The seemingly headlong rush by insurers to connect everything, pulling together fragmented legacy systems and IT architecture has left many of them struggling to find the right solutions. Post gathered a group of experts together to see how firms are tackling this.
Several key challenges have emerged as the market grapples with the myriad of technological options before it and looks to understand the role that cloud solutions can play is achieving a genuine, effective interconnected digital ecosystem.
This was the focus of a recent Post roundtable held in conjunction with Equinix, one of the last events to take place before it became necessary to postpone face-to-face gatherings, even for small numbers. Much of the discussion focussed on the multiplicity of challenges and barriers to understanding what digital transformation entails and how it can be fostered within the insurance sector.
The focus for any insurer striving to deliver a successful digital insurance strategy is to start with the customer. What do they expect? How fast are they moving down this road?
“It is about trying to ascertain exactly what the customer journey looks like,” said Raj Bosamia, technology director of Iprism. “You have to see what works and what doesn’t work and ask why it doesn’t work.” This means looking at service delivery and not just the technology. The aim has to be to define what customer expectations might be.
He urged people to be aware of the competitive landscape too.
“You need to look at what others are doing. Are you in line with what other people are doing or are you ahead of the curve? If you are ahead of the curve, is the market ready for it? Sometimes you can take something to market and find it just isn’t ready for it so it doesn’t get adopted.”
While Bosamia felt the focus of this reality check should be the insurance market, others believed it was important to look outside insurance and financial services, especially at other technology start-ups in other consumer markets.
“If you look wider into customer experience elsewhere whether you’re buying a kettle online or buying insurance online, your expectations are going to be that you want a seamless digital experience whether its omni-channel or multi-channel. That is the day-to-day expectation of many people in the country,” said David Simpkin, product manager for Polaris UK.
“How other technology start-ups are doing that can bring valuable insights for the big global insurers. We haven’t had that in the past. And that is when you start looking at the cloud route and asking whether that is cost-effective and how you might get value from it.”
There is no doubt that customer expectations are being set by the wider retail sector, said Adam Miller, group head of IT at Markerstudy Insurance.
“Why should we be any different as a sector? And the expectations of the generation coming through demonstrate even greater impatience.”
There is a danger in focusing too much on the consumer retail market, said Simon How, director at Show Number One, who reminded people that the insurance industry was very broad, with customers ranging from individuals to huge multi-national businesses.
“When you are looking at your IT ecosystem you need to be very careful that you are not just focusing on the very commoditised end which is all about speed of service, get the price down and a race to the bottom versus those at the other end who have got billions of dollars of exposure and want to know how to buy the right cover for them and all the variations in between”.
Richard Webb, director of Manchester Underwriting Management, took up this point: “The market is incredibly diverse and the customers are incredibly diverse and so you think you want to build a system that will work for everyone. You look at Lloyd’s and you wonder if that is what it is trying to do. It is trying to collate all this information but a lot of it is completely irrelevant to certain products and lines of business. It just creates an awful lot of work that is of no value whatsoever. There is a danger that we are building a system that is way, way bigger than we actually need.”
He added that many insurers had also to be aware that different countries were adopting technology and online trading at different rates. It might surprise some people, he said, but many other countries see the UK market as leading the way.
Engaged in the journey
Staff also need to be engaged in this journey and to feel they have some ownership of it, said Miller. This could be especially challenging in acquisitions where all sorts of legacy issues come into play.
Simpkin believed there were great advantages in bringing different skill sets together and was optimistic on how that might happen.
“We see customers that have had great experience of bringing underwriting heads in to technology areas with their subject knowledge and expertise. Then you have 22-year-old computer science graduates wanting to come into insurance because of the big data lakes available and the ability to try out stuff pretty quickly. Bring the two together and you have some really good experience. It needs the digital leadership to recognise that and bring it together.”
Webb was concerned about the people who want to hang on to old systems and ways of working. Not everyone immediately realised the benefits of new digital solutions.
“There are some that won’t move away from their spreadsheets and the reality is that at some point you have to give them no option. One danger is that there may be an innovative culture of workarounds and that when you give people a new system to test they quickly start creating workarounds. You get the IT people looking immensely frustrated as they end up saying you have just created three steps when we could have just changed this and eliminated those three steps entirely.”
Boards could also be a blocker to wholehearted adoption of genuine digital solutions, said How.
“Some boards have been looking at IT investment in the light of bad results and have started saying we cannot justify that if there isn’t a short-term revenue return. For some it becomes a leap of faith.”
Keeping the lights on
Equinix’s insurance sector account executive Peter Anna Jeffrey, said that 85% of IT budgets were spent “just keeping the lights on and making things tick over”. Against this background she said “if you look at the budgets being committed to innovation in the insurance industry there seems to be a significant problem. Businesses like Facebook and Google are spending about 20% of their revenues on research and development, in pharmaceuticals it is around 15%, manufacturing 3% but if you look at what the insurance sector does you are very hard put to find a line about R&D in the annual report.” Even those that do talk about it are only spending a fraction of 1% on it.
The return on investment can be quite complex, said Simpkin. It is not just about spend on new systems.
“Technology itself is not always the issue here. Bringing it together in a coherent way that satisfies board level expectations is what’s often needed.”
This challenge is further complicated by questions around project ownership. “In other industries you have someone who clearly owns the product and, therefore, drives the integration,” said Bosamia.
“We talk about integration but is that going to be technology driven, is it going to be commercially driven, is it product driven? Nobody actually knows.” A project can quickly become fragmented if all of these elements are not fully conversant with each other and how they work.”
Some people also struggle with the difficulty of defining an endpoint to digital transformation,” said Jeffrey.
“We don’t know what consumers are going to demand or how businesses are going to operate further down the line. With that in mind it is constant shifting sands and it is very difficult to pick an end point …it is more about heading in this general direction and ensuring that the business is in a position to be able take advantage of opportunities and be able to react.”
The tolerance of shareholders to high spending on digital innovation that doesn’t produce a quick return is very limited if the possible example of Aviva is anything to go by. The failure of the much-flaunted Digital Garage to produce anything to date that could help shift its share price has been cited among the factors that cost Mark Wilson his position as group CEO.
Equinix’s James Maudslay, global head of insurance, said some firms could raise their eyes beyond the short-term horizon. He spoke about a large French mutual life insurer that embarked on a digital transformation project with realistic expectations.
“It said we do not know what our customers will want in five years’ time so, therefore, we do not know what we are going to have to do in five years’ time. Its response was to opt for a system that was really flexible by giving it access to whatever it might need – a digital ecosystem, the cloud or to suppliers.”
For many firms it comes down to a battle between the “boardroom and the boileroom”. This is about resolving the tensions between ambition and reality, said Jeffrey. Often the two are “so far apart that it creates friction” and inhibits a real understanding across a business of what the objectives are.
An alternative strategy for some firms keen to embark on the innovation journey but unsure of how to start that internally is to buy into insurtech firms, said Webb.
“A lot of the bigger older companies are putting their money into insurtech start-ups,” he said. “The thinking is let’s invest in that, see what it does and then bring it in if it works. How it then goes about integrating it I don’t know.” It’s a model that works on the managing general agent market but he was not sure it could be applied to digital innovation.
Miller said one reason firms looked to invest outside the core business was cultural barriers: “If you have a culture where people fear getting something wrong you are never going to innovate because everyone is scared of getting the wrong answer. If you have a more accepting culture – test and learn – you start to see things move.”
Simpkin cautioned that this still needed “strong internal governance because we are in a highly regulated industry”.
Desire for perfection
A desire for perfection is another inhibitor, said Jeffrey. “Some insurers seem to be hell bent on getting it absolutely perfect, on rolling it out right across everywhere it right from the start. I wonder if a better way of working isn’t smaller pockets, smaller investment and being a little bit more agile. Trying it out and then if it works bringing it back into the wider business.”
This only works if an innovation project is given enough time to prove itself, she said: “There is always the danger if you bring it in too early it will go native and you will hamstring it. If you try to push it in too early it will run into resistance and legacy cultures. Bring it in when it has energy and can resist all the legacy ideas.”
Webb said that many firms had chosen to go down the outsourcing route to deliver their connected digital ecosystem, an understandable option but one with potential problems.
“When you are communicating your requirements to a third party it can get difficult, very difficult. You can end up with two groups talking different languages.”
How backed that up, saying it was often tempting for boards to go down the outsourcing route, often offshore, because there were massive savings on offer. It can work as long as everything is going well and there are no problems: “Then you get that phone call from that person who says I need this done and no-one understands what you are talking about. It’s not in the service level agreement, it’s not in the requirements and it’s not in the outsourcing agreement. I see that a lot”.
These major decisions should be requirements focused, not cost focused, said Miller.
He added that it was important large firms had systems that were flexible enough to cope with different requirements: “Global systems don’t work for everyone.”
The participants were very unsure about how close we might to a tipping point that would see a widespread shift to a truly connected ecosystem. Most agreed with Webb that it would need a major disruptor really change things. That could come in several forms: “You need something to disrupt the market because the market is by its nature reactive. We need an event or a third party and changes that dynamic.”
In the few weeks that have passed since that roundtable took place the biggest disruptive event in more than half a century arrived.
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