Executives in the insurance sector have somewhat turned into magpies of late. It's very easy to be seduced by the new and shiny, and digital transformation is certainly both of those things. It's good to be able to say to your Board "look we've got a bit of Blockchain over here, and some scattering of AI over here" but all that glitters and all that...
The truth is, the industry has rather grandiosely been calling these changes' Digital Transformation'. What has changed so far has done little more than scratch the surface. There have been improvements, certainly. As a channel to market, digital has undoubtedly helped with product distribution and customer self-service to a degree. This extends across both B2B and B2C.
Data analytics is improving underwriting decisions, creating more accurate pricing and helping carriers decide which policies are 'in-appetite', particularly across time-consuming commercial policies.
And AI-enhanced decision-making has accelerated claims handling, with techniques such as image and text recognition. This helps carriers ingest data quickly and accurately.
The deployment of RPA has made minor changes to Operational improvements. However, using RPA to automate a lousy process previously managed by people is not digital process transformation. It's digital lipstick on an analogue pig!
But none of these is impacting the more fundamental challenges the sector faces.
The current hardening market may encourage Insurance Executives to take their eye off the ball. A hard market comes with the prospect of higher premiums, tighter policy wordings, a reduced risk appetite, better top-line underwriting results, and increased profits. In the traditional speciality P&C (Re)Insurer and Broker market, operating the middle and back offices has always been inefficient. However, the impact on the bottom line has never been material enough to drive major process change. Better underwriting results mask operational inefficiency and make true transformation even less likely. But, ironically, it could be the best time to bite the bullet.
During his 1962 State of the Union Address, John F. Kennedy declared: "The best time to repair the roof is when the sun is shining", and there is an opportunity now to make truly transformational changes to the way in which the industry operates, but who is bold and visionary enough to rise to the challenge?
There are 2 core reasons.
So if there is no outside threat to the industry, and everyone else is as operationally inefficient as each other, who cares about digitally transforming the end to end process? The fight remains in distribution and underwriting results. Ops and Finance take a back seat.
Digital will only be truly transformative if it is part and parcel of a fundamental shake-up of how insurers and brokers do business. The core engine and operating infrastructure of the Insurance and Broker company remain unchanged from a 30-year-old model. This is not a death-knell for digital transformation, but insurers should stop being blinded by its twinkly outer shells and start delving deep into the inner workings if it's going to make any real impact. They need to move back from the front-end distribution channels and start working on middle and back-office operations. More complex, less immediately glamorous and, ultimately, more expensive to implement, yes, but streamlining here is where a transformational impact can really be felt.
There will come a time shortly where the demands and innovation of digital distribution – parametric insurance, micro insurance, pay-by-the-hour insurance - and faster claims resolution will outstrip the capabilities of legacy systems of records and payment systems. You can only go so long to support a digital front end to your business without having an enterprise-strength digital financial and operational infrastructure to service these requirements.
Working together, these technologies don't just speed up the underwriting of standard, in-appetite risks; they help identify new lines of business. This allows the insurer to seek out growth effectively, driving competitiveness and increasing margin – even in a hardened market.
Covid-19 undoubtedly accelerated changes in the insurance sector as far as increasing levels of digital distribution, customer self-service and cost efficiencies. But even a pandemic isn't a significant enough existential threat to properly shake the foundations. We require someone big enough and bold enough to launch something truly disruptive in the Insurance industry. Is there anyone out there with the vision and means to do this?
There is an opportunity here for digital transformation to significantly improve an insurance business's top and bottom lines. Still, it won't succeed if it continues at today's superficial level.
Written by Max Pell
