Insurance Technology - The Threat of Change

Change is a Banana

Well, a banana skin, change is a banana skin.  According to a PwC survey[i] of risks facing the insurance industry, dealing with change is an increasing risk that the unwary insurer can slip on all too easily.  The survey asked insurers around the world to rank 25 major risks to the industry and dealing with change is rising up the ranks of perception as insurers feel that the rate of change is increasing and demanding more and more of current business models.  Overall it jumped from 15th. to 6th. place and comes in at number seven in the UK.  Globally Life insurers rank it at number eight, so it is certainly not taken lightly.

Drivers of Change

Insurance is heavily regulated and the burden is keenly felt, particularly when legislation changes.  Dealing with regulation is seen by the survey’s respondents as the overall number one risk.  Everyone has to deal with the same rules and they are often signposted by being declared ahead of time so organisations can prepare for them.  Demographic and social changes are less predictable in their effects.  We may be able to forecast population sizes and age profiles but that doesn’t mean we can confidently predict what products and services will be demanded.

Changing technology is a major driver of change in . . . well, pretty much in everything at the moment and certainly in the insurance industry.  New technology increases efficiency, reduces error rates, speeds processing.  Insurers who fail to keep pace can easily lose scale and become uncompetitive.  Much new technology appearing on our screens, tablets and smartphones is aimed at the burgeoning consumer market, adept at smoothing our lives, helping us do things more easily and enabling us to do things we didn’t even know we had to do.  Familiarity with these new toys creates heightened levels of expectation for instant communication and personalised services.  So not only is technology itself driving change in the industry it is building expectations in consumers which also demand change.

Difficulties of dealing with Technology Change

Modern technology has improved the industry enormously, it is now faster, more efficient, better at communicating and servicing its customers.  So why don’t all insurers simply adopt all the new technology now available?  A rhetorical question if ever there was one.  There are plenty of reasons, some better than others.  Firstly, any sufficiently good new technology will disrupt the existing business models.  It is not simply a question of plugging in the new system and away you go.  You will have to review current practices, alter strategies and develop new models to take advantage of the new capabilities the new system offers – otherwise, why buy it?  The days of simply automating existing procedures are long gone.

Aside from the cost, there is also the perennial problem of dealing with legacy systems.  Most insurers are living with the heritage of stable but old systems.  Replacing them is not simple.

The raised expectations I mentioned earlier have to be met, but it is not easy for traditionally minded, risk averse, complex businesses such as insurers to create and roll out brand new customer service models that rival those of the FMCG and high tech industries such as Apple.

However, while these barriers to changing with the new technology can mean that insurers are slow to adopt it the same is not necessarily true for new entrants.  What once kept them out is now providing them with an easier way in.  With flexible and fluid business models, more agile systems attuned to personalised customer service and impressive capital companies such as technology giants or consumer focused industries with moribund growth in their own lines are eyeing up the insurance sector and concluding that there are elements of the business that they can do better than the incumbents.  They may not do it all but they will focus on aspects of the process that are profitable and at which they excel and this could drain revenue from the traditional insurers.

Coping strategies

This is not just about new technology, it’s about changing the way you work.  It is daunting to try it all at once but it can be tackled on a piece-by-piece basis, building incrementally on the strengths you already have.  As my colleague Jonathan Boylan, CTO of FINEOS put it in his recent blog on going digital, : Start small but start.

Advances in technology appear faster than traditional insurers can innovate to keep up.  Those that do, or new entrants that can, will soon take the place of those insurers who refrain from the journey in case there are too many banana skins.

The future is already here.

[i] PwC: Insurance Banana Skins 2015 – The CSFI survey of risks facing insurers

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