Should established companies fear disruptors, or partner with them?
When Nationwide’s Innovation team wanted to rapidly launch new products, they were constrained by legacy systems – and turned to EY to help.
Everyone knows that staying afloat in today’s fast-moving, transformative business environment means using technology to enable increased agility. It’s not enough to adapt to what’s happening now; the key is to be prepared to adapt to what comes next – and beyond.
The difficulty is not in acknowledging the need to embrace the new technologies – it’s doing something about it.
For insurers, self-initated transformational change does not often come easily. Most insurance companies have histories going back decades, in which time they have accrued vast amounts of historical data – a potential source of invaluable insight for developing new products and services.
But carriers also tend to have complex legacy systems that can be burdensome and expensive to update or replace – and face significant regulatory pressures. If new solutions are unsuitable or improperly implemented, the financial and reputational implications could be catastrophic.
“We wanted to prove to ourselves that we could move fast,” says Scott Liles, Lead Executive, Innovation Leader at Nationwide and President of Spire – a Nationwide company. “We put a stake in the ground and said, ‘Within this calendar year, we're going to get something new to market.’”
This ambitious target reflected the urgency of a changing market – but proved a significant challenge for a large insurer with a number of inflexible legacy systems and processes, and a culture that sometimes resisted change.
“When approached in early 2019, the IT folks at Nationwide said that they could not prioritize the implementation work on a new insurance product, as they were already doing a massive core systems transformation,” says David Connolly, EY Global Insurance Technology Leader. “The Nationwide Innovation team said that an alternate approach would need to be explored, and EY Nexus for Insurance proved to be the platform to deliver a new product in just 7 months."
Designing for digital-first consumers
Nationwide was founded in 1926 to provide automobile insurance to farmers. While the company’s offerings have evolved over the years, by early 2019 Nationwide was looking to launch an entirely new kind of product; one that would connect with a new generation of drivers with a digital-first mindset.
Roughly 50% of the US population is now comprised of millennials and Gen Z (defined collectively as those born between 1981 and 2012). Failure to keep up with the expectations of these increasingly influential, digitally-minded generations is not an option that companies can afford to take.
But rather than make assumptions, the team knew they first had to define what a good insurance product looked like in the eyes of these target customers. Taking a Design Thinking approach, a consumer persona called Tonika soon became central to the project’s development.
“Tonika was a woman we interviewed who so embodied everything we were hearing from the cohort that we just used her as our persona to capture what we were hearing from everybody else,” says Liles.
Tonika is in the 25- 37 adulting range, she’s coming off her parents’ cell phone plan, and she’s starting to seek value. She wants to engage via a mobile experience. She doesn’t think things are quick enough, she doesn’t think things are fair and transparent, and she doesn't see the value.
Pursuing speed and simplicity
“These younger consumers don’t understand why insurers need so much information,” explains Kunal Kochhar, a member of EY Digital Innovation team. “Why does it matter if I am married? It really should just be based on what I drive, how I drive, and when I drive.”
Thanks to their customer research, Nationwide realized not only that they needed to create a digital-first platform, but one that radically simplified the insurance-buying experience for customers like Tonika.
“This customer wants transparency. They want to be able to trust,” Kochhar continues. “They want to understand what they’re paying for and why – and they want to be rewarded.”
In the end, Nationwide decided that what Tonika wanted was a radically different insurance product. “She wanted an insurance experience that was delightful for the customer via every interaction,” says Connolly. “A quick quote and policy issuance, and a claims experience where the status details are shared proactively.”
A typical insurance product uses up to 60 rating variables: Gender, martial stats, credit scores, for example. For Spire, only the bare essentials are required
With just a scan of the drivers’ license and the response to four questions, customers are able to get an auto policy issued, within 60 seconds.
Aiming for hard targets
Not only did Nationwide want a radical, disruptive product, they wanted to get it to market fast. Really fast. Within seven months – in time for a December 2019 launch.
However, insurance companies in general, and incumbents in particular, can be seen as slow to adapt. To avoid being slowed down by legacy systems and cultural constraints, Nationwide decided to set up Spire as an entirely new, separate company, and run it on an outsourced technology platform.
This presented its own challenges – not least in building the right digital infrastructure and operating models to support ambitious plans without excessive risk and expense.
What the Spire team needed was a way to adopt plug-and-play approaches to innovation. Via its EY Nexus for Insurance platform, EY teams were able to solve that problem for Spire – and help create a brand-new insurance company in the process.
Ask most insurance companies, and they will agree that it typically takes between 18-24 months to get a new product to market – already a longer period than Nationwide could normally afford. But the company was also in the middle of a core operations transformation process. Getting a new product to market could have taken as much five years.
When we were brought in on the Spire project, we had seven months to hit the target launch date. But with EY Nexus for Insurance, between three-nine months is the usual range to delivery.
Nationwide was fully aware they may be cannibalizing their existing market with Spire. But they believed that strategically, they were better off cannibalizing themselves rather than waiting for someone else to do it to them