What have we learned in seven years?
One of my favorite quotes comes from Mark Twain, who once said, “When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much he had learned in seven years.”
I used the quote at my father's funeral in recognition of his patience during my troublesome teenage years. This came back to me when I reviewed the first half of 2024. One of the features of my year to date is how well I’ve been getting on with the insurance industry – better than at any other time this millennium, and I was wondering why.
For context, I should say that for the last 25 years of my career I have been involved in the digitalization of the insurance industry. Originally, I was a platform builder, and more recently a partner of InsTech – a “community for the curious,” which sits in the nexus between insurance and technology innovation. It champions solutions, whether from startups or big tech, that can make insurance better. So, I’ve always been on the outside selling in, relatively free to express my views, and I have done that with a degree of candor that has occasionally involved rocking the establishment boat -- usually by complaining about lack of technology investment, foresight, and leadership.
But I find myself doing that less and less. I don’t seem to be upsetting people so much, either – although there are exceptions! Am I softening at the end of my career? I wouldn’t be the only one to get more conservative and traditional as I aged. Or has the progress that the industry has made in recent years brought it closer to my more reformist agenda? I think it’s a bit of both, and here’s why:
- Disruption is dead. As I and many others have observed, the whole insurtech scene has stopped being about disruption and is now about partnership and collaboration. That’s a big and very helpful shift in aligning interests.
- There’s less silly stuff going on, too. Gone are the days when the airwaves were full of talk of blockchain, crypto, and peer-to-peer (remember that?). They’re now consigned to the fringe, where they are finding their part to play.
- Gone, too, is the brief era of crazy valuations fueled by cheap money and generalist investors funding ideas that were either misguided or too far ahead of their time. There’s less money, and it’s seeking out well-managed businesses that are profitable (or have a clear path to profitability) and proven propositions. Sanity reins.
- There’s more realism about the role of IoT in underwriting. Data from devices has a role, but in insurance — whether life or non-life — dynamic pricing based on real-time data on the state of the asset or the life being insured, isn’t going mainstream any time soon.
- And then there’s generative AI. Counter-intuitively, the hype around GenAI has increased interest and investment in the use of AI for analyzing and modeling data. In days of yore, the industry would have batted GenAI away as yet more Silicon Valley nonsense. Instead, it has provided a second wind for AI adoption (not just GenAI) and stimulated much-needed investment in the underlying data infrastructure required to run enterprise grade AI solutions that are scalable, secure, and fit for regulated industry.
See also: Where Insurtech Went Wrong
A well-served industry
These are the ways in which the innovators have changed. To return to Mark Twain, this is what we “teenagers” have learned and how the dynamics have changed.
But it’s not the whole story. The other big influence is that there’s currently a real alignment between what the insurance industry wants and what is being provided. The industry is now well-served by some top-notch solutions spawned in the insurtech era, thoroughly tested in the heat of battle and built and supplied by companies that understand the industry and what it needs.
The focus for the insurance industry is to get more efficient, select and price risk better, get more from its talent, and provide a better service to its customers. The exact same dynamic applies to underwriters and claims handlers. To achieve its goals, the industry needs to get smarter with data (both ingesting and analyzing it) and give underwriters/claims handlers the toolsets they need to optimize how they use that data. Then there’s the legacy drag, as most insurers are trying to do that with considerable continuing dependence on an aging legacy stack.
Hence the excitement about the latest data ingestion tools, triaging inbound submissions/claims, underwriter/claims workbenches, algorithmic/augmented risk selection, more dynamic pricing engines, data ecosystems, automation capabilities, and so on. This is where the insurance industry has changed the most. Solutions have been around for a while in various stages of maturity, but insurers now accept that they all have a big role to play. And after a few years of great underwriting results, funds are available to invest, in return for the long-term benefits of adoption.
Some issues persist
Before you think I’ve gone completely soft, I have still got a few beefs. While sentiment toward technology investment has never been more positive, the pace of change is still far too slow – it is no longer glacial, but in some respects the climate is changing faster. Nothing illustrates this better than the continued reliance on spreadsheets and PDFs for moving data around with all the inefficiencies and inaccuracies that they entail. I think I will have retired before these stop being the industry’s default data migration tools.
And then there’s the worrying proliferation of that old insurance habit of what I call “herding”. This refers to the reluctance to pursue change unless it’s clear that most of your peers are inclined to do so too. This usually involves a breakaway pack that kicks things off, and then everyone else follows in their wake with a business case based on FOMO. The corollary is that it is all too rare to find an insurer seeking competitive advantage through being different, let alone much better. All too often, boards sign off on strategies designed to keep companies from falling behind, rather than getting ahead.
Observations from the front line
Reverting to the more positive me, let’s finish with some real evidence for these observations. InsTech had a busy June running some big events in which some of the biggest companies in insurance participated. Working with them, we were also able to get a record number of grandees to contribute their insights. And it gets better. Not only are we engaging (for the first time really) with real industry influencers, but even contrary old me is aligned with the insights they provided! Let me take a couple of extracts from my interview with Andy Marcell, the global CEO of Aon Reinsurance Solutions, in early June.
Insurance companies are crippled by their data architecture and by the platforms they have. And if they can’t change their platforms fast enough, they can’t use the insight that technology can give them …so we’re going to invest US $1 billion over the next three years in improving that [the Aon Business Services Platform]
See also: Insurtech Is NOT Dead
Later on, when asked to comment on the motives for such a vast investment, Andy said:
To differentiate and solve client problems, you need to give them solutions and advice linked together with technology, with software, that enables them to make real-time decisions … linking underwriting decisions and claim outcomes to capital. And if you don’t do that, and you don’t make it real with advice, then ultimately, you’re going to be disintermediated, because all you’re doing is providing a transaction. If that’s all you’re doing, then somebody really smart is going to figure out how to transfer risk more effectively than we are. So, you have to stay ahead of the game. The rule of thumb is to anticipate what your clients need, understand their issues, and bring them solutions so they can continue to operate their business and you’ll be relevant as the market changes around you.
Those are the sort of observations we’re used to seeing from the big consulting houses, tech and data service vendors and the ragged cohort of technology adoption protagonists like me. All have a vested interest in change in one form or another. It’s much less common to see commentary of this nature from the leadership of big brokers which are themselves among the main gatekeepers to better data. That’s a big bold statement to make in public and a real sign of the times.
An insurer’s Mark Twain
For some observations from the other end of the spectrum (startup world), here’s an extract from last month’s podcast with Charlie Blackburn from Azur Technology and Graham Elliot from the newly launched Crux Underwriting. The latter is setting up a new technology-enabled insurance business nine years after the last one. I asked him if there was any difference this time around.
When we set up the last business, I really felt like we were a bit of a petting zoo. We had a lot of people come in to look at us and stroke the little furry animals and wash their hands and go away and think, well, that’s great, and I can go back to my normal day job now. And what I see now in the market is much more of an acceptance that things have got to change, that you can’t win in the 21st century on legacy technology, and a growing realzsation that it’s an unstoppable trend, and that’s great.
So, there we have it. Mark Twain was nearly right, but the insurance version would be like this ,“When I was a furry insurtech animal of 14, the insurance industry was so ignorant they could barely bear to be around me. But when I got to be 21, I was astonished at how much we had both learned in seven years.”
