Tag Archives: medium-sized insurers

Why Small Carriers Need Insurtech

Effective customer relationship management (CRM) is key to successful business, especially when it comes to smaller insurance carriers, where the focus is on the client relationship. But smaller insurance carriers are falling behind on efficiency and speed. Larger carriers are gaining market share because of innovative digital tools and techniques, ranging from new data sources, robotic process automation (RPA), advanced data analytics such as machine learning and cognitive computing, to IoT (Internet of Things).

For instance, larger carriers can deliver quotes (whether personal or commercial lines) in real time and allow binding and paying online.

For small and mid-sized traditional insurance carriers, to stay relevant, and increase their growth and profitability, they need to partner with insurtechs and firms providing technological infrastructure to insurance firms.

Here are three reasons why this is necessary:

1. Competitive Edge

Insurtechs have a natural competitive edge over traditional insurance carriers, because of their lack of legacy systems and typically narrow focus. This leads to a much quicker service delivery model. What customers have expected traditional insurance carriers to deliver in weeks, insurtechs are now delivering in minutes or hours. To reduce the gap in service delivery models, smaller insurance carriers can partner with insurtech startups to yield innovation and improve efficiency.

See also: Insurtech: Unstoppable Momentum  

2. Internal Efficiency

Legacy insurance carriers have slow internal processes, i.e. the long cycle between brokers, carriers, underwriters and customers, and lack of digitization of customers’ requirements or customer files. If all the file work is still actually on paper and not digital or in the cloud, then searching for and acting on information does not take seconds but takes minutes or even hours. Thus, the more digitized carriers win again. The small and mid-sized insurance carriers can overcome this gap by strategically partnering with insurtechs in a very cost-effective manner.

3. Effective and Improved Service Delivery

Smaller insurance carriers need to have an effective service delivery model, which reduces the dependence on long communication channels and is completely customer-oriented. To do that, traditional smaller carriers need to show a willingness to adapt and innovate. They need to start by identifying and then partnering with startups that can improve their service delivery model.

Recommendation

Small and medium-sized insurance companies should start to track investments and advances that are emerging within the insurtech community and consider partnering with insurtechs to move from a traditional service delivery model to an innovative customer-centric and technologically enabled model. Such partnerships will be mutually beneficial — the carrier will benefit from new techniques and digital infrastructure such as cloud-based services in a very cost-efficient manner while the insurtech will benefit from the carriers’ legacy customer base and industry knowledge.

See also: Insurtech: The Approaching Storm

Innovation: Not Just for the Big Firms

Small- to medium-sized insurers that want to remain relevant should heed the call of innovation.

There has been a lot of press lately about how innovation can help insurers overcome growth obstacles. It’s no secret that the insurtech startups of the world, for which digital innovation is the hallmark, are garnering the attention — and funding — of venture capitalists and larger carriers, but how is that innovation affecting small- to medium-sized (SMB) insurers?

In some ways, SMB insurers are vulnerable to a fate like what is being experienced by department stores such as Kmart and JC Penney or the local bookshop, all of which hang on by a thread as the online and big-box retailers take control of the market.

Market demographics contribute to this pressure, as emerging generations of customers — with demands for anytime, anywhere digital access to policy, claims and account information — put an additional burden on carriers.

It’s no wonder that SMB insurers may feel overwhelmed at the thought of keeping up with the likes of IoT, machine learning, business intelligence or robotic process automation. But many SMB insurers assume (incorrectly) that they don’t have the resources necessary to climb aboard the innovation train.

See also: Top 10 Insurtech Trends for 2017  

Consider the business culture in which SMB insurers (small mutual insurers, commercial workers’ comp carriers, municipal risk pools, captives and self-insured groups) operate. These carriers work within a known and predictable entity where budgets are firm — often the result of a formalized, collective group mandate. Smaller self-insured pools — such as public entities, under the scrutiny of their not-for-profit, state-controlled state insurance departments — are also frequently held to a more stringent set of business performance and accounting standards and metrics.

But, like their larger counterparts across all lines of business, these smaller self-insured pools are expected to be efficient, productive and successful in every aspect of their operations, including core systems (underwriting, billing, claims), financial management and CRM/workflow.

Unique Challenges

Because of the financial and cultural boundaries under which they operate, many of these insurers — as well as many other types of small insurers — still must rely on Microsoft Office products or cobbled-together, aging, home-grown legacy solutions to support day-to-day business functions.

This may mean that a single technology solution provider (or perhaps the insurer’s own, in-house IT staff) is responsible for the health and well-being of the organization’s technology footprint, architecture, back/front office, distribution, networking, communications and security. And, lately, those that rely on outside help for their IT function are faced with confusion and potential service delays as the surge in vendor merger and acquisition results in their trusted partner being gobbled up by a technology behemoth. The service-level agreement (SLA) may remain intact, but the larger vendor will undoubtedly start pressuring the carrier to rethink outdated hardware and software. This pressure, along with the potential drop in personalized service that typically accompanies a large M&A deal, add to the SMB insurers’ challenges to remain competitive.

In addition, the talent pipeline is drying up because of a retiring workforce. To replace these workers, what’s the likelihood that SMB insurers will be able to recruit top technology talent to manage an outdated AS/400 linked to a client/server front end?

If it sounds like I’m insinuating that smaller insurers should assume a victim mentality, that’s not the case. These carriers play a critical role in risk management, so they need to remain relevant.

But these SMB insurers will not be able to overcome innovation-related growth obstacles until they better understand and embrace affordable technology innovation options that will make their jobs a lot easier.

The first step is gaining an understanding of what’s possible — such as an affordable pay-as-you-go, as-needed migration of core systems and data to a software-as-a-service (SaaS) hosted environment, a gradual sunsetting of existing hardware and the gradual move to a digital platform that pulls all necessary functionality together for reliable, secure, front- and back-end operations.

From there, SMB insurers can implement predictive analytics for use in claims, communications and even cross-selling. Even at a small scale, machine learning and artificial intelligence can help these carriers improve their claims function, customer service capabilities and more.

See also: 4 Hot Spots for Innovation in Insurance  

Risk-management changes within our marketplace — such as legislative issues, changing (read: younger) demographics, the advent of the sharing economy and the growing presence of disrupters — will affect all lines of business and all sizes of insurers.

The SMB insurers that will remain relevant will be those that hear the wake-up call and understand the path to innovation, that choose a stepped approach to business and technology relevance and that greet the future with an openness to what’s possible.