in the right ways


While technology is essential for digital transformation, it’s not the only factor. Insurers must also engage the necessary talent. Risk engineering, risk management, underwriting and claims remain the critical skills that merit internal investment in professional development, well-defined career paths and an attractive employee experience.


The other critical talent insurers need – including data scientists, cloud application developers, experience designers and agile specialists – is scarce (and expensive) to engage. That’s why they should seek creative ways to access it. The goal for these key areas should be talent liquidity, or the ability to access talent and move it around the business as needs and opportunities arise.


Centers of excellence, innovation labs and cross-functional teams around specific customer outcomes can be effective ways to manage talent in line with shifting business needs. Creative sourcing arrangements with partners can also help. With managed services spending on the rise, service level agreements and incentives should be aligned to key business outcomes. Certainly, insurers should look for ways to use managed services agreements as ways to expand their key capabilities and generate more value from their own tech investments. Greater leadership emphasis on collaboration can help insurers take advantage of the massive upside of ecosystems and move beyond the limits of “not invented here” thinking.




Digital transformation has come to be regarded as an organizational capability, rather than a one-off project with a fixed objective and timeline. This ability to continuously drive change and innovation must be baked into the culture, rather than a stand-alone initiative.

This reality of permanent transformation requires that investments be oriented to specific and sustainable outcomes. With insight into customer preferences, insurers can use platform technology and Agile development models to upgrade customer experiences as new tech becomes available. That’s how leaders can gain confidence that digital transformation delivers value in both the immediate and longer terms.

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