Digitalisation: The time is now

Digital transformation has become essential for companies of every size. To remain resilient and competitive in the future, companies must consistently implement and, in particular, scale new technologies. The insurance industry too must be involved in the implementation. Here, there are in each case five dos and don’ts which insurers should follow for successful digitalisation.

We are probably living in the technologically most exciting times in a long while. The speed and variety with which innovations in areas like artificial intelligence (AI) – especially multimodal GenAI – virtual worlds, robotics, semiconductors or quantum technologies are progressing is unprecedented. Scenarios which only a few years ago were described as science fiction have long become reality: AI-based chatbots and (voice) assistants, self-driving cars, humanoid robots, simultaneous translators, etc.

In the insurance industry too, we have been very busy with new technologies and trends over the past twelve months. We have evaluated their degree of maturity and relevance for us as insurers and weighed the opportunities and risks along the entire value chain. Proofs of concept led to first prototypes and many exciting applications.

For what the past twelve months have also shown us is that external shocks and their negative impact are continuing to increase. We are increasingly feeling the effects of climate change and also the economic consequences of geopolitical tensions. Also, in our home market of Germany, another baby boomer generation has gone into well-earned retirement, which means that the burden of demographic change is again somewhat heavier.

For us as insurers, digitalisation is a key element in ensuring our future resilience and profitability. Only through the consistent and continuous integration of digital solutions into our products, processes and services can we be economically strong.

Here, there are five factors which every company should consider for successful digital transformation and, conversely, also five that should be avoided. Over the course of the year, I have repeatedly written about these here in my column. The dos (points 1 to 5) and don’ts (6 to 10) of successful digitalisation can be summarised as follows:

1.     Demystifying technology

Digital transformation starts with demystifying technology and allaying employees’ fears. Colleagues must be able to clearly understand what a technology can do – and what it cannot. They must understand what added value the technologies introduced bring – and they should experience for themselves how these support them in their everyday work. Demystifying technology is all about making technical concepts, systems or equipment more understandable and thus promoting their acceptance. Here, an early procedural agreement on digital issues and projects with a company’s own co-determination committee can also help. This creates transparency and ensures that employees’ interests are considered at all times. All this lays the foundation for trusting and therefore successful cooperation. Because even the best technology will have no effect if it’s not accepted and used by employees.

2.     Training and development

For employees to be able to use new technologies effectively, they must learn how to deal with them. The provision of new tools and applications must therefore always be closely linked with thematic further training and development opportunities – for example in the form of practical (online) workshops and further training, theme days, dialogue formats, technical articles, digital consultations and the like. As insurers work with highly sensitive data each day, employees at all levels also need to understand the importance of data, its quality and how to handle it in a data protection-compliant way – especially where AI is concerned. This requires company-wide data competence and literacy, while learning opportunities should also raise awareness of topics like data minimalism. For it continues to be the case that digitalisation requires lifelong learning. This is the only way for successful involvement and participation, which are in turn key elements of any successful digital transformation.

3.     Consistent teamwork at all levels

Successful digitalisation also requires consistent teamwork at all levels. It is an interdisciplinary joint issue to which everyone must make their personal contribution. The management must not only want digital transformation but also actively promote it and initiate the required processes for it. The specialist departments must communicate their requirements, which are to be addressed through the use of new technologies. The solutions for these must be iteratively developed and implemented in cooperation with the product owners and IT. Digitalisation is like a gearwheel in which various components interlock. Only together can processes be optimised and the potentials of digitalisation realised.

4.     Investments

Digitalisation does not come without costs. If you want to digitalise successfully, you have to invest consistently and continuously. This includes investments for licence costs, setting up a platform, developing software and integrating it into the back-end systems, personnel and non-personnel expenses, departmental expenses, hardware and much more. Such items are to be considered permanent, as digitalisation is not assembly line production. It takes time and also money. Above all, a clear, positive cost-benefit ratio is needed. If that is not the case, companies must promptly stop the digital projects concerned again, as everything else contradicts their entrepreneurial duty to operate economically.

5.     Digital culture

Successful digital transformation also requires a deeply rooted digital culture. Besides the aspects of user adoption management like training sessions and tutorials, etc. described above (dos 1 and 2), aimed at ensuring that employees use new tools effectively and recognise their advantages, establishing a digital culture also involves creating a lasting environment of innovativeness, eagerness to learn and experiment. Digital culture encompasses all the values, standards, behaviours and working methods within a company that are shaped by the use of new digital technologies. Digital culture is thus the backbone of every digital transformation. Both must be conceived and established together, as one cannot succeed without the other.

By contrast, insurers should avoid:

6.     Lack of no-blame culture

It is also clear that not everything will always go as planned. In the course of digital projects, there will always be individual or combined events that adversely affect the quality and success of digital projects. This can happen, for example, when the technical implementation turns out to be more difficult than initially thought, when technical solutions are not available, or when it only becomes clear during the project that the process which is to be changed is not compatible with the proposed technology. Some digital projects also have to be entirely stopped again, as they do not live up to expectations. In this case, quickly admitting mistakes and being prepared to learn from them is decisive. For mistakes offer the possibility of gaining knowledge and making improvements. They make it possible to rethink your own approach, develop new strategies and take better decisions in future. That can be very valuable, but requires a lived no-blame culture.

7.     Innovator’s dilemma

Collaborating with start-ups and scale-ups can also be an inspiring and valuable approach for insurers to make even more progress with their own digital transformation. These up-and-coming companies can provide insurers with invaluable impetus regarding new technologies, markets or business models. Start-ups and scale-ups are representative of a culture of constant change. They are the very epitome of innovation, agility and the courage to venture down new and unconventional avenues. That is also what’s needed to survive as a company in our dynamic world. But it’s precisely established companies that often have difficulty in developing or adapting disruptive innovations. They see themselves facing the “innovator’s dilemma” which arises when companies focus primarily on improvements to existing products or services without investing in innovations. This can lead to them being overtaken by (new) competitors who successfully use such newer technologies. It is therefore important to learn from others and to test – and implement – innovations early on. For if you don’t move with the times, you get left behind.

8.     Ignored regulations

The insurance industry is one of the most heavily regulated sectors in Germany. Strict compliance with regulatory requirements is of key importance and should not be ignored, in order to ensure legal certainty, the trust of consumers, staff, partners and other stakeholders, as well as long-term business success. As digitalisation projects are often associated with new technologies, these must be continually checked to see whether they (still) meet the legal and regulatory requirements. For this, all relevant stakeholders such as Legal, Compliance, IT or Risk Management, must be involved at an early stage. Clearly defined processes and mechanisms for monitoring and evaluating standards are also required. The precise consideration of regulatory aspects is a decisive factor for the sustained success of innovations in the insurance industry.

9.     Underestimated administrative processes

Digitalisation offers the insurance industry the possibility of continuously and consistently optimising products, processes and services. For example, by using new technologies, manual processes can be automated, allowing clients to benefit from time, quality and cost factors, employees to be freed from repetitive tasks, and companies to save resources overall and become more efficient. Here, it should not be forgotten that some digitalisation projects are associated with very extensive administrative processes. These include, for example, project and resource management, the documentation of processes, decisions and results in relation to traceability and transparency, as well as communication between all stakeholders involved. Well-orchestrated administrative processes are thus decisive for the success of digitalisation projects. The effort and expense involved in planning, implementing and tracking digital transformation should not be underestimated, however.

10.  Lack of data strategy

Finally, it sounds so simple: To use new technologies like AI successfully and drive digital transformation forward, companies need data. But not all data is created equal. Only curated and structured data can help companies truly create added value. Simply possessing data doesn’t allow new business models to be developed or new technologies to be successfully implemented and applied. What companies therefore need is a clear data strategy that defines not only the quality and availability of data, but also its data protection-compliant use and management. Such a data strategy specifies what internal and external data sources a company uses and how data is recorded and deleted again in order to comply with all data privacy, safety-related and operational requirements. Only with the right data, which is collected, maintained, enhanced and put into the required form, can insurers make use of technological innovations and tap into new markets. Without data, there is no digital transformation.

You see: Successful digital transformation is certainly a mammoth task for each company. It’s not just a question of leading the company technologically into the digital age, but also culturally and organisationally. In view of current and upcoming challenges, however, there is no alternative to implementing and scaling new technologies if we are to remain resilient, profitable and competitive in the future too. So let’s get on with it. The time for it is now!

Text: Mark Klein, CDO ERGO Group

Please note: This article was first published by Versicherungsmonitor.