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Digital Reduces Costs, Accelerates Growth

March 29, 2017
By Kathleen Garlasco

shutterstock_522212551.jpgP&C insurers are starting the year strong with policy holder surplus hitting a record value of $688.3 billion,[i] but a number of factors, including a soft growth market and a low-yield investment environment, are pushing insurers to cut costs.

Lacking the technological sophistication of many other industries, insurance is still largely a manual business, but McKinsey estimates that as much as 40% of an insurer’s operational costs are tied up in the top 20 to 30 insurance processes, a number that could be reduced by half through digitization.[ii] Digitization helps insurers in areas of growth as well, enabling them to attract and retain more customers with expanded channels of engagement and greater product selection.

Leading insurers have found that by adopting a digital distribution platform they can meet consumer demands for digital engagement and product choice while reducing costs, setting them up for stronger growth in a challenging market.

Insurers Need Rapid Digitization

With more than 65% of consumers obtaining insurance quotes online last year and an additional 40% via mobile,[iii] insurers who aren’t offering digital purchasing options are not only losing market share, they’re on the backside of a sharply accelerating curve. The rapid growth and cost reductions realized through digitization put digitally competent organizations in the lead, with direct channels growing at two times the rate of others and giving digital leaders two times the growth when compared to their less-enabled competitors.[iv]

The argument has long been that overhauling legacy systems to meet the digital superiority now common in other industries is costly, but partnering with the right InsurTech leader removes this obstacle. By seamlessly connecting to current back-office systems, a leading digital distribution platform leverages existing IT investments and future systems as they are implemented, to offer superior digital capabilities that drive growth.

How It Works

In the P&C insurance industry, distribution costs are high and account for 30% of the cost of the product, while in underwriting, administrative tasks eat up as much as 80% of the time spent on sales.[v] The right digital distribution platform reduces these costs in four ways:

  • Straight-through processing: A digital distribution platform connects individual process steps associated with the quote-to-issue lifecycle into an automated integrated workflow. Whether customers purchase direct or agents use the platform to quote and issue policies, the process occurs in minutes, as opposed to days, improving internal efficiencies and reducing costs.
  • Error reduction: A single access point to customer data gives all stakeholders in the organization a clear view of customer information across all products, allowing agents to quote and issue multiple policies without having to rekey data, reducing the time and costs associated with correcting errors and searching for omitted information.
  • Customer empowerment: Digital distribution allows customers to purchase insurance through digital and mobile channels at their convenience, reducing the number of calls coming into call centers and agents and empowering customers to act for themselves at any time, through their channel of choice.
  • Customer segmentation and profiling: Marketing efforts are costly, but using the analytics capabilities inherent to the right digital distribution platform to identify and target specific audience profiles boosts marketing ROI and improves agent effectiveness.

Reducing Costs While Accelerating Growth

McKinsey estimates that insurers can realize a one to four-point improvement in overall expense ratios by rapidly ramping up to digitization.[vi] A digital distribution platform that works with existing technology quickly enables cost savings and spurs growth:

  • Increase customer wallet share: By offering a robust market network of product offerings, a leading digital distribution provider gives insurers the opportunity to bundle offerings from other carriers with their own, without underwriting additional risk. Robust analytics aid in cross-selling of products by sending out real-time alerts regarding customer coverage gaps. The payout comes in the form of increased customer wallet share, acquisition and retention rates as the insurer meets more of the consumer’s needs, more of the time.
  • Improved market share: There is a reason that digitally adept insurers grow at two times the rate of their less-enabled peers, and much of it has to do with the customer experience. With more than half of consumers purchasing insurance coverage online, the always open one-stop shop attracts more consumers and enables the close of more sales than the nine-to-five insurer.

As consumers continue to push for transformation in the areas of product distribution and customization, insurers are finding that the right digital distribution platform can propel them into digital prominence, delivering the benefits of reduced costs and stronger growth. To learn more about the role of digital distribution in obtaining growth, download our infographic,Staying Ahead of the Game.


[i] Shaw, Gary. "2017 Insurance Industry Outlook." Wall Street Journal. Deloitte, 22 Feb. 2017. Web.

[ii] Tanguy, Catlin, Somesh Khanna, Johannes-Tobiaz Lorenz, Sandra Sanceir-Sultan. Making Digital Strategy a Reality in Insurance. McKinsey. Sept. 2016. Web.

[iii] Tanguy, Catlin, Somesh Khanna, Johannes-Tobiaz Lorenz, Sandra Sanceir-Sultan. Making Digital Strategy a Reality in Insurance. McKinsey. Sept. 2016. Web.

[iv] Tanguy, Catlin, Somesh Khanna, Johannes-Tobiaz Lorenz, Sandra Sanceir-Sultan. Making Digital Strategy a Reality in Insurance. McKinsey. Sept. 2016. Web.

[v]“More for Less: Five Steps to Strategic Cost Reduction”. PwC. 2016. Web.

[vi]The Making of a Digital Insurer. McKinsey. March 2015. Web.

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