To make the best of the new automation technologies, insurers are learning to adapt to the reality of ‘digital labour’ to drive their strategies and achieve their long-term objectives, as Bill Miller and Mark Allitt of KPMG in Bermuda explain.
Even with significant investments in automation, most insurers are still facing challenges moving from pilot to profit on their investments. Many are struggling to come up with a strategic, enterprise-wide approach to automation.
As insurers rapidly become more digitally enabled, many are starting to think much more strategically about how they use ‘digital labour’ to drive their transformation strategies and achieve their long-term objectives. Activity (and investment) has been feverish.
KPMG’s experience working with leading insurers suggests that creating the right digital labour strategy is an important enabler to transforming the enterprise. Our work suggests there are clear factors that drive success in formulating and executing a digital labour strategy in the insurance sector.
Some insurers have been incubating their own concepts for digital labour in their digital garages and venture capital units. Others have been talking with new insurtech startups and creating partnerships to explore and exploit new technologies. Many are simply hoping that their business process outsourcing providers will continue to innovate and introduce new digital labour concepts as they are commercialised.
What is digital labour?
When we talk about digital labour, we are broadly referring to the automation of labour by leveraging digital technologies to augment, or automate the tasks undertaken by knowledge workers in your business. This extends from simple robotic automation through to machine learning and cognitive automation.
The spectrum of potential digital labour use cases can be very broad, ranging from automating simple swivel-chair activities such as cutting and pasting content from one system to another, right up through cognitive solutions (software that can think and reason) performing activities previously performed exclusively by humans—and often performing these activities far better than their human predecessors.
Taking the first steps
Progress has been encouraging. Many clients we work with have some type of robotics pilot project or automation initiative under way in one or, more often, multiple parts of the organisation. A significant number of insurers have already automated some of their more routine processes, particularly in the finance function, and some are now trialling more sophisticated robotics techniques deeper in the organisation, a good example being in their reserving processes.
Most efforts to introduce digital labour within the insurance sector have been focused on robotic process automation (RPA); using robots (or, more accurately, algorithms) to speed up processes that have previously been automated. RPA reduces errors, improves processing time and encourages digitisation by between 30 and 40 percent and, therefore, is a great first step towards the adoption of digital labour.
This type of efficiency-driven digital labour strategy can be the result of our work with a re/insurer in evaluating the strategy of their business with a focus on business optimisation. It is important for re/insurers to remain focused on technology as being a solution to their business needs. Therefore, first identifying what these needs are by conducting robust reviews of their business strategy and existing operating model is key.
Certain efficiencies must be gained through process improvement prior to a digital solution being applied to further enhance value. But insurers will need to become more sophisticated about their use of digital labour if they hope to drive real transformation and competitive advantage.
Here, too, competition is heating up. Enabled by newer technologies, such as machine learning and natural language processing, some of the leading insurers are starting to develop new cognitive capabilities that could usher in a new era of productivity and customer-centricity.
KPMG is trailblazing in the field of reserve modernisation, a strategy that seeks to deliver significant cost savings through RPA, but also enables far more granular analysis of data to automatically determine correlations and more accurately predict reserves. The technology allows re/insurers the ability to perform real-time analysis to identify trends faster and take coordinated actions. It also provides insights that can be harnessed to influence prospective risk pricing and appropriate terms.
In time, re/insurers will use their bots to learn from these data-driven decisions and will be allowed to themselves start making key decisions automatically.
The leaders are the ones who recognise that—in addition to delivering value through cost savings and headcount reductions—real value of digital labour can be extracted from its ability to unlock unprecedented levels of efficiency, organisational agility, confidence and competitive advantage. This will allow some insurers (particularly larger, traditional ones) to operate and compete on a more level footing with their nimbler startup rivals not only in terms of cost, but also in terms of customer responsiveness and experience.
Where to from here?
The problem is that few insurers know exactly how to move forward from here. The majority are struggling to take their pilot projects into full-scale production in a way that is meaningful to the business. As a result, few insurers have any real roadmap to help guide their digital labour strategy.
Many insurers also face significant capability challenges with few having the internal resources, skills or talent, let alone the underlying supporting IT architecture. While the external vendor environment is certainly evolving, knitting together the right combination of solutions to enable the business is still highly complex.
Re/insurers are nervous about playing the technology developer/integrator role. Therefore, it is perhaps not surprising that almost every insurance CEO surveyed by KPMG International (91 percent) said they were concerned about the challenge of integrating automation with AI and cognitive computing.
That is precisely why at KPMG we take a holistic view of the needs of the re/insurer, bringing together expertise and deep insights to help the re/insurer first evaluate and then develop its core business strategy and operations as part of the broader digital strategy. Jumping too quickly towards a particular digital strategy is often the cause of an initiative failing. Re/insurers need to invest in technology to prosper in tomorrow’s world, but it has to be the right technology at the right time.
Creating a winning environment
KPMG has worked with a number of traditional re/insurers to develop and execute their digital labour strategies. We have witnessed significant achievements and some unexpected failures; both offer useful lessons for insurers. Based on our experience, we have identified five success factors that are shared by many leading digital insurers.
See the big picture
Leading insurers take the time to fully understand how digital labour will apply across the organisation; initially reviewing their end-to-end processes, they identify the interdependencies and then maximise the synergies. They need to also think about more than just a single technology or solution set, focusing instead on developing the big picture and assessing the opportunities and impacts that emerge.
Leading insurers prioritise the investments that will deliver maximum value across the organisation, rather than coddling pet projects or hot technologies. And, as a result, these insurers approach initiatives and implementations with a much clearer view of how their strategy will deliver value.
Apply a change management approach
The introduction of digital labour will represent a massive change for the organisation. As a result, leading insurers are putting significant investment into understanding and responding to the impacts of digital labour on the existing organisation, from updating and reinforcing a new ‘digital first’ culture through to helping traditional employees to embrace new ways of working and recognising development opportunities linked to this.
Think globally and act locally
Many are already creating Centres of Excellence within key functions and geographies. The more advanced insurers are then developing global/group Centres of Excellence to add consistency, improve oversight and identify synergies. At the same time, leading insurers are also providing the business with the right amount of flexibility to create and drive their own solutions within the context of the broader enterprise strategy.
Create the right governance
Rather than restricting the development of digital labour, leading insurers are encouraging the business by creating the right governance structures and guidance. At times, they are acting as the group aggregator, maintaining and communicating a detailed inventory of the related projects and investments at play across the organisation. In other cases, they are working to ensure the right ownership and controls are in place to reduce organisational risk, improve coordination and enhance compliance.
Measure and monitor the benefits
It is important to identify and document goals from the investments—in both the short and the long term—and set reasonable objectives that go beyond the traditional short-term return expectations to include a broader basket of strategic measures. Leading insurers continuously measure and monitor the outcomes of their digital labour initiatives to uncover new opportunities and learn new lessons that can be applied.
Projects must stay on track and not be allowed to drift; if a project is not delivering on expectations then it requires early reevaluation.
A better way?
Of course, there is another approach to building your digital labour force: you could always outsource it. Indeed, we’ve been working with a number of insurance industry participants (both smaller firms lacking the time or resources and larger players keen to focus on their core business) to deliver a managed services approach to the development and execution of their digital labour strategy.
As with any form of outsourcing, it is vital to understand the art of the possible and identify how you want to leverage digital labour to best effect. You can then map this to a sourcing strategy, identify the right vendors, integrate their solutions and prepare for wider adoption of digital labour.
Given the immaturity of insurtech, many insurers are relying on their sourcing partner to protect them from the shifting vendor landscape and the speed at which new capabilities are being introduced.
Our experience suggests that—regardless of the level of outside support you require—the adoption of digital labour will be key to driving value from digital transformation investments. The insurers that take a well planned and strategic approach to their digital labour strategy will be the winners in this new environment.
Based on Making automation work, Frontiers in Finance, Issue #57
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Bill Miller is a managing director at KPMG in Bermuda. He can be contacted at: email@example.com
Mark Allitt is a director at KPMG in Bermuda. He can be contacted at: firstname.lastname@example.org
Five big digital labour questions for insurers
Do you have clear executive sponsorship for the initiative?
Have you considered the impact on your organisational structure and culture?
Do you have a well-defined plan and strategy for labour automation across your enterprise?
Have you developed a strong approach to the governance?
Do you have basic consensus on security and risk mitigation?
Are your investments aligned to the organisation’s appetite and expectations?
Do you understand the key drivers and characteristics of each class of digital labour you are using?
Do you have a formalised approach for identifying and prioritising automation initiatives?
Have you assessed opportunities for accelerating the path to value?
Do you know when to declare success or failure and move on to the next initiative?
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