Insurance companies were built to bring stability to an unstable world.
So, why do factors such as market instability, technological upheaval and consumer pressure seem to throw so many insurers into panic? In many cases, insurers can simply point to their rigid foundations.
It didn’t take many California earthquakes to convince California builders that foundations would need to be built with flexibility in mind. In insurance, it won’t take many disruptive upheavals to teach businesses that current foundations are ripe for disaster. New foundations are needed to support a perpetually shifting business.
In Reinventing Insurance: Leveraging the Power of Data, Analytics and Cloud Core Systems, a Majesco white paper issued in cooperation with Elagy, we look closely at how fundamental changes in the insurance business can be met with a new view of insurance infrastructure. By assembling cloud components into a fully functional virtual infrastructure, insurers remove the lethargy and overhead that bogs down everything from data aggregation and analytics to testing and product development. The goal is to build an insurance enterprise that can capitalize on market opportunities.
Risk vs. Time
To assess potential cloud value, Majesco first looked at the relationship between insights and risk assessment and at how insights are traditionally gathered and used. Traditional risk assessment regards claims experience across time and population as the best kind of informant regarding risk within any particular insurance product. This kind of risk assessment is proven. Actuarial science has been honed. Insurers have become adept at long-term predictive capabilities, and regulations have kept consumers and insurers protected from failure through adequate margins of error.
The experience of time, however, has become the sticking point. To meet market demands, every insurance process has to be shortened. The new predictive fuel of data provided through real-time digital sources (as well as increasingly insightful technologies) can give insurers a much better view of risk in a much more appropriate timeframe. But even if they can gather data and assess the data quickly, they will, in most cases, still be held back by a product development and testing infrastructure that isn’t prepared to respond to fast-acting competitive pressure. The transparency that offers such promising opportunity is widely available to anyone, not just insurers, and it is highly coveted by agile, tech-savvy, entrepreneurial disrupters.
Competition vs. Time
Entrepreneurs love innovation and crave a new, marketable idea. They especially enjoy turning age-old processes on end, because these moments are often akin to striking gold. With technology’s rapid application of telematics, sensors, geolocation information and improved data management, nearly anyone can tap into the same data pools. Creative entrepreneurs, educated investors and innovative organizations are teaming up in a new kind of gold rush where rapid opportunity recognition will be met with rapid product development and relevant marketing. At a time when consumers seem to be susceptible to instant access product messages, disruptive companies will soon be feeding them instant-access products.
Once again, the development time of legacy platforms can’t offer a competitive solution to insurers. The foundation is now susceptible to cracking because of its inflexibility.
Legacy vs. Time
Insurers still maintain dozens of advantages in the industry, the first and the foremost being experience. All of today’s new data sources, new channel options and modern infrastructure possibilities have more promise in the hands of insurers than in the hands of non-insurance disrupters. Legacy systems, however, are restrictive. They aren’t plug and play. Most aren’t operating in a unified data environment with data consolidated and available across multiple databases. So, insurers’ opportunities will be found in a system built to fit the new insurance business and infrastructure model.
Majesco’s report discusses how insurers can align cloud solutions with business strategies to capitalize on new risks, new products and new markets. With data aggregation, for example, cloud solutions available through Majesco and data-partner Elagy are rewriting analytic- and decision-making processes. A cloud data solution can integrate claims experience with third-party data and newly available data sets to relieve the need for additional IT overhead.
A Satellite Office Approach
Small and medium-sized insurers, in particular, stand to gain through a reinvention of their operational model. Market drivers—such as agents’ lack of marketing insights, the availability of relevant data and the need for low-cost process efficiencies—make an excellent case for change. The hurdles are real, however. Many insurers don’t have the needed resources to take advantage of these opportunities, and they are constrained by technology and a lack of operational capability.
The ideal solution would be to transfer the whole pipeline to the cloud, migrating the enterprise infrastructure into a cloud-based infrastructure where partners and innovators can plug their solutions into a cloud-based core administration system.
In the real world, most insurers would be served by a better strategy. When companies in any industry hope to move to a new geographic region, they sometimes open a satellite office. The satellite office is the new footprint in the foreign territory. It’s the place where testing and acclimation happen, and its approach is somewhat analogous to what insurers can do when looking at cloud development.
Insurers will find excitement and freedom running a new and improved model alongside the old model. While the organization practices its newfound agility, it will maintain the stability of legacy systems for as long as they are needed or are practical. A cloud-based insurance platform will quickly bring the insurer to the realm of data-fueled experience and competitive advantage. Its new processes and capabilities will breathe fresh life into insurers that are ready for resilient foundations.