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Core Systems & InsurTech: Rolling Dice in an Earthquake

We have been living in turbulent times with the advent and maturation of InsurTech.  Early adopters (circa 2014) were either politely ignored or openly scorned by large, core-system suppliers and insurers.  This started shifting in 2015-16 where suppliers showed how insurance could support new products and greater user engagement, putting big systems on the defensive.

So what’s next?  Will we carve tomb-stones for big system suppliers? Or will policy management suppliers vacuum up the InsurTechs?  Or is there a logical middle ground?

Big systems are big challenges

Writing in IIR, Greg Price, leader for the consulting and technical services firm, Virtusa, suggests a middle ground, targeting broker (agent) carriers: “Agent-heavy firms areleast likely to explore digital opportunities, as their familiar hunting-grounds degenerate into commoditized markets.”

Given the growing awareness of consumers, Price marks the need for transformation as “Urgent”,  noting major drivers and impediments:

  1. The Tempo for Change. The insurer must be agile and be prepared to move quickly through regulators, distribution models, innovations, and disruptive technology.  The consumer is sometimes put aside.
  2. Competing Priorities. Multiple InsurTech point solutions could prevent a coherent strategy and obscure visibility of the customer.
  3. Costly Legacy Systems. Initial acquisition costs are just the beginning.  Continuous modifications and customizations are typical for larger insurers.  These syphon off funds that could be used for other technology investments.

Price offers several options to break a vicious cycle.  First, the focus must shift from back office to the front office in order to “address these strategic imperatives in a way that will scale with flexibility and sustainability.”

The second offers a strategy from Gartner, Pace Layering.  The objective is to shift from “Systems of Record” to  “Systems of Differentiation.”  This allows decoupling from the core system and brings Business and IT to “work together to rapidly define, configure, maintain, and tune insurance business processes and rules.”

When disruption appears, put it on the payroll

Gaurav Garg, CEO of AIG’s personal insurance business, is well aware of the challenges and opportunities that Price notes.

Speaking at Dig | In: The Digital Future of Insurance conference in Austin on 15 May, Grag says:

“Today’s customers expect everything at their fingertips. We live in an age where consumers can speak to Alexa or just Google the weather and their upcoming commute.”

As with Price, Garg is clearly aware of internal challenges that will directly impact consumers. He notes that data – insurer’s biggest advantage – is heavily weighted on customer side, which supports underwriting, claims, etc.

However, external risks are changing rapidly and exposing the consumer – e.g., global warming and its impact on homes, vehicles, etc.  Garg says,

“All this change will mean personal insurance will be the most disrupted.  The question is: Will traditional insurance be able to actually fill the kind of gaps that exist in the way customers want?”

To address these risks, Garg created a new position – Head of Market Disruption.

Core systems collusions

Back in the day, large, corporate systems were regarded as the one-and-only solution for insurers of any magnitude.  That started to change in last 5% of the 20th century (think Y2K ‘bug’) when some functionality was less than adequate.

Since then, many core-systems providers have looked to have connectivity plugs for functionality that was required and not on the next release list from the core system supplier.

The scope of these ad hoc systems has increased dramatically as a result of InsurTech suppliers.  Several major core systems providers are working with InsurTechs to ensure that there is a high level of compatibility. In addition, several Core Systems suppliers have developed wholly owned investment divisions, which can act as VCs,  and work with the  InsurTechs.

Everyone is equal, except those who are more equal

After letting 1,200 InsurTech flowers bloom, there seems to be some consolidation which could bring together the best of all worlds.

But that assumes some form of ceteris paribus.  Don’t know about you, but I haven’t seen a lot of paribuses lately.

Your thoughts?

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