Growing up in Australia, where surfing is part of the culture, I have a healthy respect for waves. They're a part of something powerful, cohesive and much larger than the individual.

As an insurtech CEO since mid-2020, I've been getting asked about waves a lot--specifically, the first, second and third waves of insurtech. On the heels of our recent Series B raise, fintech reporters want to know: Is insurtech still perceived as a bubble or a blip?

Depending on your definition of the advent of insurtech, we're about a decade in. Yet there are still tens of thousands of lines of insurance, some of which haven't been innovated in 30 or more years.

With so much opportunity to offer better delivery, service and risk innovation, it's time to think about insurtech as a permanent fixture in the larger insurance ecosystem--and about how we evolve together, for the sake of our customers, our industry and the economy.

Investor Interest is Increasing

Market speculators and media headlines always make a great deal of noise around any adverse activity in our industry, but insurtech itself has been a steam engine since its inception. In Q3 of 2021, insurtech funding reached $5.3 billion (compared with $1.87 billion in Q3 of 2020), and topped $15 billion for the first nine months.

2021 was a landmark year for VCs as a whole, most of whom need to deploy their capital within the next five years. Any hesitancy in early 2022 is largely a byproduct of general economic uncertainty as global markets adjust to a third Q1 of pandemic conditions. The most forward-thinking venture capitalists are allocating specific funding toward insurtech to expand and add sustainable growth to their fintech portfolios.

Mutual Respect Between Incumbents and Insurtechs is Growing

Initially, incumbents were hesitant to acknowledge insurtechs as competitors, and vice versa. Many "1.0" insurtechs sought to disintermediate or automate fundamental insurance functions such as underwriting, broking and relationship management. Many incumbents believed they could beat insurtechs by rushing tech upgrades to antiquated quote-rate-issue platforms, only to be met with myriad challenges in adoption, training and cost.

Today, most of the longest-tenured global carriers have incubators and accelerators within their headquarters dedicated to insurtech. While true insurtechs have a bit of a leg up when it comes to agility and deployment because we are able to build from scratch rather than convert or upgrade legacy systems, it's a net positive for customers and the industry that incumbents are now constantly challenging and innovating. And early insurtechs learned a lesson in that you can't build an insurance company without serious insurance talent. Which brings me to my next point.

See also: 2022 Resolutions to Foster Innovation

Diversification of Opportunity Enriches Industry Talent

Not every insurance professional is a fit for the pace at an insurtech, and not everyone who thrives at an insurtech would succeed at a legacy company. Many will succeed in both arenas. But what the "great resignation," pandemic and "aging out" of talent in our industry have laid bare is that nurturing a talent pipeline for insurance is a responsibility we all must take seriously. There is a substantial benefit to having a breadth of career options industry-wide that draw from the traditional insurance paths--underwriting, claims, actuarial, risk management, safety--as well as innovators of technology, engineering, marketing and product development.

Younger generations in the workforce prefer to view careers as a jungle gym over a ladder, and the ability to move among legacy, insurtech or hybrid workplaces can offer the kind of development and enrichment critical talent thrives on. A stronger talent pool and happier, healthier workforce makes our industry better--and makes us better at serving our customers.

We Serve a Common Purpose

In the business of insurance, at the end of the day, someone is looking to us when things have gone wrong. They don't care whether we call ourselves an insurtech, a mutual or state fund or a global carrier.

You can call what's happening with insurtech a bubble, or 2.0 or third wave. But if we're each solving for one of those 10,000 lines of business that haven't been innovated in the last 30 years, I call that a win.

It’s been a wild year for insurance, and for auto insurance, in particular. As the pandemic and local governments’ responses to it have evolved, motorists have significantly changed their driving frequency, driving behaviors and ownership patterns. And, unfortunately, there’s no reason to think that 2022 will be any more settled than 2021. 

For starters, driving patterns have been fluctuating dramatically. In January 2021, travel on U.S. roads and streets totaled 223.3 billion vehicle miles, down 11% compared with the same month in 2020, according to the U.S. Federal Highway Commission. By November 2021 (the most recent month for which data is available), there were 278.4 billion vehicle miles, a 12% increase over November 2020. In fact, though traffic was down significantly in the early part of 2021 over 2020, by November, total vehicle miles for the year was up 11%!

In addition, it’s  common to hear people complain that motorists seem to be driving worse than before the pandemic. Statistics show that it’s not our imagination: The Zebra’s annual survey on distracted driving found that 40% of respondents said they interact with their Apple devices while driving, a 14% increase over 2020, and 55% of Android users said they did so while behind the wheel, a 2.7% increase over 2020. 

People are also holding onto their cars longer than ever before, with the average age of vehicles on American roads climbing to 12.1 years in June 2021. Supply chain disruption caused a shortage of new cars on the market just as demand for vehicles soared. As a result, the price of a used car rose by anywhere from 32% to 36% in 2021, depending on whom you ask.

Finally, new cars have significantly more technology than older cars. And while these technologies do increase driver safety and prevent accidents, when there is a wreck, damage will be more costly to repair.

See also: 5 Trends Changing Auto Insurance

Impacts on Auto Insurance in 2022

Lasting impact of new vehicle technologies: Damage severity is increasing. That’s not surprising, with so many sensors embedded in the bumper and other exterior areas of a car. A simple fender bender can damage these sensors to the point of making a car undriveable. As a result, the average claim will grow, and roadside assistance will be required for accidents that previously left vehicles perfectly safe to drive.

Insurers’ roadside assistance programs will also be affected in another way, because, as vehicles become more complex, it’s more difficult for a single towing and roadside assistance service provider to become specialized on all vehicles. For example, at least half a dozen car models have no exterior door handles, or they have handles that only pop out when a fob is present. This makes lockouts much more difficult to perform. It’s not out of the question that five to 10 years from now, tow providers will need to work through secured software or remote relationships to get these vehicles open, jumped or even towed. 

Another factor will also increase the severity of damage. People are holding onto cars far longer than they used to, and, the older a car is, the more likely it is break down at some point and initiate a claim. 

Roadside assistance programs: Roadside assistance is by far the most common claim for auto insurers, and the whipsaw trends in traffic volume have caused significant disruption. When traffic volume cratered in early 2020, tow providers had to lay off employees and even sell trucks and equipment to survive. Now, with traffic volume surging, they’re scrambling to keep up. In fact, a recent HONK survey of more than 580 tow providers found that more than one in five are having to turn down work. Tow business owners are working to hire employees and buy trucks so they can meet demand, but, in the meantime, the survey shows tow providers are prioritizing jobs that are closest to an available truck. Dispatching systems that take location into account can help reduce wait times for customers, but until the supply-and-demand imbalance is righted, insurers’ customers will likely see longer than usual wait times for help across the board.

Opportunities ahead: Despite the difficulties, there are big opportunities ahead for auto insurers. One of the largest involves telematics that can help with risk assessments and claims management. As a result, insurers can get a much more accurate, up-to-date picture of an individual’s risk, managing it in real time on a trip-by-trip basis. Instead of basing risk on predictors like financial history, where a motorist attended college and where the car is typically parked, insurers can look at individual behaviors in real time. 

See also: Nonstandard Auto Insurance's Key Role

There will be a lot of regulatory hurdles to overcome, but the momentum is clearly behind applying more sophisticated telematics to risk assessment. Insurers that have thoroughly digitized their operations will be well-positioned to capitalize on this massive amount of data once it becomes possible for insurers to access and use it.

In sum, 2022 will look a lot like the second half of 2021 for auto insurers. But it’s also clear that there’s much opportunity for insurers to lay the groundwork to differentiate themselves and position themselves for growth once the disruptions caused by the pandemic settle out.

Despite all the hype for smart homes, I've remained a skeptic for the 30 years or so since I first heard about the concept, partly because there wasn't a standard way for all the disparate devices to talk to each other. There wasn't a sort of operating system for the house, and a bunch of one-off devices weren't going to provide enough benefit. 

Well, three of the biggest guns in the tech world -- Apple, Google and Amazon -- just announced a new standard for communication that will be available later this year. The standard, called Matter, will let just about all new smart home devices, and even many old ones, talk to each other. 

Progress will still take time, and I remain to be convinced that many of the long-touted "benefits" of the smart home -- an internet-connected toaster or the ability to turn lights on and off remotely, for instance -- actually offer anything of value, but at least there will finally be a communication platform that will let companies, including insurers, tie all the benefits together and look for synergies.

To see how a platform like Matter can unleash a market, you can look to any number of examples from the history of technology. For instance, personal computers were available in the second half of the 1970s, but they all operated using different software. When IBM debuted its PC in 1981 and used a Microsoft operating system that any company could license, the standardization of the computing platform let the PC market take off. The search engine became far more powerful when Google became a standard. The market for music transformed when Spotify became the standard for streaming. In the physical world, Amazon's Prime has set a standard for shipping that has taken e-commerce to new heights.

Yes, all those standards have given rise to monopoly complaints. Google faces privacy concerns, too, and Spotify's attempts to build on its success and move beyond streaming have given it a great, big Joe Rogan problem. The monopoly and privacy concerns, if not problems with overreach, could well surface with smart homes at some point, but those are mostly to be dealt with down the road, after the market expands considerably. For now, standardization will almost entirely provide benefits.

For insurers, having an operating system for homes would help them work with technology suppliers and other partners to tie together sensors for water leaks, fire, radon and carbon monoxide, etc. and offer discounts on policies while better protecting clients. Building on Matter, insurers and partners could also better integrate those sensors and cameras with security systems that protect homes and offices. Insurers could also tap into devices such as the Amazon Echo and Google Home to provide voice alerts that a big storm is heading for your neighborhood, so you should remove anything from the patio that could get damaged or turn into a projectile, or that the possibility of a hail storm means you might want to keep your car in the garage all day. 

Or whatever. The point is that, once you have a platform, innovations can build on each other, often in unexpected ways. And I think Matter could finally provide that platform for the smart home. 

If you're interested in reading more, here is a Wall Street Journal article that explores Matter in some detail. Here is me complaining in 2016 about how the lack of a standard means of communicating limited the utility of smart home devices; the commentary includes links to a piece by an old colleague that goes into even more detail. Here is me in 2020 explaining that insurers will eventually have to make a business case for smart home technology and show that widely deploying, say, sensors for water leaks has to cost less than the price tag for the damage they would prevent -- concluding that we weren't there yet. And, lest you get the sense that I'm always pessimistic, here is a link to the ITL Focus from December, on smart homes, which includes some commentary from me, an interview with Mr. Telematics himself, Matteo Carbone, and six articles on what insurers are doing with smart homes.

Finally, my daughters suggest I steer you to a Disney movie called "Smart House" from 1999, which they recall watching as little kids. The movie is about a home that gets too smart for its own good, presaging at least some of the problems we might eventually encounter, but, remember, it's a Disney movie, so it has a happy ending. 

Cheers,

Paul

Customers now expect exceptional service from all businesses, and low-code platforms hold great promise for businesses’ internal and external users alike. They’re capable of aggregating data from multiple administrative legacy systems and quickly bringing value to customer service functions. 

Many of these platforms are rich in user interface functionality. They allow for drag-and-drop efficiency instead of burdening users with extensive lines of code. Circumstances may not be as flexible as with other technology, but the speed and integrity of low code make it a viable choice.

Additionally, integrating low code to existing IT operations provides modern tech experience to in-house system managers who, in turn, grow their expertise. For example, domain experts can immerse themselves in articulating need requirements and even build out the solution. Those who already have systems development expertise can be assets in the transformation.

See also: Thinking Big for True Transformation

Low-code platforms are rich in functionality and capable of rapidly creating enterprise-level applications, and vendors offer different solutions with varying levels of functionality. Some are robust with powerful capabilities, providing user interfaces, automated workflows, automated case-management processes, integration with many different systems and more. 

These solutions often come through built-in connectors to automate processes. 

IT pros in the insurance industry both influence and benefit from digital transformation. IT has significant experience with methodology and process. Pros understand and can describe business requirements in a product backlog and are familiar with testing and deployment processes. Such IT experience can be advantageous if complex integration needs arise. In turn, the platform offers significant leverage to the product team seeking an automated solution to a business problem.

Some businesses find themselves frustrated by the functionality of commercial off-the-shelf packaged software. Those products result from requirements dictated by the larger market needs and generalized feature set, though this is now changing. These features may not apply to all and may need heavy customizations to adapt within an existing ecosystem. Such frustration is a low-code opportunity that's tailorable to a client, suits its needs, is cost-effective and is simply a better fit.

There are four ways for insurance organizations to leverage low-code:

• Build out enterprise-class applications. 

A full-stack platform brings everything necessary to create a customer-facing user application. That includes a user interface, business process management, business rules, case-centric capabilities, content and document management power and third-party connectors that allow connectivity that provides for and extends legacy systems. 

• Complement an existing system. 

Underwriting often involves manual processes where paper notes present valuable information. However, it is hard for software systems to digest and make sense of this material. Low-code solutions with character recognition and language processing capabilities can integrate and automate gathering this vital information. 

• Integrate relying upon multiple existing systems. 

Low code can orchestrate leveraging these systems into modern service, whether administrative, claims, internally developed or inherited systems or multiple other varieties.

• Reduce technical debt

Low code is easy to maintain and increases user productivity by speeding the development process. It reduces several tasks to a single workflow, enabling more automation and integration of apps, ultimately reducing overhead costs.

Many legacy systems are expensive and complicated to migrate. Retaining these systems but capturing information held within them through low-code platforms makes all that intelligence available to the user. Low code simplifies. It brings efficiency and value to the business while managing costs and risks.

See also: 3 Ways to an Easier Digital Transformation

Moving to this level takes significant commitment. Insurance IT infrastructure can be well out of date. If merging old technology with new was a simple one-to-one proposition, every company would’ve done it long ago. Additionally, mergers and acquisitions among organizations that keep creating short-term demands to absorb various legacy systems steal from long-term transformation plans.  

There are no indications that this fluctuation will slow any time soon. While making sense in a chaotic environment,  insurers must also choose and commit to agile, modern digital solutions that address this legacy influence. 

No plug-and-play solution resolves all these complicated obstacles. Demonstrated expertise in navigating technical roadblocks should be sought. Doing this will position the business to incorporate the latest technology to design a system that functions with power and features that meet the business needs and customer demands.

The insurance industry’s historic legacy is a double-edged sword. As an industry with roots that span as far back as the days of Hammurabi’s Code, the insurance world’s stability has both provided security and, at times, resisted necessary change. One of these necessary changes is the adoption of new technologies to structure the processing of the massive increase in data that the modern world brings. As the global insurance ecosystem dives further into digitization, the problem of big data will only persist should carriers choose not to adapt to this new status quo. 

However, not all challenges may affect all insurance industry players equally. Large and small carriers, in most cases, have inherently different business processes, capabilities and priorities due to their variance in size. How might these key differences affect their abilities to address the needs of the 21st century with new data-structuring technologies?

Larger carriers’ challenges lie in their scope and age. These organizations have typically existed for longer than their smaller counterparts, meaning they usually rely on relatively older legacy systems and processes. This long-standing dependency on legacy systems creates a greater technical debt, meaning that larger carriers will usually have to play digital “catch up” on a deeper structural level in their business processes. 

Additionally, larger carriers typically use multiple platforms for the same business operations (e.g., multiple policy admin systems across different lines of business), as opposed to smaller carriers, which typically use one. Larger carriers face a lack of uniformity in data collection, adding operational efforts (such as extract, transform and load, or ETL) to sync up data formats from different sources. 

The challenges smaller carriers face differ, but they are equally pressing. These smaller organizations often have a lower budget allocation for IT modernization. This may result in compromising on the benefits of data structuring in favor of short-term growth. Smaller carriers typically also face more competition in their segment of the economy, so any data restructuring may not establish them as leaders in their field right away. Additionally, once their initial investment is made, smaller carriers must keep up the momentum by staying in the loop of even newer technologies. This fast-paced modernization may cause some strain on their budgets and could be unsustainable. 

See also: Technology Addiction: A Fatal Distraction

Larger carriers’ advantages come from their size and resources. They typically have larger IT budgets, so investments in new technology will not put as much of a financial burden on them. Because of these larger budgets, they also can sustain these investments for the long term. Larger carriers often inherently have more data than smaller carriers due to their many platforms and lines of business, and leveraging such data enables them to reap the benefits of modernization more immediately than their smaller counterparts. 

Smaller carriers, on the other hand, have advantages in that they are typically dealing with less data relative to that of larger carriers. The platforms they use for business operations (such as billing and claims), are typically common across lines of business, as opposed to larger carriers that usually have multiple platforms. Due to these reasons, smaller carriers can adopt new technologies to facilitate data structuring with greater ease and flexibility. 

Regardless of the unique considerations for differently sized carriers, it is clear that adopting technologies to drive better business function is an overriding business need. The benefits of embracing data structuring are far and wide; it can not only enhance the efficiency of insurance functions but can improve their accuracy. From risk underwriting to pricing algorithms, and target-driven product development to claims fraud detection, all aspects of the insurance value chain can greatly benefit from the enhancement of data organization.

How, then, can carriers of different sizes tackle the challenges of adopting new data structuring technologies? For smaller carriers, a key strategy is tighter planning and allocation of resources. Stakeholder expectations must be set realistically, as data restructuring may not yield immediate results. A well-tested method of alleviating financial strain is taking advantage of open-source or relatively inexpensive technologies to provide a basic framework for adoption. This helps alleviate the risks involved in investing with a limited budget.

For larger carriers, establishing long-term goals for adoption can help provide a solid foundation for implementing new technologies. The level of restructuring required at carriers of such a size is innately more complex and time-consuming than that required of their smaller counterparts. Therefore, aligning objectives and intent across the organization is an essential step in preventing delays and inaccuracies as new technologies are applied.

See also: Insurance Technology Trends for 2022

Carriers of all sizes would benefit deeply from an investment budget that is flexible and makes room for contingencies. Persistence is the key when it comes to implementing modern technology. Defining clear goals and setting achievable expectations based on available resources will both allow technological investments to be sustainable and build a better foundation for future adoptions. 

As the insurance industry becomes more global and digitized each year, the fact still stands. All organizations, large or small, must acquaint themselves with these new methods of enabling standardized data structuring, collection and sharing – or risk getting left behind in the modern digital age.

Home and extended warranty providers cover appliances and products that break down – a useful service if you are a customer facing hefty and unexpected repair bills. However, customers are often frustrated when engaging their warranty plans because of confusing terms and coverage plans, long wait times and an unclear process. Field service management software can digitize steps of the warranty workflow to improve customer satisfaction and provide quality and convenience.

1. Put the customer first

The warranty market is a client-first industry that is focused on insuring items that mean a lot to customers. Therefore, it’s critical that the customer journey provided by warrantors is seamless from end-to-end. By implementing connected digital platforms into the service experience, providers increase transparency and communication with their clients, giving them step-by-step updates on their requests, timelines and invoices. Customized, self-service online portals enable customers to schedule maintenance or repair, check service technicians’ whereabouts and status and communicate directly within a mobile application or browser. In fact, 90% of customers expect a business to offer an Uber-like experience with a self-service portal. A centralized location for all service information allows customers to access details of their policy and work history at a moment’s notice and provides simple touchpoints for interaction with the servicer. Consumer-related metrics like customer happiness and response times account for 55% of Forbes Home’s rankings of warranty companies, reinforcing that, when customer is king, the entire business prospers.  

2. Improve the on-site experience

The structure of the warranty system means companies rely on field service technicians to represent their organizations when interacting with the customer. It is therefore crucial that technicians are properly prepared to deliver high-quality service during their visit, to build customer loyalty through an enjoyable experience that resolves the customer problem. Providers that leverage artificial intelligence (AI) through field service management systems can intelligently dispatch the best technician for the job, equipped with the tools and parts needed to get the job done. Leveraging AI-based schedule optimization software can increase productivity by 68%, and AI capabilities not only delight the customer during the service interaction but can also help clients manage their possessions within their policy. Integrated AI can send out alerts to connected devices warning against imminent product recalls and predict potential repairs. Implementing technology that puts the customer first and focuses on service experience will differentiate warranty businesses from their competitors. In fact, consumers that purchase extended warranties and service contracts are twice as likely to recommend the retailer where they made purchases, making their experience all the more important.

See also: How Technology Is Changing Warranty

3. Simplify the process

Once the service work is completed, the servicer must be paid for work performed, and the repair must be logged against the warrantee’s policy. The best full-service digital platforms offer management solutions that enable automated warranty claims processing and intelligent audits based on business logic. Automated claim adjudication with built-in validation improves efficiency and protects warranty reserves. This automated technology also prevents fraud and reduces costs by only validating claims that are eligible for payment and reducing turnaround time on claim status and payment processing. Internet of Things (IoT)-enabled claims management and real-time business intelligence allows providers to cull through information faster to make data-driven decisions. With an organized system of information easily accessible, business leaders can automate standard processes and quickly review key performance indicators (KPIs) in real time to understand and improve service operations. 

4. Expand support systems

Warranty providers often cover products for third-party organizations, meaning they usually serve a wide range of clientele. Warrantors, in turn, must often depend on a blended workforce of full-time, part-time and contracted technicians and employees to meet demand. However, properly managing a large remote workforce that is constantly on the move is challenging and time-consuming. Field service management software is a comprehensive tool that offers providers the ability to engage a broad network of qualified technicians, integrate contractor onboarding and intelligently dispatch workers for the best results. Blended workforces can help eliminate skill gaps, expand geographic reach and support changing demand with a supplementary service provider network. By using software that ensures dispatched service techs have the required background screenings, insurance coverage and certifications and that dynamically chooses contractors based on rankings and credentials, warrantors can increase appointment bookings and reduce rework. In fact, 73% of companies with a blended workforce outperform competitors with employed-only staff, and leveraging workforce managing technology can help businesses scale without dampening service quality. 

Warranties are an important part of home and property management. As more individuals choose to work remotely and increase the time spent using their appliances, devices and vehicles, the coverage for these items will be more important than ever. Implementing comprehensive service management software into warranty business operations can help improve customer service, expand service offerings and automate existing processes to free time and reduce costs, all while improving the quality of service for steady customer retention and brand reputation.

I'll be quick this week. It's my older daughter's birthday, and she tells me I have more important things to do today than spend a bunch of hours hunched over my computer writing a commentary. (We're going hiking in the canyons along the coast near Point Reyes, just north of San Francisco, on a beautiful, sunny, almost-spring day. I know: Life is tough.)

But before I go I did want to call attention to a story on home-based businesses that I think exemplifies the sort of opportunity that is arising as we start to come out of the latest wave of this awful pandemic and head toward a new normal. 

The article says half of the 30 million small businesses in the U.S. are already home-based, and loads of surveys and analyses have suggested that the allure of working from home has only grown in the pandemic. These home-based businesses offer an opportunity both for new products and for education-based sales by agents and brokers.

The piece says small businesses tend to be treated as monolithic for insurance purposes, even though the home-based businesses can be very different than ones based in an office or store -- a survey of 1,000 home businesses found, for instance, that 24% were based on e-commerce or home crafts. So, there would seem to be opportunities to tailor products better.

The survey also found that 91% of the small business owners know they need insurance coverage but that 44% either do not have coverage or do not know what liabilities are covered by the insurance they have -- a clarion call for agents and brokers. 

The opportunity with at-home businesses will be just one of a myriad of adjustments that we'll see this year and beyond. Allstate recently said, for instance, that its auto repair costs are up significantly because of supply chain disruptions that relate, in part, to Covid. Workers' comp carriers are having to adjust to changes in work locations, tasks and schedules. The gig economy is getting a boost because Covid has required much more flexibility -- plus all those drivers to deliver all those items we decided not to buy in stores. And so on. 

I'm sure I'll return to the post-Covid opportunities and complications many times in coming months, but that's enough for now. 

Until next time, repeat after me: Happy birthday, Shannon!

Cheers,

Paul 

This is the second in a planned series following our initial article, Barriers to Insurance Innovation.... and New Year’s Resolutions to Overcome Them, which was published in January as a blog on InsurTech Consulting and by Insurance Thought Leadership as 2022 Resolutions to Foster Innovation. In that article, we identified the differences and commonalities among carriers and insurtechs. This series will feature practical, experience-based perspectives and insights from successful leaders who have had careers in either or both of the insurance and insurtech sectors.

This particular article is based on our recent interview with Pete Frey, associate vice president, commercial lines, emerging capabilities and competitive intelligence at Nationwide. Pete is the perfect leadoff interview because of his deep experience on multiple sides of insurance innovation and technology. Pete perceives many critical gaps in empathy and understanding between insurer and insurtech organizations and shares his ideas on how to narrow or close those gaps to overcome some of the barriers to innovation. 

Pete’s career has included 14 years with American Family in agent technologies and emerging usage-based insurance, time with insurtechs Zubie and Hubio in connected car telematics and UBI product leadership roles and for the past four years with Nationwide leading commercial lines telematics and related emerging technology product strategies.

Q: What has changed with insurtech/carrier adoption over the past two years?

Pete Frey: Carrier and vendor partner interaction requires a different dynamic these days. The pace of things, the increased dependence on insurtechs and the competitive landscape in insurance has led to some different expectations when it comes to that dynamic, and how partnerships are now a strategic necessity. 

Insurtechs are doing a better job of building teams that include insurance industry experience and acumen, and that goes a long way toward understanding insurers' pain points to solve. Likewise, the role of the insurance CVC [corporate venture capital] unit has expanded and is helping insurers drive the CVC mindset deeper into the organization

Innovation, in general, has to be a core strategy, but the approach to it must also change, and it must be viewed with a bit of a different lens. When times are challenging for insurers, innovation is usually the first thing to go due to bigger priorities or limited budgets and resources. Carriers may not be able to afford to focus as much as they’d like on innovation during those times. 

To stay relevant, however, they have to find ways to keep innovative pursuits going and part of their portfolio. Easier said than done, however!

See also: Key Considerations for Managing Innovation

There is general recognition that the dynamics between insurers and insurtechs needs to change. The former vendor-customer relationship paradigm no longer works well enough. There is a real need to better understand each other’s problems and challenges at a granular level in order to forge practical, effective partnership relationships.

• Levels of expectations on both sides need to be better aligned; insurtechs prefer to move quickly; carriers recognize the need to move quickly but are not always able to
• Insurer innovation leaders need broad organizational support, persuading and lobbying their peers to think and act more innovatively; innovation requires an enterprise-wide effort
• Insurtechs should recognize that insurers are also resource-constrained (in spite of their bigger balance sheets) and that funding for innovation competes with many other corporate priorities

Pete describes the “flywheel method” of making incremental but increasing progress as a minimum starting point vs. over-thinking concepts with no progress. He also shares that insurtech readiness to launch a trial or pilot requires some patience and preparation along with understanding insurers' pain point priorities. A telltale sign can follow a demo session where the insurtech explains its capabilities in great detail and ends by asking, “How do you think we can help you?” This can be a red flag while shifting the next steps onto the insurance company, which is already juggling projects and priorities.

Q: How can insurance carrier innovation be a sustained effort with so many distractions and competing priorities that emerge each year?

Pete Frey: Vocal and visible support from the C-suite is more critical than ever. Innovation is about a lot more than just chasing “shiny objects”; the industry must shift toward “sustainable innovation” that has a much deeper connection to the company’s business strategy. And it needs to be aligned and in cooperation with all business units; distribution, underwriting, services, claims, marketing and finance. Here, Pete referenced a favorite quote he attributed to Amazon founder Jeff Bezos; “Be stubborn on vision but flexible on details.”

Proof of concept (POC) projects need to have clearly articulated objectives stated and agreed on up front by all parties.

Innovation doesn’t always have to be about spending money. Innovators at insurers and insurtechs need to be more resourceful, connecting and applying good ideas and learnings from others. Innovation requires more lateral thinking and fewer blinders, especially when applying various learnings within the enterprise. 

Innovation leaders need to be evangelists and ensure continuous alignment with the business by demonstrating and explaining how practical approaches can be just as innovative as well as productive.

Q: How do you distinguish between advancing new capabilities from simply launching technology?

Pete Frey: Telematics (and other types of Internet of Things (IoT) need to be seen as building new capabilities rather than just rolling out a new technology. This is becoming even more true as these technologies begin to pervade our space at a more rapid pace and at a broader scope across the entire value chain. For example, telematics success involves all functions coming together and doing their part, from distribution and sign-up, to services and claims handling to surrounding the product and customer experience alike.

Q: What can startups and insurtechs do better to partner and position carriers to say "yes”?

Pete Frey: Insurtechs should be prepared to understand and align carrier use cases at a deeper level. 

They should include strong carrier experience in their leadership and functional teams and consider forming an advisory board. Customer and expert advisory boards of some sort would also be beneficial. A platform for two-way feedback is very valuable.

And finally, insurtechs need to be better listeners in every sense of the word; he encourages attendance and participation in industry conferences, attendance at webinars and investing time in reading industry journals. 

Q: What can carriers do to support and guide insurtechs in today’s environment?

Pete Frey: In POC situations, insurtechs and carriers need to agree in advance on what success will look like and how it will be measured.

Insurtechs should expect and be prepared for a trial period, possibly without revenue, although in some circumstances carriers will agree to reimburse the insurtech for a pre-agreed amount of costs in the event that success metrics are met. 

Carriers need to plan better so that, when POCs are completed and successful, carriers are able to begin to deploy the solution without having to “park” the project for an extended period. So, measuring KPIs and agent, customer and user experience matters, as well.

Again, carriers need to become more creative in innovating and piloting effectively in ways that do not always require funding. With finite resources and competing priorities, carriers will need to be more creative in leveraging insurtech resources, whether it’s low-fidelity test-and-learn efforts, low- to no-cost POCs or cost-sharing collaborative efforts across multiple partners and carriers to help accelerate innovative capabilities.

See also: How to Embrace Insurtech Culture

Q: What’s on your 2022 insurtech wish list?

Pete Frey: With a focus on the small to mid-size commercial market, Pete identified a need for more efficient underwriting solutions using technology that integrates third-party data and an easier process for independent agents to write and submit new business. This should include the elimination of time-consuming “busy work” on submissions to carriers, including a wide variety of file format variations and missing data. Today, there is much administrative work, missing or incorrect information and a lot of back and forth between agents and underwriters to tackle, for starters.

We wish to thank Pete Frey for his time, insights and candor and hope you find this information as interesting and valuable as we did. What we took away from this interview at a high level is that insurtechs and carriers both need to take the time and make the effort to understand one another’s needs, capabilities, constraints and strategic objectives to collaborate and achieve true innovation together, as partners rather than in the traditional vendor/ customer relationship.

Watch for the next article in this series and feel free to write us with any comments and suggestions about interviews you would most like to see.

Insurance companies have traditionally lagged in modernizing their core applications. Most CIOs want to have a modern system, but they often cite a number challenges to core transformation:

Logic behind sticking with the legacy system 

1. If It's Not Broken, Why Fix It?

Most insurance companies would state this logic: Why should we replace the old system; what’s the problem?

The fundamental concept companies must understand is the way they measure problems. If you measure problems only with broken status, then maybe a system can still work until it is fully broken. But market dynamics depend on many other factors, like competition, speed to market, operational cost, goodwill, etc., and each company should evaluate the definition of "broken" and then evaluate the legacy system.

If you are not improving your core parameters like sales, market share and reduced operations costs on a quarter-on-quarter basis, your systems may be broken.

2. It’s Too Costly

Of course, there is a cost involved. Core admin systems are assets of your organization, so the investment is inevitable. The questions to ask are: What’s the benefit? How long will it take to get up and running? Can the overall transformation process be predicted?

It is important for the insurance company to get some help with transformations rather than try to do everything by themselves. It is critical to see if the vendor has done such transformations. Do they have any strategy to stick around to support the system? How are they investing themselves in building value-added solutions?

See also: Core Systems: Starting a Whole New Game?

3. It’s Risky to Replace

The insurance industry knows that there is risk everywhere, but the question is how we manage and mitigate it. Risks associated with such replacements are:

• Cultural Risk – As part of transformation, companies should plan for a cultural shift, not only within the organization but also with all the stakeholders, such as agents, partners and finally the customers.
• Fit Risk – Will the new system fit into the unique way of working in your organization? An essential point to remember here is that the more you try to be unique, the more it will be difficult to upgrade. Too much differentiation will make your new system a legacy in a few years, as it will not be able to upgrade easily.
• Scope/Time/Cost Risk – These are linked and should be monitored closely. Working with experts who are known for managing large transformation programs could mitigate this risk. Different management and contract styles have shown different results. For example, a large and complex program is best managed as an agile project. 

Companies get slightly confused about the legacy platform. Should they think about whether to replace systems based on resources or on whether there is a problem with the system's fundamental architecture? The architecture of the application should support faster speed to market and better and faster customer service, and it should be central to the organization's digital strategy. Don’t focus on skill availability; concentrate on the application's capability.

Choosing the approach

Core modernization is no longer optional, but choosing an approach can be classified into four buckets depending on: a) how unusual your requirements are and b) the quality of the existing system. While deciding the approach, one should always keep in mind the big picture of organizational growth strategy and changes in customer expectations in the digital world.

Decision Chart: Core Admin Evaluation chart.

High Quality - Unique Process (Modify): Companies that have acquired or developed an application recently with modern architecture should stick with the existing platform. However, they should continuously try to add functional as well as technical features to the system to keep it current.

Low Quality - Unique Process (Rewrite): One of the predominant reasons for rewriting or custom-building applications is the lack of commercial off-the-shelf (COTS) products available to support the unique needs of the insurer. We still suggest looking for a specialty risk product in the market, but rewriting a sleek application is also an option. The key benefit of rewriting is that we can reuse some key assets, like business rules and data sets. Before deciding to rewrite into a better architecture, there are two points to consider–

• Is it worth sticking to existing processes or will it be better to move toward standardization with some deviation, i.e. some customization to existing COTS products?
• Do we intend to solve a single core admin system problem or to support the entire IT ecosystem?

High Quality - Standard Process (Upgrade): Companies already having a COTS product should plan for regular upgrades of the application. While insurers purchase standard products and configure them to their needs, they normally don’t plan for an upgrade as additional time and budget. This leads to the challenge of an unsupported version. Companies should not only plan for application upgrades but also infrastructure upgrades. Most insurance COTS products come with major and minor upgrades. Minor upgrades will provide bug fixes and security enhancements, but all major upgrades will require adoption of new features and functionality, training of staff and technological adoption based on industry standards. Enterprise applications, unlike mobile apps, require a bit of handholding before we can upgrade. So here is a serious suggestion: Budget for upgrades. If you don’t, one day you will require a transformation budget.

Low Quality - Standard Process (Transform): Many insurance companies are stuck with the old core admin system, which is difficult to change, and have adopted "modify" as a strategy. Lack of documentation, skilled resources and technological compatibility make these applications painful to maintain. They pose some serious operational challenges and restrict the growth of the organization. The insurance industry is full of niche software providers and many COTS products that provide some great applications and lots of in-built standard processes. One should perform a full-blown search to find such players for a long-term solution. Companies should do a better fit gap analysis for their long-term needs before selecting a core application. They have the choice to select best-of-the breed applications or the full suite for their core needs.

See also: Finding Success in Core Systems

Conclusion

Customer expectations are changing rapidly. To keep up with the competition, insurance companies should regularly evaluate the capabilities of their core admin system to support business growth. They should use the matrix mentioned above to categorize each application into the four buckets. CIOs should do this evaluation every three to six months to ensure that IT is always ready to support the growth and service demands of the business.