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Barriers to Insurance Innovation and New Year’s Resolutions to Overcome Them

by Alan P. Demers and Stephen E. Applebaum

It’s that time once again when predictions about the insurance industry’s outlook for 2022 come rolling in like waves. They are interesting to those of us in the industry and may provoke discussion and healthy debate or even serve as a call-to-action for others, even though most predictions turn out to be incorrect or poorly timed. As Bill Gates famously said, “We always overestimate the change that will occur on the next two years and underestimate the change that will occur on the next ten. Don’t let yourself be lulled into inaction.”

Just take an objective look at the early 2020 predictions which said little to nothing about the prospects of a multi-year global pandemic, not to mention the acceleration of certain technologies and derailing of others. Granted, this is an extreme example but it illustrates the point. Predictions about the rate of M&A activity and adoption of technology seem to be generally accurate “if” they might happen but mostly inaccurate as to the “when” they will happen.

Rather than add a new prediction to the fray of what might happen, let’s concentrate on something that many in the insurance and insurtech space would like to see happen, framed as New Year’s resolutions for 2022. The insurtech movement is somewhere between 7-9 years in play and certainly gaining no matter the standard of measurement; global investment sums, sheer numbers of start-up launches and the level of M&A and SPAC activity are all at record levels. During this period there has been a loud and growing chorus of discord between the cadence of new ideas, concepts and technology and the contrast of that with protracted insurer adoption cycles, i.e. – innovation obstacles. To make matters worse, the number of startups focused on identical or similar solutions is far greater than the number of insurers with sufficient bandwidth to evaluate or pilot all of them. As one industry pundit recently shared with us, “there are just too many dogs chasing the same bone”.

This is not a statement of blame, instead a commonly shared observation from all participants; insurers, startups, investors, established solution providers, analysts and thought leaders.  Does anyone working in the P&C insurance ecosystem really believe the speed of insurtech adoption is acceptable?  In fact, you could go so far to say the current rate of adoption is actually a threat to the insurtech movement itself. Either way, the speed of insurtech solution adoption will be a critical factor in industry progress in 2022 and beyond.

What startups say

Startups are often surprised about the number and complexity of barriers in the insurance space. While it is well understood that the industry is mature, highly regulated and dominated by many very large companies, most are dismayed by the number of decision makers and the time it takes to do just about everything from scheduling meetings, signing non-disclosure agreements or reaching terms to start a pilot. Long sales cycles are a familiar and widely accepted refrain when trying to partner or simply demo one’s solution.

Upwards of a year or longer from introduction to pilot phase is common and, in some circles, considered fast. Ironically, startups may find an insurer’s information security protocols, no matter how onerous, a welcome step because the prior steps were truly difficult. The infosec stage is also a step closer to pilot or implementation, so no doubt a relief once reached. To avoid these barriers some startups have opted for an MGA model to deploy their technology somewhat more directly but this applies to fewer since the majority of insurtechs offer enablement solutions to existing insurance models. Partnering with other solution providers can help accelerate things, but here again there are complications. Finally, startups often begin prospecting with the largest carriers and might pivot to tier two or tier three size companies discovering that the bigger the harder to do business. On a positive note, startups that do overcome these barriers tend to realize long lasting, successful relationships with insurers.

What Insurers say

Insurance carriers believe they are misunderstood in some areas while generally agreeing about the criticism directed toward them. They’ve also bought into the realization that disruption is part of the future of insurance, and have thus made their own insurtech investments, stood up innovation teams, sponsored accelerators and competitions and much more.

Aside from all of this, insurers say that insurance is complicated and while in need of modernization are quick to point out a bevy of legal, regulatory and privacy exposures that may be overlooked by startups either unaware or naively less concerned with such matters.  Meanwhile there is true admiration for such unobstructed thinking which allows startups to be nimble.

Carriers also cite real world factors such as legacy systems and more recently, heavily distracted by multi-year system upgrades, have recently completed such a transformation and/or now contemplating conversion to the cloud. In all such scenarios both money and resource constraints are real and restrict the number of new endeavors. Insurers also say they are moving at an unprecedented tempo and are trying all sorts of new concepts with lots of evidence of newly announced partnerships, investments and deployments. Admittedly, insurers and those charged with innovation would much rather have more resources, more funding and more time and better ways to receive, asses and try more startup insurtech offerings.

What they both say

When you carefully consider the two vantage points there is a high degree of empathy and understanding for each.  It is certainly not a case of two entities talking past each other. In reality, both sides want to help each other and realize their mutual success depends upon working together early and often.

No doubt Covid-19 was a unforeseen force that derailed many plans, accelerated others through necessity and channeled focus toward business continuity and later to – and still lingering – hybrid workforces. This is a major issue for large companies no matter how much of a game face companies project.

Overcoming Barriers in 2022: Platforms and Ecosystems

The insurance business process Is highly complex and involves hundreds of potential interactions internally and externally, including connections with thousands of ecosystem participants. Until now, this has been a major barrier to process efficiency,

The emergence of insurance industry platforms, also called marketplaces, represents an important cure for this complexity which can facilitate commerce between insurers, insurtechs, supply chain participants and policyholders. For both insurers and insurtechs, integrations are reduced from many to few or even to one. For policyholders, customer experience is improved. For all participants, costs and time to market are reduced and access to more and different trading partners is significantly expanded. The ability for insurers to test and engage with innovative startup solutions is considerably simpler, faster and less risky.

Where do we go from here?

In the spirit of making New Year’s Resolutions we would like to see for 2022 which will alleviate innovation and adoption barriers, here are our top wishes – a mix of practical, incremental and bigger breakthroughs;

  • once an insurer and startup begin discussing the NDA process, it should be completed in 1 week or less
  • startups will know and anticipate their prospective insurance carrier’s audience much better and will dial into problems, pain points and priorities
  • insurers will identify and share their problems, pain points and priorities more clearly and will also articulate between what’s desirable today, tomorrow and the future
  • insurers find ways to take more risk and create more sandbox areas to pilot. Sort of an innovation lab 2.0 with real funding and authority
  • startup/insurtech offerings become more categorized by type to make awareness, comparison and contrasting possible
  • startup vaporware is eliminated or reduced to more immediate, tangible solutions vs. future roadmap ideas
  • when insurers are not interested they will say as soon as they know it and offer any constructive feedback
  • more use by all participants of intermediaries and those well positioned to help move the needle from scouting to solution alignment

This last wish for 2022 is extremely relevant to us, since we are one such intermediary and in fact are uniquely qualified to leverage our deep subject matter expertise and extensive relationships across the ecosystem to assist market participants, including insurers, insurtechs, supply chain and investors, in order to help all of these players perfect and execute upon their strategic business objectives.

Speaking of wishes, we want to wish you all a very successful 2022 and hope to work with you to help make it so.

About the Authors

Stephen E. Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem focused on insurance information technology, claims, innovation, disruption, supply chain, vendor and performance management. Mr. Applebaum is also a Senior Advisor to Waller Helms Advisors.  WHA is the premier investment banking boutique focused on the crossroads of the Insurance, Healthcare and Investment Services sectors.

Stephen is a frequent chairman, guest speaker and panelist at insurance industry conferences and contributor to major insurance industry publications and has a passion for coaching, mentoring, business process innovation and constructive transformation, applying disruptive technology, and managing organizational change in the North American property/casualty insurance industry and trading partner communities. He can be reached at [email protected].

Alan Demers is founder and president of InsurTech Consulting LLC, with 30 years of P&C insurance claims experience, providing consultative services focused on innovating claims. After initiating and leading claims innovation at Nationwide, Demers collaborates in the forefront of InsurTech, partnering with insurance leaders, startups, design thinking experts and service providers to modernize personal, commercial and specialty claims.

As Vice President of Claims Innovation at Nationwide, Alan conceptualized a vision and road map to build next-generation claims, automating and digitizing claims experiences, progressing from inception through prototype testing. He served as a founding member of the Corporate Innovation Council and played a key leadership role in establishing goals, practices and an innovative culture at Nationwide.

Alan is an accomplished executive leader and has worked for two separate Fortune 100 insurance companies in a number of corporate, national and regional leadership roles among personal, commercial, non-standard and specialty lines claims. Prior to leading claims innovation, he served as head of claims for Nationwide’s commercial agribusiness and non-standard claims. Other noteworthy roles include: field vice president, regional claims officer and national catastrophe director, quality assurance director.

Alan began his career with Aetna as a claim adjuster and advanced to a corporate claim consultant, prior to joining Nationwide in 1995.

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