The insurance industry will continue to evolve as it adopts new business models, such as invisible and individualized insurance. To stay competitive, insurance CIOs can use Gartner’s six “business models” of insurance to identify the capabilities needed in their digital business technology platform.
As insurance CIOs prepare for and support the insurance evolution, they must also evolve the way they use a digital business technology platform to enable new capabilities.
Advanced business models of insurance — such as invisible and individualized — will demand greater focus on more digital technologies and strategies, especially around things like ecosystem deployment, intelligent operations and Internet of Things (IoT).
Not all companies will want to transform to the most advanced business models, remaining steadily focused on business models such as integrated or industrialized to compete in their local markets. These companies will still need to build out strong digital business technology platforms (DBTPs) to support those business models.
Insurance CIOs developing their digital business strategy and innovation approach should:
Ensure efficiency, scale and growth by focusing on concepts such as open insurance using APIs, straight-through processing (STP), robotic process automation (RPA) use and cost containment for firms building industrialized business models.
Plan for ecosystem enhancement by optimizing data and analytics (D&A) investments, focusing on improved data collection for businesses that are launching integrated business models. Enhance customer experience (CX) strategies through improved engagement with customers by using a variety of customer touchpoints.
Leverage D&A tools more effectively for automation and decision intelligence for enterprises that are trying to enable intelligent business models. In addition, build the needed data mastery to support innovation and strategic value in areas such as operations, customer intelligence and risk management.
Build platforms to support embedded insurance and ecosystem partners by ensuring open insurance for businesses focused on supporting the invisible business model. Integration with partner technology is essential, whether integrating into their platforms or having them integrate into yours.
Prepare for new opportunities, such as embedded insurance, by developing the capabilities needed for personalization in marketing, product development, customer service and sales for businesses wanting to launch individualized business models. Build improved customer intelligence for contextualization of events; leverage omnichannel platforms, and enable new strategies, such as dynamic customer engagement, for real-time event response.
Most insurers have enhanced their existing business model to support the industrialization and integration business models by developing strategies to address efficiencies, cost optimization and ecosystem development. While this is a good starting point, forward-thinking insurers are going beyond this to more advanced stages of transformation, including intelligent operations and even individualized insurance. Insurance CIOs must know the emerging business models that their company will likely want to support in the future (see ):
Incumbent Model: Insurers compete on traditional products and services and maintain their technical foundations. Since the incumbent model is established, it is not discussed here with the five emerging models.
Industrialized Model: Insurers focus on improving their existing business model by driving more efficient and agile operations, using technologies to streamline processes and externalize transactions to digitize them and promote greater self-service.
Integrated Model: Insurers concentrate on externalizing their insurance products, algorithms and rules to share with ecosystem partners, improve servicing and drive net new revenue.
Intelligent Model: As data knowledge and AI use matures, insurers will use their data to drive increased decision augmentation and higher rates of process automation, affecting both administrative and high-skill roles.
Invisible Model: Insurance products start to be absorbed into a wider more holistic product or service attuned to a customer’s needs, rendering insurance “hidden” or a byproduct.
Individualized Model: Customer inflection points, products, services and pricing all feel personalized to their specific needs.
As business and operating models evolve, having a strong technical foundation for agility and innovation is key. A DBTP is key for enabling this transformation. Figure 1 illustrates Gartner’s DBTP model, which consists of:
Based on client interactions and inquiries, along with our observations of the insurance industry, we believe that most insurers do not have a DBTP today, despite having many of the required pieces in place. CIOs will have a fundamental role in building the appropriate DBTP and must be ready to evolve it as the business transitions to a different business model.
This research defines the future business models of the insurance industry and explains the key technologies of the DBTP that will support desired business outcomes.
In the industrialized business model, insurers will focus more on productivity, process optimization best practices, supply chain management and operational efficiency — including cost optimization, hyperautomation and building utilities through scale (see Table 1) (see ).
The desire to reduce operational costs and use automation and process reengineering to speed up and evolve core business processes will drive CIOs to better compete, creating economies of scale that will push competitive short-term differentiation and maintain long-term leadership. The overall aim is to become a much more efficient product manager.
Recommendations for CIOs Operating in the Industrialized Model and Preparing for Future Models:
Prepare for business ecosystems and platforms by investing in mediated APIs to extend the openness of your core and supporting systems (see ).
Assess your IT architectural foundations for greater STP and future business model transformation by using Gartner’s digital maturity assessment to measure your current level of digital maturity (see ).
Avoid obsession with specific technologies, such as low-code/no-code applications or RPA, by building a toolbox of technologies and skills to build the competencies to address business outcome needs.
Build a data strategy for the collection, storage and use of data across the value chain (including traditional transactional data and IoT data) by removing disparate repositories of data and creating an enterprisewide approach for data management.
Build a strategy for cost containment by focusing on process evolutions and automation tools to free up resources for investment in more advanced business models.
As insurers move into the integrated business model, focus will shift to enabling open access to partners and enabling an extended and integrated ecosystem to facilitate expansion of digital products and services beyond mere distribution (see Table 2). Strategies are being developed to fit in partner ecosystems for product bundles, and to build out the business ecosystem of the insurer to support partnerships with insurtechs, universities, consortia, customers and other nontraditional organizations (see ).
In this business model, IT leaders must carefully assess their infrastructure to ensure it is sufficient for this and following business models. This includes having the right technologies and tools to easily manage and share processes, rules, algorithms and products, and whether their core and supporting systems are open enough.
Recommendations for CIOs Operating in the Integrated Model and Preparing for Future Models:
Use Gartner’s Customer and Societal Ecosystem Framework to run a workshop with representatives from the business and IT to examine the role of the insurance company in fulfilling future business models.
Invest in data consolidation and governance by implementing data standards, and building policies and procedures for data sharing and security related to sharing with ecosystem partners. Focus on data collection methods by ensuring that they are secure and collecting the needed data for advanced analytics.
Build a catalog of technologies that are relevant to end customers by documenting the sales and utilization of different emerging technologies and sensors within the end customers’ homes, businesses and lives. Document the purpose of each technology, and summarize the value to the customer and potential value to the insurer.
For more detailed background information on this business model, see .
In the intelligent business model, business and IT leaders will explore new business model development as data is leveraged in new ways across the value chain, such as in automating traditional underwriting processes (see Table 3). Data monetization will become a driving force for innovative insurers where data is considered a corporate asset, and new organizations will be developed, which become data brokers (i.e., reselling data).
Recommendations for CIOs Operating in the Intelligent Model and Preparing for Future Models:
Strengthen skills for the future by investing in a training program to build out data and automation skills to support future data insights and use of AI.
Build data mastery to enable intelligent process automation, decision automation and decision accuracy. Consider data monetization, including how to generate more value from existing data assets and how to create new business models around data.
Build strong AI capabilities by leveraging machine learning background, using new AI tools throughout the value chain and creating an AI center of excellence to increase scale and drive further innovation.
Invest in building your enterprisewide data warehouse to incorporate internal and external data. Leverage data and analytics as a means to transform the customer experience (e.g., personalization, next best action and chatbots). This will be a competitive asset.
Work with business counterparts to develop ethics policies to stipulate how data is used across the value chain in both human-based and machine-based analysis (see ).
For more detailed background information on this business model, see .
The invisible business model will represent the end of traditional insurance sales for many insurance companies (see Table 4). The industry will experience a major shift as insurance moves from the limelight to just part of a larger life event product bundle (likely to be sold by an adjacent industry and not an insurance company or distributor).
Customers will buy products/services to solve a life event need, such as buying a home, planning for retirement or having or adopting a child. Then, a package will be proposed to solve their life event needs. Insurance will be bundled for the customer in a manner that solves the need for the life event without the customer having to make an insurance decision.
Once the product is delivered to the customer, then processing will be invisible too. This means that using IoT, the device will send data to notify the insurer of loss and claims; it will be uneventful because all tasks will be mediated without customer involvement as much as possible. This business model will be driven by greater certainty of risk from an insurance company perspective as data and intelligence drives outcomes.
Recommendations for CIOs Operating in the Invisible Model:
Develop your organization’s long-term platform strategy by working with business leaders to evaluate future platform roles and the appetite to lead versus participate in cross-industry platforms.
Assess ecosystems to ensure the right partners that own the customer experience — e.g., those that own the life event or lifestyle element where they are behind the scenes offering insurance through their channels/products/services.
For more detailed background information on this business model, see .
The newest and most advanced business model is individualized or personalized. This is a major shift in the industry from offering mass products or generic outreach to fully customizing interactions based upon unique customer data — including preferential, life event/stage, emotion/sentiment and behavioral. This is more than just personalized pricing, such as usage-based insurance (UBI) or personalized marketing messages. This requires a complex approach, including the acquisition of new customer data, the ability to price products leveraging individualized risk models, and product building to present products in a unique way to fit customer life needs. The final pillar is communications technology, which analyzes data in real time to provide actions such as next-best predictors. The customer feels that the product/service is unique to them, building better intimacy and stronger relations (see Table 5).
The individualized business model will build upon the accomplishments of the integrated and invisible business models, where ecosystem development was so essential. It will layer on top of those strategies that are focused on individual product, pricing and communications/interactions, which will elevate the ROI derived from this business model.
Key points about this new business model:
Focus is on leveraging customer data in new ways to provide personalized products and services. The most important customer data, however, is not the data which insurers normally collect, but the new data that they acquire or purchase. This will provide new insight into individual behavior or product needs aligned with life events or lifestyle.
Partners will be instrumental in fulfilling this as they offer niche or specialty products to supplement insurance products that are normally offered. These partners will be in adjacent markets, oftentimes beyond financial services.
Intelligence is essential to fulfill individualized strategies. To do this, insurers must develop advanced predictive and machine learning expertise to both support individualized recommendations (what product/service best fits my life?) and pricing models (use individualized data to price based upon my driving history).
IoT will be a critical data source, especially for personalized offerings (e.g., in app offers for telematics) or dynamic customer engagement offered at the individualized level. Collecting real-time behavioral data will supplement internal sources to fill gaps and take traditional insurance personalization efforts to a more granular level.
IT systems will require a new approach: Core systems must be more open and offer flexible product configuration capabilities, or insurers must purchase new best-of-breed solutions that support the development of these individualized products.
Recommendations for CIOs Operating in the Individualized Model and Preparing for Future Models:
Build a data strategy aimed at developing more granular customer intelligence to support personalization and individualization.
Deploy customer communications systems to support individualized insurance by leveraging real-time customer data across the omnichannel platform, based upon customer’s unique interaction preferences.
This research is based on continuous client interactions and inquiries, analyst observations of and expertise in the insurance industry, and previously published Gartner research.
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