- Where Insurance & Technology Meet

The Era of the Digitally Unthinkable

Digital transformation is a hot topic these days. In many ways, the technology is a catalyst for different approaches to the business of insurance. To take advantage of this, insurers and suppliers will have to look at the existing relationships and be prepared to commit to new terms of reference.  Are we prepared for that?

Why Digital?

Technology and business professionals are becoming increasingly interested in moving forward on digital technologies and platforms.  This is more than a fad. Consider:

  • Improving the customer experience is widely accepted as a method to increase profitable growth. Established insurers and newcomers are seeking new techniques to engage consumers through the use of targeted campaigns, improved product selection, and consistently improving service levels.  Digital technology is a required enabler.
  • Insurers are seeking new product offerings in to meet new demands and to differentiate themselves from competitors. Products such as usage-based insurance and cyberrisk coverage demand digital technologies to underwrite, price, market, and service these new offerings.
  • The next generations (Millennials and Gen Z) of insurance buyers – personal and commercial – are accustomed to using digital tools for most facets of their daily activities. When it comes to insurance, however, these generational inhabitants see insurance organizations as inconsistent in the use of technology (at best).

As a result, insurers – small and large – are experimenting with digital technologies, usually starting with customer facing and data-driven activities.

But what of the rest?

As significant as this is, however, there are many other functions that are supported by technologies that are 15, 20, 25 or more years old.  Some of these are ‘orphans’, meaning that these are remnants of larger systems that are being maintained only to run a single product or manage a specific function, with no links to other systems.

Those of us who have managed IT departments know that the more the organization pushes for new technology in one area, the longer the so-called “legacy systems” will require support with only minor fixes.  And this creates drag for the whole organization.

At a roundtable in London dedicated to the discussion of legacy systems in a digital environment,  Ronan Hanrahan, director of shared services at QBE said: “If you consider a legacy as the sort of inherent complexity that we’ve added to the way we do business, there will just be another iteration of whatever we replace it with in five years’ time.”

There are solutions, but….

A number of integrated insurance systems suppliers are embracing digital and incorporating features into their core systems.  The thinking here is laudable:  If we bite the bullet and replace all the core systems that we have with new technology we should be good, assuming the suppliers maintains currency with the inevitable changes that will come along.

This is a bit of a gamble.  We are seeing the fruits of digital now, but have yet to seriously look at the impact of artificial intelligence (AI), machine learning, and the like.  Buying into this construct requires that the insurers and the suppliers make a leap of faith that each party will continue actively supporting the relationship for extended periods.

A variation of this actually occurred in the early days (1960-1980) of P&C insurance technology.  When insurers bought into core systems, it was assumed that the relationships would continue for an extended period and that parties to the agreement operated with uberrima fides.

The New Era of the Previously Unthinkable

What happens if we put the cart before the horse?  The current metaphor is that the insurer provides requirements and the supplier codes and implements the enabling technology.

We have seen instances – especially with cutting edge technology platforms – where the supplier develops, implements, and constantly updates a rich platform based on current technology.  The users are removed from technical specs and concentrate on product design to take advantage of the new capabilities.  The trade offis that there is no way to tweak the functionality of the platform.

However, platforms that are built around the Intent of Things (IoT) are providing capabilities that would have been unthinkable a few short years ago.  We are seeing insurers using these data sources and advanced analytics to supply greater precision, and new product parameters.  Losing the capability of modifying the platform allow users to focus on the larger goal.

What do you think?

Should we continue ‘muddling through’ the new wave of digital technologies?  Or should we simply embrace the new technologies without needing to get close to the deep technologies?  What do you think?