Digital transformation in insurance for New Zealand

Digital transformation is essential if insurers are to lower the cost to serve, meet new regulatory demands and respond to environmental challenges.

Five digital transformation success factors

It’s a tough time to be an insurance company in New Zealand where higher interest rates and the increased cost of living have put the brakes on consumer spending. According to EY’s latest Future Consumer Index, New Zealand consumers are tightening their belts: 48% of survey respondents are only purchasing essentials; and 64% say they are spending less on non-essential items. The net effect in the local insurance sector is that 5% of consumers have stopped purchasing any insurance at all, 8% are buying less insurance and a further 9% are either getting less or cheaper insurance.

Under pressure to offer more attractive premiums in an environment of falling revenues and rising supply chain costs, local insurers urgently need to reduce the cost to serve. The only answer is to invest in streamlined and nimble operating models underpinned by modern technology. Digital transformation is also essential to give insurers the capabilities to respond quickly to a volatile market where they must grapple with:

• Evolving customer and employee expectations – It’s difficult to provide a quality, seamless digital experience for customers and employees when insurance products and processes depend on legacy systems. To remain competitive, insurers need to deliver simplified products, and quicker turnaround times for applications and claims. This will require digital overlays or new architecture that can support automation and the use of tools embedded with generative artificial intelligence (GenAI) and machine learning.
• Climate change challenges – Insurers must cope with the increased claims volumes created by more frequent weather events and be able to rapidly perform detailed natural perils-based pricing. To respond to events and surges, insurers will need state-of-the-art systems used in combination with satellite imaging and GenAI.
• ESG financial disclosure regulations – Mandatory reporting on operational resilience requirements and the need to include ESG data with financial disclosures will require a significantly more granular level of data and reporting right across the business.

2. Prepare for the transformation to evolve

Transformation is not a linear process. Research shows it’s more of a corkscrew, with ups and downs and twists and turns. This means the final shape of a transformed insurance company is not necessarily apparent from the outset. We often see companies wanting to start to transform by defining their organisational structure. But this is before they are clear on the products and services, underlying processes, data, digital tools and capabilities required. Many of these decisions will be made during the transformation and the structure should optimally support the end to end insurance value chain following those decisions. Leaders need to be comfortable operating from a place of not knowing – and be open to shifting their thinking as the future shape of operating models becomes clear.

Questions for the leadership team:

• Who are we creating value for? What does this mean for the customers, employees, partners and shareholders?
• How can we collaborate to make transformation happen? Ask this question, not just within and across the organisation but with suppliers and other ecosystem participants like partners or Insurtechs.
• What would a partnership or integration mean for our organisational culture and ways of working?
• What stumbling blocks will we encounter? Who needs to be given autonomy, time and budget to overcome them?

3. Decide what you will stop doing

In a transformation, leaders need the courage to challenge the status quo. They must understand which areas of the organisation are fit for purpose, and which are in need of radical disruption. Equally, when an insurer embarks on a transformation, it often has initiatives and projects inflight. Not all of these efforts necessarily support the transformation vision. Leaders must make pragmatic decisions about where to allocate finite resources, stop or defer projects, and move resources around the organisation to support core transformation programs.

Questions for the leadership team:

• How does the stocktake of all inflight or planned projects fit into the big picture?
• How can we balance the investment across the portfolio? What needs to be stopped or at least deferred? What needs to be continued or even accelerated? What do we need to start?
• Do we have the mandate to make those calls?
• What needs to be simplified (system landscape, processes, governance) to reduce the risk inherent in the transformation early on?
• How will we empower people to bring the vision to life in their parts of the business, while still making sure all transformation initiatives align with our vision?

4. Prepare leaders and people for change

Insurers often have rational planning around their transformations: timelines, milestones, resources and KPIs. But they sometimes fail to prepare adequately for the emotional journey that their leaders and employees will share during a transformation. Leaders should not underestimate the importance of the 'people stuff'. They need to plan for the tension, resistance and anxiety that change creates. In a successful transformation, people trust the vision and the strategy because leaders are open about the fact that change will be stressful – and explain how they intend to support people throughout the process. At the same time, leaders also need to put in the work to ready themselves to lead the transformation. If leaders do not have the capability or time to think, plan, prepare, and pause from the doing, they won’t have the bandwidth to lead the transformation successfully.

Questions for the leadership team:

• How will we communicate to the business about the transformation?
• How will we proactively support our people on the journey?
• Are we demonstrating patience to take our people and our customers on the journey?
• How do we best leverage co-creation with our people and our customers?
• Do our leaders have the capacity and capability to lead the transformation?

5. Deliver value quickly

Delivering value early on is important to maintain continuous buy in. When everyone can see impact quickly, it sustains the faith that transformation promises will be delivered. The COVID-19 pandemic accelerated digital transformation for many insurance companies, forcing them to adopt and roll out ways of working at a speed that very few organisations experienced previously. But post-pandemic, some insurers have fallen back to previous tendencies to over-consult or relitigate decisions. This often happens in transformations because roles and accountabilities are not clear.

Questions for the leadership team:

• How can we deliver value and outcomes as early as possible? How will we communicate these successes?
• How will we encourage experimentation and create an environment to support innovation and fast-moving change?
• Have we got the required disciplines, mandates, and role clarity to stay focused on what matters in this transformation and make good decisions?
• What governance do we need to put in place so we measure what is going well, challenge what isn’t and course correct as needed?

Start now. Learn fast.

Every organisation's journey is different. But failing and learning fast are key to success in a constantly changing and volatile insurance market.

It’s also important for leaders to understand that transformation doesn’t end. It simply starts the process of becoming a transforming organisation. One that is able to constantly disrupt itself, to keep up with – and even get ahead of – customer expectations, regulatory requirements and disruptive technology like GenAI.

There is no point waiting for a better moment to start because insurance leaders are not going to get a moment to regroup or draw breath. As Justin Trudeau famously said at Davos, in 2018, “The pace of change has never been this fast, yet it will never be this slow again”.