- Where Insurance & Technology Meet

The Transforming Insurer: Competing in a Post-Modern World

Insurers have spent significant time and money updating processes and modernizing core business systems. What happens if modernization is only table stakes?

According to leading analysts and practitioners, competitive pressures are increasing, coming from traditional and non-traditional suppliers. Their competitive advantage?  Transforming the enterprise to meet the demands of customers.

How we got modern …

For the last decade or so, insurers – large, medium, and small – have bit the money bullet hard and embarked on ‘modernization’ projects.  More often than not, this meant replacing core systems technology that had been acquired in the 1980s or before with newer technologies.  Some insurers used internal resources, but the majority sourced and licensed package products.

The acquisition and implementation projects were not only expensive, but very disruptive.  Small armies of contract IT staff were brought in to supplement permanent staff (most of whom had to keep the old systems running until they could be sunset).

As, or more significantly, business staff – underwriters, claims adjusters, business analysts – were co-opted to ‘the project’, leaving other staff behind with dramatically increased workloads.

However, at the end, most companies ended up replacing a high percentage of the old technologies, and increasing the productivity and satisfaction of employees, brokers, and customers.

So we’re ok for the next decade, yes?

There is just one thing missing …

The pace of change in business and technology has increased geometrically.  More significantly, the lines between business and technology are blurring.

The term ‘modernization’ is being usurped by ‘transformation’.  This is more than semantics.  Modernization referred to technology.  Transformation means the enterprise.

For the last 7 years, the analyst firm SMA has been asking a cross section of insurers what ‘mode’ they were in:  Surviving, Sustaining, Growing, Transforming.  Its recent report, Insurers’ 2016 Strategic Initiatives, notes:

In 2010, even after the world had survived the chaos of the financial crisis, there were still a significant number of insurers struggling. 43% of North American insurers were either in modes of “surviving” or “sustaining,”

An equal percentage of the insurers indicated that they were “growing”. The “transforming” category was 13%.

Fast forward to 2015.  “Surviving” and “Sustaining” sit at 31% (down 12 basis points).

Interestingly, The “growing” category has dropped as well to 35%.  “Transforming” has  absorbed the changes, growing 21 basis points to 34%.

One of the report’s authors, Mark Breading, says: “It is clear that many senior executives are making bold decisions to transform their companies – way beyond the incremental change that the industry is accustomed to.”

Core systems suppliers are acutely aware of this

SMA’s data indicate that transformation initiatives are focusing on some key areas.  The top items include Enterprise Data and Analytics, Customer Engagement and Experience, and New Products and Services.

Modern core systems suppliers have been including functionality that support these areas at a certain level and are developing additional capabilities.  They will serve the organizations well for what they do well.

However, these suppliers might start drawing lines (insofar as their own technology is concerned) as the requirements go outside the their core capabilities.

This takes us to the post-modern world …

Core systems suppliers frequently integrate with technology suppliers offering best-in-class point solutions.  This will likely accelerate, especially as we move to cloud solutions.

More interesting will be how we integrate horizontally with peer companies.  For example, the banking industry has been actively looking at blockchain technology for a number of functions.  Some of these could supply opportunities for insurers to supply ‘just-in-time’ coverage, but only if the insurer has comparable business and technology capabilities.

Writing in the Celent Insurance blog, Mike Fitzgerald notes: “Celent is aware of insurers who are active in this space (Blockchain). …However, these efforts are individual and not connected.”   Fitzgerald posits that some form of a consortium could be forming in 2016.

What does this all mean?

The modern era, with its current generation technologies have brought stability and standardization for core insurance products.  However, the new competitive landscape will require more bespoke solutions, tightly coupled with an insurer’s specific business/technology strategies.

It will be interesting times.


Editor’s Note: Mike Fitzgerald and Mark Breading will be presenting on future trends and directions at the 2016 Technology Conference on February 29, 2016 in Toronto.  In addition, leading core system suppliers, including Guidewire, EIS Group, OneShield, and MCCG are sponsors for the conference and will be participating on the program.