KEY TAKEAWAYS:
--The insurers of tomorrow won't be built on the technology of today. The uncomfortable truth is that the industry hasn't fundamentally changed the way it operates. Nor is the implemented technology flexible enough to support the transformation now needed.
--First, we must move beyond the legacy mindset of "how to do insurance the way it's done today, but better."
--Driving risk mitigation by providing new or additional services should be at the heart of every insurance business.
--Insurtech capability should be used to dramatically improve digitization and customer choice while expediting the most vital services an insurer provides. That means ending the emphasis on economies of scale in IT and focusing on speed, based on new, data-fluid and flexible foundations.
----------
Despite the eye-watering amounts of money insurance companies have spent on digital transformation, they continue to struggle under the weight of the pressures they face. If I were the CEO of a global insurer, I'd want to know why, after the millions I've spent on new tech, the business is incapable of adapting to the demands being placed on it.
While in many ways insurance is an adaptive industry, it has found itself out of step with customer expectations and possibilities. To make matters worse, it is now caught behind the huge changes occurring in our world.
In a cloud-driven, continuously changing and increasingly automated world, adaptability will be the defining characteristic by which insurers survive or thrive. The challenge is, right now, adaptability feels out of reach.
How did this happen?
The uncomfortable truth is while many insurance companies have put great effort into digitizing their businesses at great expense, the industry hasn't fundamentally changed the way it operates. Nor is the implemented technology flexible enough to support the transformation now needed.
Yes, modern legacy platforms can run a book of insurance business. Yes, they can automate some tasks using other technologies. And, yes, platforms can provide a front-end digital experience of a sort. But they can't respond to consumer demands for end-to-end digital experiences that put customers in control. Nor can they make insurance easy to choose and consume.
Worse, these patchwork platforms struggle to leverage the data held to provide meaningful, actionable insight or ingest new data sources to improve decision-making. Nor can they easily onboard the partners that are necessary to provide a comprehensive engine that speeds up customer resolutions, combats fraud and decreases the cost of doing business.
See also: Transformation Is Now an Imperative
The issues are two-fold. System architects have built new technologies on top of weak foundations, and business cases have only looked to save money through scale, not based on the idea of real change. The result is grinding gears, not well-oiled machines.
Conversely, the big market growth opportunities of risk mitigation, embedded 2.0, adaptive underwriting, response to catastrophic risk, the rapid adoption of emergent insurtech capability etc., are all about speed and relative cost reduction.
From the rise of electric vehicles (EVs) to climate change and extreme weather, it is becoming harder for insurers to keep pace with risk. The threat of Tesla's insurance takeover in the automotive space is undoubtedly overstated. But even as insurance companies talk more often about engaging the original equipment manufacturers (OEMs) and finding the partnership opportunity, the change is relatively slow compared with other industries.
Worst of all, we all know a lot of challenging transformation complexity is yet to surface.
How to Drive Real Change
Driving real change starts with the right mindset, from which the right foundations for transformation can flourish.
First, we must move beyond the legacy mindset of "how to do insurance the way it's done today, but better" and replace it with a new way of working that tackles the problems we face head-on and focuses on value creation.
Flood Re's capability on a home or property insurance offering is an excellent example. It ensures that, following a claim, you build back better or replace to mitigate some or all flood risks. By doing so, you create resiliency and reduce the likelihood of experiencing the same claim again.
Another example is using connected vehicles and building intelligent services around the vehicle ecosystem. So when the brakes are low, and the risk is high, the insurer intervenes, alerts the driver and directs them to get the best-value replacement. Or even the simple adoption of new mobile services that can help triage or even self-report the claim.
Driving risk mitigation by providing new or additional services should be at the heart of every insurance business. As should adopting insurtech capability that can dramatically improve digitization and customer choice while expediting the most vital services an insurer provides.
However, to embrace this new dawn, we must see insurers adopt new data-fluid and flexible foundations that enable them to build new value continuously while ensuring we are a more resilient and capable society.
Walking away from markets or any risk scenario because adaptation is too hard is walking away from the true purpose of insurance. This has always been a social experiment. A collection of people and organizations pooling together to share risk and allow us all to make progress.
To ensure we continue to drive progress, we must put aside the obsession with economies of scale in IT and move toward the economy of speed. Speed in adaptability gives us speed in response, speed to deliver insurance in new places and to support new endeavors.
The four key imperatives that will drive this change are:
- Maximizing the value of a customer
- Reducing total cost of ownership (TCO)/cost per policy (CPP)
- Vastly improving decision-making and automation
- Driving new value potential and selling beyond just insurance -- embedded, risk-mitigating, adaptive and vastly more meaningful.
The truth is where insurers can derive the greatest value for insureds and they, in turn, can derive the greatest value for themselves.
To do so, data acquisition-only strategies must move to data ecosystem-led approaches, where insurers can get much closer to the data in real time and start to build the picture of change and act on it far faster.
See also: How to Value AI, Analytics Initiatives
In many cases, this strategy presents the potential to make insurance more meaningful and a force for immense good.
New MACH-based technologies that create the right foundations are essential. Technology until now has largely let insurers down, but they must put that past behind them. The focus has to be on new ways of working, new business models and value creation-based business cases.
In a world currently caught up in tech fear or tech optimism and a general misunderstanding of new technologies such as generative AI, now more than ever, our best compass is morals, ethics and value creation.
In my experience, this is born of a deep understanding of the human condition we seek to transform. Otherwise, what's the point?
