In the race to digitally transform and modernize their operations, insurance companies are increasingly turning to new platforms and technologies. insurance tech solutions promise to revolutionize everything from underwriting and policy administration to claims management and customer service. The allure of enhanced efficiency, reduced costs, and superior customer experience is undeniable, and many insurers eagerly sign up, hoping for a quick return on investment (ROI).
However, despite the promises of improved performance and financial benefits, not all insurance platforms live up to their ROI expectations. The gap between the promised potential and actual outcomes can be frustrating, leading to disillusionment and even abandonment of the platform.
So, why is it that not every insurance platform delivers on the ROI it promised? In this blog, we’ll explore the key reasons why ROI expectations often fall short and provide insights into how insurers can avoid common pitfalls when selecting and implementing new technology.
1. Misalignment Between Platform and Business Needs
One of the most common reasons that an insurance platform doesn’t deliver the expected ROI is a misalignment between the platform’s capabilities and the insurer’s actual business needs. Many insurance companies choose platforms based on impressive features and capabilities without fully evaluating whether these features address their unique operational challenges or customer demands.
Why It Happens:
- Overemphasis on Features: Insurers often get caught up in the excitement of cutting-edge technologies, like AI-driven claims automation or blockchain for fraud prevention, without considering whether those technologies are critical to their core business objectives.
- Failure to Define Clear Goals: Without clear, measurable goals for ROI, insurers may lack a clear vision of what they want the platform to achieve. This leads to a solution that looks good on paper but doesn’t actually solve the insurer’s pressing pain points.
How to Avoid It: Before selecting any platform, it’s crucial to have a clear understanding of the specific problems you’re trying to solve. Involve key stakeholders, including business users, IT, and compliance teams, to ensure the solution aligns with both your short-term and long-term business goals. Be realistic about what you need, rather than being swayed by shiny features that may not add value.
Example:
An insurer may invest in an advanced AI claims system promising to significantly reduce claims processing time. However, if their existing data infrastructure is not aligned with the new system, the integration could fail, resulting in no actual time savings or ROI.
2. Implementation Challenges and Integration Complexities
Even if an insurance platform appears perfect on paper, implementation can quickly derail the ROI expectations. From integration issues with legacy systems to challenges in user adoption, the process of implementing a new platform often reveals hidden complexities that impact the promised benefits.
Why It Happens:
- Complex Legacy Systems: Many insurers still rely on legacy systems that are not easily compatible with modern platforms. Without the right integration tools or expertise, these systems can create bottlenecks that delay the rollout and reduce the effectiveness of the new platform.
- Underestimating the Complexity of Change Management: The human element of adoption is often overlooked. Employees may resist change, and training can be insufficient, leading to inefficiencies and lost productivity during the transition period.
How to Avoid It: A successful implementation requires careful planning, including a detailed timeline, sufficient resources, and adequate change management strategies. Work closely with the vendor to ensure that the platform integrates smoothly with your existing systems and processes. Additionally, prioritize user training and change management to minimize resistance and ensure your team is fully onboard.
Example:
A large insurer adopts a new underwriting platform that promises faster processing and better risk evaluation. However, the platform is not properly integrated with their claims management system, leading to duplicate data entry, errors, and delays, which negates the efficiency gains.
3. Overlooking Data Quality and Cleanliness
Many insurance platforms rely heavily on data to drive decisions, predictions, and automation. However, if the data feeding into the platform is incomplete, outdated, or inaccurate, it can lead to poor decision-making, errors, and ultimately, a failure to realize the expected ROI.
Why It Happens:
- Inconsistent Data Sources: Data across various departments or systems may be siloed or inconsistent. This creates problems when trying to get a single, unified view of customers, policies, or claims, which is crucial for optimizing the platform’s performance.
- Legacy Data Issues: For insurers transitioning from legacy systems, migrating historical data to the new platform can be tricky. Poor data migration can result in errors or the loss of valuable insights.
How to Avoid It: Before implementing a new platform, ensure that you have a data governance strategy in place. This includes cleaning up existing data, establishing processes for ongoing data quality, and ensuring the platform is compatible with the data structures and sources you have in place.
Example:
A claims management platform may use historical claims data to predict fraud patterns, but if the data used to train the AI model is outdated or inaccurate, the system could make incorrect predictions, leading to a failed ROI.
4. Underestimating the Total Cost of Ownership (TCO)
While many insurers are lured by the low upfront cost of insurance platforms, the total cost of ownership (TCO) can quickly spiral. The costs of customization, training, integration, and ongoing support often go unaccounted for when evaluating the ROI, leading to disappointment when the solution ends up being far more expensive than anticipated.
Why It Happens:
- Hidden Costs: Insurers may focus on the licensing or subscription costs of the platform but overlook hidden fees for customization, integration, and support. These costs can add up quickly and eat into the anticipated savings or efficiency gains.
- Ongoing Maintenance: Many platforms require continuous updates, customizations, and ongoing maintenance, which can become a significant financial burden over time.
How to Avoid It: When evaluating potential platforms, ensure that the total cost of ownership is fully understood. Include not only the direct costs like licensing and implementation but also the costs of training, ongoing support, and maintenance. Additionally, factor in potential future upgrades and integration requirements to get a true sense of the long-term costs.
Example:
An insurer adopts a claims automation platform that appears inexpensive at first. However, the system requires frequent customizations to fit specific needs, and the vendor charges substantial fees for each change. The total costs over time significantly exceed the initial projections, reducing the ROI.
5. Failure to Measure and Track ROI Over Time
Even if a platform offers strong initial results, many insurers fail to continuously measure and track ROI over time, leading to missed opportunities for optimization or necessary adjustments.
Why It Happens:
- Lack of Defined Metrics: Often, insurers don’t clearly define what ROI means for their organization, whether it’s improved claims processing time, reduced operational costs, or enhanced customer satisfaction.
- Insufficient Post-Implementation Reviews: Without ongoing monitoring and performance reviews, it’s difficult to identify areas where the platform is underperforming or could be improved.
How to Avoid It: Establish clear KPIs and ROI metrics before implementation, and regularly measure the platform’s impact against those metrics. Consider establishing a dedicated team to track performance, identify bottlenecks, and ensure continuous improvement.
Example:
An insurer implements a policy administration platform that promises to reduce operational costs. However, after a year, they realize that while the platform improved certain workflows, it didn’t address inefficiencies in claims processing, which was also a key part of the ROI calculation. A regular review process could have highlighted this sooner.
Conclusion: Maximizing ROI with the Right Approach
While insurance platforms hold tremendous potential, not every platform delivers the ROI it promises. Misalignment with business needs, implementation challenges, poor data quality, hidden costs, and a lack of ongoing measurement can all derail the ROI expectation.
To ensure that your investment delivers real value, it’s essential to carefully select a platform that aligns with your specific goals, plan for a smooth implementation, and continuously monitor performance. By keeping these considerations in mind, you can increase the likelihood of a successful digital transformation and realize the full potential of your technology investments.
Ultimately, achieving the promised ROI requires more than just purchasing the right platform—it requires a thoughtful, strategic approach to adoption, integration, and ongoing optimization.
