April 5, 2011 – The insurance industry has long been accused of being slow to adopt new technologies. And so it goes with Web. 2.0.
But in this case, insurers, along with industries across many vertical markets, are beginning to understand the breadth and depth of this technology’s power — and its return on investment.
“Every new technology has its skeptics,” note Jacques Bughin and Michael Chui, authors of a McKinsey Quarterly Report, “The Rise of the Networked Enterprise: Web 2.0 Finds its Payday.” The report is derived from information developed out of McKinsey’s annual Web 2.0 survey (it’s fourth), which garnered responses from 3,249 executives across a range of regions, industries, and functional areas. Two-thirds of the respondents reported using Web 2.0 in their organizations.
“In the 1980s, many observers doubted that the broad use of information technologies such as enterprise resource planning (ERP) to remake processes would pay off in productivity improvements. Today, that sentiment has gravitated to Web 2.0 technologies. Management is trying to understand if they are a passing fad or an enduring trend that will underwrite a new era of better corporate performance.”
When coverage of Web 2.0 adoption first emerged in 2007, insurers — even those with a direct-to-consumer mode — didn’t scramble to adopt social networking technology for the sake of competitive advantage. Instead, many took a stepped approach. Insurers investigated the medium for either use within their own organization’s walls, or externally as a way to build their brand and study consumer preferences.
Gartner reports that in 2008, however, driven by the increasing use of social networking among consumers and policyholders, leading-edge insurers began setting up their own communities, monitoring social-networking conversations and creating content for their network.
“Social networking may have a disruptive impact on the industry as it increasingly becomes a trusted source of advice among consumers,” notes the Boston-based analyst firm. “When used by P&C insurers, however, it can help organizations gain knowledge regarding consumer behavior and opinions, improve competitive intelligence, generate leads and strengthen the brand with younger consumers.”
Research conducted in 2010 by McKinsey confirms this trend, noting that a payday could be arriving faster than expected. According to the McKinsey report, a new class of company is emerging — one that uses collaborative Web 2.0 technologies intensively to connect the internal efforts of employees and to extend the organization’s reach to customers, partners, and suppliers.
“We call this new kind of company the networked enterprise,” Bughin and Chui state. “Results from our analysis of proprietary survey data show that the Web 2.0 use of these companies is significantly improving their reported performance. In fact, our data show that fully networked enterprises are not only more likely to be market leaders or to be gaining market share but also use management practices that lead to margins higher than those of companies using the Web in more limited ways.”
The McKinsey authors base their statements on more than four years of research on how enterprises use social technologies. “The patterns of adoption and diffusion for the social Web’s enterprise applications appear to resemble those of earlier eras: a classic S curve, in which early adopters learn to use a new technology, and adoption then picks up rapidly as others begin to recognize its value,” they state.
The authors charge that the implications of this are far reaching: In many industries, new competitive battle lines may form between companies that use the Web in sophisticated ways. For many insurers, that sophistication may benefit the claims area, a core business function tied to benchmarks and key performance indicators. As such, Web 2.0 is a natural means to a profitable end.
“More than a few insurers are turning to social media to help them investigate claims fraud,” notes SMA, a Boston-based research and consulting firm. “The importance of social media technologies to the insurance industry lies not so much in the technology itself, such as Web 2.0 and 3.0, but more in the changes that are resulting in communication behavior – changes that could alter the entire business model for insurance in years to come. Social media avenues are not only changing the style and nature of communication, they are changing norms for what is public versus private, and even the language of personal and business dialog.”
Meanwhile, McKinsey says the share of companies across all vertical markets reporting using Web 2.0 technologies continues to grow. In 2010, nearly two-thirds of the McKinsey respondents at companies using Web 2.0 say they will increase future investments in these technologies, compared with just over half in 2009. “The healthy spending plans during both of these difficult years underscore the value companies expect to gain,” note Bughin and Chui.
This story originally appeared on Insurance Networking News.
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