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Bain & Company analysis suggests a digital-physical fusion is key to helping major insurers beat back encroaching startups that are creating new, profitable niches in the industry

New York – Jan. 9, 2015 – In a new report, Leading a Digical^SM Transformation in Insurance, Bain & Company estimates approximately 60-70 percent of insurance companies are only at the beginner stage of the digital transformation, still experimenting with digital tools and trying to identify customer needs and frustrations.  Even though the industry faces more digital disruption than others that are already well into the digital transition, such as media, telecom and technology, major insurers remain on the sidelines, causing them to miss potentially lucrative opportunities to grow their business.  Instead, an increasing number of startups are carving out lucrative niches in insurance and delivering on customer expectations for a seamless integration of their digital and physical worlds – a “digical” transformation.   

According to Bain’s recent survey of 160,000 insurance customers in 18 countries, the share of digitally active consumers ranges from 35-70 percent; over the next three to five years, 80 percent said they will use a digital channel for insurance interactions.  Even though the case for digitalization is clear, the insurance industry’s response to date has been largely insufficient.

On one hand, some companies hope the digital hype will die down and opt not to take action, eroding their market share and prompting customers to migrate to faster moving competitors or new entrants in the process.  Others hastily pursue disjointed initiatives – all under the ‘digital’ banner – squandering large investments that yield little return.   

“Most executives clearly see the digital path ahead, but the right response isn’t always as evident.  They’re not sure where to start or how to proceed in making the necessary digital investments to enhance their business and improve the customer experience,” said Harshveer Singh, lead author of the report and a Bain partner.  “The danger lies in making big digital bets without thinking through the underlying demand rationale.”

Even as demand for digital rises, Bain’s research finds compelling evidence that overemphasizing digital at the expense of traditional methods may alienate customers.  According to the study, insurance customers prefer digital services only to complement, but not replace, in-person or phone service, particularly for managing complex insurance products or transactions.  This feedback creates a strong rationale for a digical offering, which results in greater customer loyalty and advocacy.   Bain found that a customer who is a promoter of his or her carrier is worth nearly seven times the lifetime value as a customer who is detractor.

Leading insurers such as Progressive, USAA, Allianz and AXA are already beginning to realize the promise of the digical revolution and have taken steps to improve the overall customer experience through advanced analytics capabilities to better understand customer priorities.  Others are building digital channels for faster, easier transactions and communications, or using electronic processing, rather than manual data entry, to reduce error rates. 

Based on early results from these and other digital initiatives, combined with lessons from other industries, Bain has identified four questions that can anchor a balanced, pragmatic approach and help executives chart the right course for their organization:

• How much of our business do we need to digitize? Considerations include a company’s current digital footprint and a thoughtful articulation of what it aims to accomplish.
• What’s the right pace for our digical transformation program? Most companies will choose to be fast followers, but a few can succeed as forerunners.
• Should our digital offerings be separate or integrated with the core business? Executives need to decide how the traditional business and a digital offering can coexist most effectively.
• How can we reduce the risks inherent in a transformation? A key factor is the organization’s readiness for major change. 

“It’s not too late for insurers, but we’re rapidly approaching a tipping point when ignoring the digical transformation can be perilous,” said Mr. Singh.  “Getting and staying ahead of the game means insurance companies must act quickly and definitively to keep up with customers and continue to enhance their overall experience.”

To receive a copy of report or arrange an interview with its authors, contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102. 

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