Insurers are advised to strategically select areas of innovation that will generate maximum payback, with customer experience and distribution likely to offer the greatest returns on investment for local cover providers, consultant Accenture says.

Accenture’s survey of over 500 executives at leading insurers around the world found a high correlation between investments in these two areas and strong performance in top line, net income and market valuation.

Australia-based Marianne Hutchinson, MD for Financial Services at Accenture, says the “once staid” insurance sector is increasingly vulnerable to disruption as non-traditional players and startups come to market with digital customer experiences that are simpler, friendlier and more convenient than those on offer from the incumbents.

In many markets, insurers face the challenge of increasing commoditisation and a “race to the bottom” as third-party aggregators and direct insurers make it easier than ever for customers to get quotes and buy coverage online, Ms Hutchinson says.

“It’s not about necessarily throwing away what you’ve done before in relation to digital. It is how do you now get a bit more value from the investment that you are making and seed return on value from some of that,” Ms Hutchinson told insurancenews.com.au.

“I don’t think it’s an option - you have to be moving. It is now just about prioritising where you are doing that and the approach you are taking to make sure you are getting a return on investment from it.”

Insurers have encountered more barriers from legacy data, intermediaries which have limited direct interaction versus banks, with often daily touchpoints. Now, insurers should identify how to break out smaller components of their digital strategy and enhance those to achieve a better customer experience and quicker return.

“It is not about just digitising what I do today, it is focusing on offering a service that just may be in a digital form and is of value to that customer. It really is about simplifying some of the easier, more transactional engagements but still allowing for more personal interactions where somebody is in a stressful situation,” Ms Hutchinson explains.

Insurance companies worldwide are “placing massive bets” on digital innovation as they strive to contain operating costs, improve customer engagement and reinvent their businesses amid relentless disruption.

The imperative for digital innovation has taken on more urgency in the wake of the coronavirus pandemic. Fewer in-person channels mean insurers need to step up their innovation investments to meet consumers’ rising expectations of digital experiences.

Insurers have leapfrogged competitors in the rollout of digital distribution innovations—such as mobile channels— enabling them to leverage unserved and underserved segments.

Accenture says investing in distribution “nearly always emerges as a smart wager”, especially at a time when competition is rising, customers are seeking better digital experiences, and new technologies and economic uncertainty are upending traditional business models.

“While conditions and opportunities vary by market, customer experience and distribution innovations are usually wise investments,” Accenture’s “What’s the Payback on Digital Innovation in Insurance?” report says, noting that retail pioneer John Wanamaker famously wondered which half of his advertising budget was wasted.

“Likewise, many insurance executives ask themselves which of their digital investments are delivering a return and which are not,” it says.

After several years of cost- optimisation in the back-office, customer-facing innovation is critical and a higher priority than cost reduction. Customer experience and distribution innovation deliver outsized returns, it says, and shifting customers to digital channels is an opportunity to drive down costs and extend distribution reach.

Other categories such as internal processes and capabilities were less a priority, it says, while improving the insurer’s relevance to the customer is more significant and digital channels are at once an opportunity to drive down costs, extend distribution reach and boost customer satisfaction and engagement.