The story of the Eastman Kodak Company is a cautionary tale for today’s businesses, including the insurance industry.
Founded in 1888, Kodak was in its own right a disruptor in the film and camera industry. At a time when only large companies could afford cameras, Kodak was working hard to deliver these devices into the hands of consumers. By 1968, Kodak enjoyed an 80% global market share.
By the mid-70s, though, the winds began to shift. One of Kodak’s own engineers developed the first digital camera. Having built the company on low-margin cameras and high-margin film, Kodak was reluctant to acknowledge the new age of digital imagery. Other companies, like Fuji Films, became the disruptors of the longtime camera and film giant. In 2004, Kodak announced it would stop producing film. And in 2012, the company filed for bankruptcy. In the end, Kodak shifted its focus to digital, but the damage had been done.
In today’s market, the shake-up isn’t about film or digital cameras — it’s about data, speed, and digital capabilities.
Insurance companies need to be careful to not view the world as Kodak did when the time for change came. Holding on to the ways insurance products have always been created, sold, and managed will leave an insurer scrambling to catch up to digital-first companies that embrace the new market.
And like Kodak’s situation, insurance providers can’t just add in new technology to meet the shifts in the market. Digital transformation for insurance providers spans everything from culture and process to access and analysis. Agility and speed come not from faster infrastructure and new technologies, but from how the business approaches strategy and uses technology to add speed and flexibility at every point along the insurance value chain.
There are two major drivers of digital transformation in the insurance industry over the last five years: evolving consumer expectations and digital innovations in the market, including new, non-industry disruptors.
Consumer expectations were already shifting thanks to a growing Millennial and GenZ customer base, the availability of technology, and consumer comfort with digital transactions. Once the pandemic hit, however, the move to a primarily digital world took a huge leap forward. Ecommerce increased more in the first six months of 2020 than it did during the entire decade preceding it.
Digital banking saw similar growth. Banking may also be the bellwether that the insurance industry should heed closely. As consumers rely more on banking apps and sites, research shows that between 25-51% of banking product purchases are going to banks other than a consumer’s primary financial institution. Yet, a significant number of customers surveyed indicated that they would be willing to buy from their own bank if an equivalent or compelling offer was made.
In parallel to shifts in consumer expectations, the competitor pool for insurance products is growing, and some of the new entrants to the field are digital natives with fewer traditional processes and less legacy technology to work around.
Companies like Lemonade were born digital, and therefore are starting with a different mindset than traditional insurers. As a certified B corporation, Lemonade offers good feelings along with highly accessible insurance products. This appeals to younger demographics, who are rapidly replacing the loyal base for traditional insurers.
New entrants to the market are also digital-first and a threat. Tesla Motors, for instance, now partners with an Austin-based insurance provider to offer vehicle coverage. Using the telematics from their vehicles, Tesla can use behavior-based driving data to more accurately inform at-fault collision risk. While only available in California and Texas now, it’s likely that the car manufacturer will be working to establish insurance bases throughout the United States.
Staying in the game will mean embracing digital business models far beyond the nuts and bolts of technology. Insurers will need to adopt what we at DMI call “continuous strategy” — that is, the ability for the business to constantly review and reassess operations, products, and services and make changes as they are needed.
Doing this requires insurance companies to subscribe to four pillars that serve as the underpinnings for digital companies. These pillars are:
Agility isn’t about making fast changes. It’s about the ability to do so. An agile mindset means setting in place the processes that permit the entire organization to quickly understand customer needs, even as those needs are changing, and reflect that in the products being delivered. This is a left turn from traditional approaches, where bringing a product to market first required years of research and requirement definition, then documentation, followed by long periods of development and testing before a customer ever saw a product.
In today’s digital-focused world, a product could be irrelevant by the time it’s released. That’s why agility is a pillar — it’s not an IT methodology, but a new way for the organization to approach servicing the customer.
Insurance is based on risk and risk management. Consumers don’t approach insurance that way, however. They don’t think about the numerical likelihood that they will get sick, for instance, but instead think about how their family will manage if they are in the hospital and can’t work.
This shift to meeting customer needs and letting the risk analysis follow means moving to a human-centric mentality for insurers — something that may be utterly new and somewhat uncomfortable. Technology will serve to create and support the products that customers need, but it’s the business that will need a cultural overhaul to innovate based on the customer experience, first.
Continuous strategy relies on continuous improvement. As the name suggests, this isn’t done years, quarterly, or even weekly. Continuous improvement needs to be baked into the company processes and culture so that it can happen, well, continuously.
The foundation for this is adopting technologies, like APIs, that support a nimble environment. That nimble environment, however, is driven by business partners willing to make data-driving decisions and changes that inch the company toward better outcomes, not roll the dice on a huge change or product release.
Involving the business closely with product development, using agile methodologies that involve short development cycles, empowering IT to build and create, and adopting processes like Continuous Improvement / Continuous Integration (CI/CD) aren’t about what technology is used but on how insurers structure teams and projects to operate.
While it’s true that technology follows strategy, it can also be the path to new opportunities. Insurance providers that are willing to commit to API-focused architectures not only create the nimble environment just referenced, they also lay the groundwork for potential new revenue streams.
APIs can be used internally between departments, breaking down silos and democratizing company data. Interfaces can also be created for external partners and customers who can get access to the enormous data stores you have in ways that are safe, secure, and in compliance. From quoting capabilities and policy creation to data access, an API can offer new revenue streams and open doors for innovative partnerships.
Eastman Kodak had multiple inflection points that could have led them in a different direction. Unfortunately, they chose to ignore the signs and instead held tightly to the strategies and operating models that worked for them in the past. They failed to change with the times, and in the end, it caught up with them.
Insurers stand near the start of a path that is very similar. Without planning for new operating models and innovative products, traditional insurance providers will face dwindling market share as their core audience ages. Now is the time to make the shifts needed to stay competitive in the digital age.
DMI can help. With extensive experience in the insurance industry, we’ve helped companies re-invent their strategy, operations, and technology to embrace continuous innovation and continued profitability. Contact us today to learn more about how we can help you catapult into the digital economy.