In my many years within the Insurance market, I’ve always found myself on the cusp of digitalisation. I was one of the first (if not the first) to accept a digital risk on RI3K around 20 years ago. This was the market’s first real effort in digital trading – back in 2002(!) – and quite ahead of its time. And during my time at Lloyd’s, I had the unenviable title of ‘iPad Boy’ for a while due to me trying to pursue digital trading on iPads.
I’ve always wanted to use technology to drive the market forward. As a head of innovation and as somebody responsible for digitalisation, I’ve had some great successes, but I also got some scars, and the most fundamental reason for this is that change is difficult. It doesn’t matter how you badge it up and how you structure the projects, it will still be very hard to shift an entire organisation towards a new digital future and expect everyone to join in.
Given these scars and the sheer size of the digitalisation effort for some firms, I thought I’d share some of what I’m seeing in the market and my experience to help others on their digital journey.
THE CHALLENGE OF GOING DIGITAL
For many insurers, there is a growing realisation that they need to digitalise to stay relevant. A need for efficiency and greater profitability as well as supporting the changing buying habits of our clients means insurers require new business models, and supporting these new models with manual processes isn’t financially or strategically viable.
Insurers are therefore looking to become connected and receive submissions through a digital front door. However, insurance companies are complex organisations with legacy systems and behaviours, which have traditionally been a barrier to modernisation activities. Apart from a mindset and technology change, we are also battling:
Product complexity – A typical insurer can have 80+ products – all with their different nuances. It is difficult to find commonality among product sets, making the digitalisation effort complex and time-consuming. Underwriters generally work in siloes defined by their products, and this means there are inefficiencies everywhere you look.
Submission deluge – Often receiving thousands of submissions every week, insurers struggle to use data and technology to evaluate and triage the most important risks to the right teams. They also struggle to surface the data to the underwriters in an efficient manner, meaning that underwriters spend all their time in disparate systems.
Lack of data innovation & experimentation – During the submission process, it is essential that underwriters have access to strong data sets, but insurers today work with disparate data sources spread across their products. And with so many data sources available, ingesting data points from these sources can be a time-consuming task, with few companies investing in the infrastructure needed to surface, experiment and run new data models.
TACKLING THE CHALLENGE
Changing business models
There is a strategy conundrum for the insurance market: do you focus on increasing distribution (volume), operational efficiency (expenses) or writing better business (profitability)? Is it viable to focus on all three in parallel, or should you be more focused on one specific area to succeed?
For many years, insurers have been obsessed with efficiency and have been pushing straight-through processing to the top of the agenda, but recently there seems to be much more focus on writing better, more profitable business as a priority.
Additionally, insurers are now focusing on becoming highly ‘connected’ and easier to do business with by increasing distribution channels; this is sometimes described as becoming a ‘connected carrier’ or opening a ’digital front door’. The challenge here is: where to focus first, what should be the priority, where is the strategic sweet spot for each organisation?
Insurers need to be open to receiving submissions from a multitude of different partners. Although the high levels of M&A activity in the broker market will drive some convergence of strategy, the new and emerging ecosystems are ever evolving, meaning that insurers must be agile and ready to connect with their partners in many different ways.
More efficient operations
More efficient operations mean delivering the right risks to the right teams in an efficient way. New distribution channels will open new sources of income, but these new channels can also cause huge pressure on already stretched operations teams. For many insurers, this can be a barrier to growth; others are implementing new workflow models where all submissions (regardless of channel) are augmented and triaged through an intelligent underwriting management system.
The ultimate goal is to triage submissions into digital and non-digital channels. These ‘segmentation channels’ can be highly complex, and it is extremely important to understand the characteristics of your partners in order to analyse how they want to connect. In many cases, these channels can be broken down into four key areas:
Regardless of the channel, the goal is to move from today’s manual processes to the automated models of tomorrow, but insurance firms are complex organisations, and digitalising products can be hard. If you take a product-by-product approach, there will be challenges: the first couple of automations could be relatively successful, but you may soon hit the usual product nuances, change management issues or run out of budget and steam.
Once you hit these complexities, it is important that you complete what you have started because if you haven’t finished the digitalisation journey, you end up with digital orphans, i.e. products which aren’t fully in or out of the digitalisation model. This can potentially be the worst of outcomes, as the products are spread across multiple systems, leaving your underwriting and operations teams with a horrid user experience.
More profitable underwriting
Insurers are seeking to understand what a ‘good’ company looks like to make a more informed underwriting decision and improve profitability; there is a clear correlation between a company’s activities, beliefs and behaviours and their risk factors.
To achieve this, insurers often collate the internal and external insights underwriters need to make decisions with an easy, integrated experience. A typical underwriter can spend hours at a time collating the data required to analyse a submission. This data comes from many disparate sources, such as ESG, firmographic data, cyber scores, property perils, sanctions etc. And the internal data required to write a risk is also hugely important; underwriters need to understand pre-existing relationships with the client, such as the policy history, claims history, previous declinatures, CRM data and lifetime value.
The underwriting role is about risk analysis, intuition and relationships. Asking them to spend their lives collating this data is inefficient and goes against why we want these experts in our firms in the first place! That is exactly why companies are moving towards underwriting workbench solutions that automatically augment the external data and surface it up on screen, allowing the underwriter to review the data in the most efficient manner on a single pane of glass.
These solutions can also help improve collaboration across teams, as the workbenches can help teams focus on overall client profiles – sharing data freely, collaborating and improving productivity and profitability. There are several off-of-the shelf solutions in this space, but many companies choose to build their own in order to retain IP (intellectual property).
REDUCING THE RISK OF FAILURE
As new distribution opportunities emerge, there is a tendency for insurers to rush their digital products to market to take a first-mover advantage, but without a clear distribution and digital product strategy, a number of issues can arise:
- Disparate data models at the product level create huge inefficiencies
- A lack of consistency across user interfaces and documents causes high build/run costs
- Back-office integration issues can be very complex and time-consuming to fix
- Poor UI/UX causes ‘portal fatigue’ for brokers using your systems
My recommendation is to get the core foundation layer and data models right as part of the initial strategy. It is also extremely important to optimise your products and ensure that the right questions are asked – and that these questions are as consistent as possible across multiple products. All of this will enable agility and operating efficiencies further down the track.
And one final word to the wise: as usual with complex transformations, the analysis stage is critical – as is the user experience in order to engage and retain your distribution partners.