Orchestrating digital transformation to ignite productivity and innovation

As the summer draws to a close I was reflecting on the music festivals I was able to attend this summer. I was amazed at how unified and seamless the myriad of musicians and organisers worked together. Each knew their role in the collaboration; they’ve learned to trust that their co-players know their part and follow the guidance seamlessly.

Thinking about the complexity of digital transformation, I see parallels to the efforts of a band. Like a band, transformation requires that independent contributions subtly flow together all at once. As with the introduction of musicians and instruments the role of new technological instruments like Artificial Intelligence must be clearly defined and aligned with those already established. And importantly digital transformation also takes time, patience, and dedication, as well as a clear direction - the result won’t be seen overnight. 

The new sigma report The economics of digitalisation in insurance: new risks, new solutions and new efficiencies explores the economic impact of digitalisation and analyses why patience and endurance is needed for a return on investment. The study finds that despite the rise of digitalisation and hype around AI advancement, global productivity growth remains weak, with digitalisation not yet reflected in productivity statistics.

This delay is not a new phenomenon. Similar lags in delivering benefits were seen in past general-purpose technologies like the steam engine, depending on the need for first investing in infrastructure. Progress with digitalisation takes time, rarely providing an immediate boost in aggregate macroeconomic performance. This is true for even the most digitally savvy companies, according to the sigma authors, due to bottlenecks such as slower complementary improvement elsewhere such as in human capital. 

For insurers, this means ongoing transformation work before fully reaping the benefits digitalisation. I think the industry should see this as an encouragement to continue investing in solid data foundations, as well as compliant and fair models, talent recruiting and upskilling in order to adapt to emerging regulatory requirements.

While improving itself the insurance industry already plays an important role in supporting countries with digitalisation and its importance will only continue to grow. The Insurance Digitalisation Index of the SRI ranks 29 countries by their degree of digitalisation relevant to insurance. South Korea, Sweden and Finland lead, scoring high on measures such as R&D spending and digital connectivity. They are followed by the US, while emerging markets like China are catching up - leapfrogging onto newer digital technology. Other emerging markets also have potential for faster catch-up growth.

For me it is very important that our digitalisation efforts benefit society by helping them close the protection gap. Therefore, I find the positive correlation between the various SRI resilience indices (e.g., health, natural catastrophes) and our new Digitalisation Index shown by the SRI authors very encouraging; countries that rank higher on digitalisation tend to be more resilient in other areas of the protection gap. "Digitalisation can therefore be a force for closing insurance protection gaps", they conclude.

Apart from important efficiency gains, one of the great contributions of digital technology for insurance is a more accurate and holistic assessment of risk. To protect against natural catastrophes, Swiss Re is combining proprietary and public data as well as Artificial Intelligence to rethink the entire insurance process from costing to post-event loss calculations. A solution like Swiss Re's Rapid Damage Assessment platform helps catastrophe claims managers and loss adjustors to make faster and smarter claims decisions during natural catastrophe events, as proven during Hurricane Ian in Florida last year.

Swiss Re is taking similar approaches across risk pools. In the automotive sector, Swiss Re is partnering with the autonomous car operator Waymo studying autonomous vehicles, to understand their behaviours and the shift in risk-rating factors. Insurers have to expect a shift in liability from end-users to manufacturers. 

In addition to creating new sources of economic activity and wealth, digitalisation introduces new risks, such as cyberattacks and errors in digital-reliant infrastructure. The interconnectedness of and dependence on critical software and systems increases the potential for systemic loss events.

Despite the promise of high efficiency gains the increased use of AI as part of the digital experience is likely to also raise new liability concerns. A lack of explain-ability for systems that operate as black boxes can raise challenges in understanding liability attribution.

Although the sigma report emphasises the rising risks, it leaves no doubt that digital capabilities like AI and advanced analytics can help insurers mitigate these risks more efficiently. Digitalisation is both - the source of new risks and the solutions.

This brings us to the all-important factor in digital transformation: Humans and their digital trust. Those of us driving the digital transformation of insurance must cater to clients’ and customers' need to trust digital technology.  Re/insurers must ensure that customers understand why it's necessary to collect digital data and what they'll gain in return, whether it is financial benefit, a personalised experience or simply something that helps make everyone's lives easier. Investments in new technologies have to go hand in hand with ensuring responsible and compliant use and must align with the changing regulatory environment. 

To successfully bring about a complex work like band, many aspects need to be considered: Teamwork, preparation, the ability to react to unforeseen challenges. Similarly, digital transformation mandates alignment across technology, process, organisation, culture and adaptability to changing needs and technologies to realise its full potential.