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There is little consensus in the insurance industry on what exactly is included in “digital strategy.” Most insurers typically mean agent portals, customer portals, corporate sites and online marketing. Some also include digitizing and optimizing internal business processes.

Executive Summary

Cutting through the fog surrounding the term “digital strategy,” Novarica’s Mitch Wein ties the evolution of business processes and customer expectations for insurers to be “real-time, ever-present and always adapting.” He also offers six best practices to measure the readiness of your IT department to work through a digital transformation.

In the broadest sense, digital represents an evolution of the business and how it touches and interacts with customers and other stakeholders during moments of truth. New expectations are that insurers and their agents and brokers will be real-time, ever-present and always adapting. Insurers have historically been none of the above. Failing to address this expectation head-on has the potential to leave organizations increasingly irrelevant.

It’s no secret that the pace of change is accelerating exponentially. Options abound, new solutions appear quickly, and the risks of choosing poorly can be significant. Factor in business variables like the compression of margins, a low-interest-rate environment, growing competitive threats and the potential for disruptive entrants into markets, and the view forward can be anything but clear for companies and the technology organizations that support them. So, everything must be re-reviewed, and a structure to do this must be in place. IT must be ready to take on this challenge with its business partners, and its readiness to do so must be evaluated before starting the journey.

Today, business transformation is a central part of financial services, regardless of sector. What follows are six industry best practices on how to evaluate the IT organization’s readiness to prepare for and manage through digital transformation successfully.

1. Identify key trends and business processes to gain insights into thetypes of business transformations the insurer’s CIO will be asked to support.

With digital, technology trends impact business processes, which in turn will lead to business-driven technology change.

There are numerous technology trends that will be game changers for the insurance industry going forward, including IoT (Internet of Things), social media, big data, cloud, mobile and security. These trends will impact the business processes in different ways. It is important for the insurer’s CIO to take a step back from the hype and understand from a business point of view what needs to evolve, why it needs to evolve and what business benefits will arise.

2. Identify strengths, weaknesses, opportunities and threats before moving forward with digital initiatives.

Digital transformation is a highly risky endeavor that can lead to the wrong projects and large spend in the wrong sequence if not carefully planned. The capability of each IT organization needs to be assessed for the challenge. Since a digital transformation is really a business transformation that drives technology change, these four areas must be understood by both business and IT. If there’s no clear understanding of strengths, weaknesses, opportunities and threat, any and all efforts on the operations or technology side will be derailed.

3. Understand the maturity of key practice areas to ensure that the project doesn’t stall.

Does the insurer’s technology organization have a mature technology architecture function? Does business architecture exist, and who owns it—business or IT? How good is the security function, both business and IT?

Framing the effectiveness of these functions early on will allow the insurer’s CIO to assess the people, process and technology evolutions that may be required.

4. Conceptualize future business capabilities and needs byfinding ways to focus in on what matters most to the firm strategically in collaboration with the CIO’s business partners, customers and regulators, independent of competing agendas. A few questions for insurers to contemplate include:

  • What is it that the company wants to do or needs to do?
  • What is the mission statement of the firm, and what are its business goals?
  • How does the firm want to modify its interaction with customers, business partners and regulators?
  • What are the competitors doing, and when will their solutions hit the market?

While these questions appear very basic, they are some of the most difficult questions to answer. There are various techniques that should be deployed to arrive at answers that range from whiteboarding and brainstorming sessions to graphic novels as well as videos and prototypes to help executives “visualize” the digital future.

5. Optimize the project prioritization process by using small but deliberate steps for large strategic transformations.

CIOs need to understand how projects are prioritized and how scope, time and budget is factored into this process. It becomes important to differentiate “business as usual” projects, technical debt projects (projects designed to update old technology and remain in support), new business propositions and any investments being made for reusable assets.

Key to this is to determine whether the business case process supports digital transformation (often the business benefits are hard to quantify and measure) and what percent of the projects are actually related to this. One question CIOs should ask: How are investments between a digital future and keeping the lights on balanced?

6. Adopt a test-and-learn culture for digital transformation byunderstanding the difference between the insurer’s Core IT systems and the Fast IT environment. (See related textbox, “Understanding Terminology.”)

Core IT will often use traditional waterfall methodologies and take a long time to evolve. Fast IT can be evolved through agile processes and are disposable—for example, smartphone portal front-ends for agents, brokers or customers. Funding and testing process should be different for Core IT vs. Fast IT, and companies should be able to “fail fast” with Fast IT.

Many organizations do not differentiate Core v. Fast IT and instead treat all projects the same. However, in digital we need a Fast IT that can be deployed quickly (whether by IT or by the business areas), tested quickly, and determined to either work well or not work at all and be discarded.

This is not meant to be the “Wild West.” Even Fast IT needs a set of rules to follow. The primary one is that Fast IT is loosely coupled from Core IT and plugs into some sort of integration layer, perhaps a service bus.

“With digital, technology trends impact business processes, which in turn will lead to business-driven technology change.”

Another key question: How is Fast IT funded, and does the insurer need a full business case for it? Best practice indicates that a pool of funds needs to be set aside for all Fast IT projects, and then each project draws from this pool. Fast IT needs to have a success criteria developed ahead of time before embarking on the effort, and the criteria should relate back to the questions asked earlier. Fast IT should be throw-away and easily replaced.

For Core IT, insurers need to create an evolution map that shows the creation of reusable services and components, either built in-house or more often as purchased packages or SaaS. A consideration here is how cloud services can be used to accelerate the migration to a digital future.

Clearly, the digital journey is a difficult one fraught with danger and risk. Failure to adequately address the areas above can derail an insurer’s journey.

The people the CIO deploys on this mission should be experts with strong credentials and a history of delivery excellence. Equally important, they must be able to quickly develop strong relationships with the key players in the rest of the organization to help create executive ownership. They should have a sufficient amount of expertise in operations and technology to look at all of the people, process and technology components of the journey. They should be able to create metrics and measurements by which the CIO will track progress along the journey.

Expectations for digital transformation need to be realistic and communicated clearly. Once a plan is in place, execution needs to be driven forward decisively in order to achieve results.