Tag Archives: munich re digital partners

The Death of Core Systems

Insurance is overweight and unhealthy. For too long, the insurance industry has accepted that it is OK for at least a third of customer’s money to be spent on admin, overheads, sales and marketing. Insurance CEOs have been announcing operational efficiency programs for years, yet the percentage of premium left for the risk pool hasn’t really changed. Thank goodness for the insurtech digital implementation strategy for insurers!

Hampered by legacy technology, large workforces and cumbersome business processes, insurance is an inefficient business. But that’s changing! Insurtech is now on the corporate agenda for all insurers who wish to be around in the next five to 10 years — which means embracing digital ways of working in an age where speed of change is the defining characteristic.

For this month’s “Insurtech Insights,” Rick Huckstep explores the subject of the insurtech digital implementation strategy and the impact of digital platforms as an alternative to core systems implementations.

Why now for insurtech?

The insurance industry has always been a technology user, so why is there now all this fuss over and attention about insurtech digital implementation? IMHO, insurance is going through a massive catch-up phase. I call this a rapid evolution, rather than use “disruption.”

Nonetheless, this is about digital implementation for insurers, who have failed to keep pace with technology since the mid-’90s and the birth of the internet. You only have to consider the iPhone, already a decade old, and incumbent insurers still appear clumsy when going “mobile.”

For decades, software vendors and systems integrators were the source of technology insight and innovation. Now they find themselves increasingly irrelevant in the digital age — even more so with the emergence of insurtech. That is why many are scrambling around looking for ways to engage with the insurtech ecosystem; if anyone is going to be disrupted by insurtech, it will be them!

See also: Let’s Keep ‘Digital’ in Perspective  

The problem is that software vendors have focused on providing all-encompassing core systems at massive expense and demand on company resources. Often, by the time these large IT implementations are finished, they are already a legacy system. It is no wonder that so much of the IT budget is spent on keeping the lights on, leaving little for internal innovation and value creation.

These core insurance systems are like giant aircraft carriers. They’ve got massive capability and scale and are deep and rich functionally, are generalist and are built to last (well, at least 17 years, which is about the average for a policy admin system.) They are designed and built to do just about everything! They are also very expensive, take ages to commission and are difficult to adapt to external, unforeseen changes.

Whereas insurtech’s core systems are like the latest generation of robotic armed patrol boats — agile, automated, cheaper, have a shorter cycle times to commission and are task-specific.

The demise of core systems

In the traditional software licensing model (the way legacy systems are sold), the insurer buys a license to use the software. For this, the insurer typically pays a large one-off, upfront fee. Then, the insurer pays an annual maintenance charge that is based on a percentage of this fee (in the 15% to 25% range).

Added to this is the cost of implementation. This is where the systems integrators come in, because not all software vendors provide the services needed to implement and configure the new system.

These implementations become large IT-led projects that are measured in years and tens, if not hundreds, of millions of dollars. And they’re big decisions that the insurer is going to have to live with for several decades! That is why the average time to make a buying decision is also measured in years.

Meanwhile, the product and sales teams are frustrated by the IT department because it sees customer opportunities and competitive threats in a constantly moving market and is powerless to respond. IT has become a constraint — not the enabler it was always meant to be. Speed-to-market has become an oxymoron!

The rise of the platform

By contrast, those involved with insurtech are digital natives, mobile in nature and cloud-savvy. The entrepreneurs and founders are born out of the post-iPhone world. For the insurtechs, it’s all about building a flexible and agile tech platform. There’s little need for an in-house IT department when the insurer can buy a service on a pay-as-you go basis.

The insurtech digital implementation can be measured in months and thousands of dollars (instead of years and millions). Speed-to-market is the defining characteristic of these tech-enabled platforms.

In the old-world model, if an insurer wanted to launch a new product or enter a new market, they’d have IT on the critical path, defining the timescale for the launch.

Partnering is the new route to market

In the insurtech world, it’s a different story. And the incumbent insurers have cottoned on to the new way of working: partneringIn this model, the insurer picks insurtech platforms — rather than deploying their own core systems — when launching new products. The insurer focuses on insurance. The insurtech focuses on tech. A leader in this model is Munich Re Digital Partners. Its approach is to provide its own underwriting platform as the back-end engine while the insurtech partner provides the product and customer engagement. Either way, this insurtech digital implementation strategy offers insurers speed, cost and customer advantages.

The result is a significantly less expensive implementation approach with a quicker actual speed to market.

Let me give you an example. Let’s say Insurer A wants to launch a health product in a new territory. Its insurtech digital implementation strategy is to partner with, for example, Sureify.

If you don’t know Sureify, here’s what I wrote about them last year under the heading “Sureify, the Salesforce.com of insurance engagement.” In it, I described the company as follows:

“Sureify is an insurance technology platform that allows insurers to digitally acquire, engage and up-sell with prospective and current policyholders. Part of the platform capabilities includes health, disability and life insurance products built around IoT devices to enable dynamic premium modeling. It is a platform that emphasizes web and mobile distribution channels with multiple engagement possibilities. And it is offered as a white-label platform for the carriers where they define the underwriting questions, policy terms, risk and pricing tables using a plug-and-play approach.” 

Digitalization is the redirection of the company to the customer

To get a industry perspective on the subject of digital implementation, who better to give me an opinion than the well-qualified Martin Pluschke, head of digitalization at NuernbergerVersicherung.

We met up recently at a RiskMinds conference in Amsterdam, where we were both speaking. Martin and I first met during Startupbootcamp’s original insurtech cohort in 2015. I was mentoring, and he was the executive in residence as part of the Munich Re/Ergo support for the program. Martin has spent 25 years in the insurance industry, but he also has several years working with insurtech start-ups at SBC and Axel Springer Plug & Play Accelerator.

I asked him for his POV on digital implementation. He said:

“Digitalization is the redirection of the company to the customer.

This means that we have to look at the whole value-chain — from product management, contract closing to claims processing. Everything we do has to be from the customer’s mindset. It’s a totally new way of thinking for the insurer. There is nothing else, it is all about the customer.”

This is 21st century insurtech thinking inside one of Germany’s oldest life insurers. Formed in 1884, Nurnberger has plenty of experience adapting to challenges and changing customer behavior. The company is no stranger to technology, either. Any life insurer that has been around this long will have seen massive technology change — from tabulation to the introduction of programmable computing in the 1950s to the internet age and now to 21st century digitalization.

Moving from passive risk taker to active risk manager

Martin had something to say about this, as well:

“The new model for insurance is tech with insurance. Insurers must change from being a passive risk taker, where they take a bet and wait for a claim. They win when no claim is made.

“With the use of tech, insurers can have a new relationship with customers. They become an active risk manager. In this model, the insurer will add value through additional services to the customer, such as giving customers advice on ways to manage their risk or offering them specific support and solutions when they have a problem.”

What Martin is describing is one of the key insurtech trends of engagement. This is where the relationship with the insurer is not a once a year occurrence. Instead, the insurer finds ways to continually engage with its customer through the use of tech, such as wearables, telematics and IoT. The result is enhanced customer loyalty where value replaces price as the key buying criteria.

See also: Digital’ Needs a Personal Touch  

Executive mindset is critical to insurtech digital implementation 

I asked Martin how well prepared he thinks are insurers for digital implementation? He said:

“It starts with the very top. The executive mindset is critical because they can not measure the outcome of their decisions based on a business case or ROI anymore.

Never try, never learn! That is the way insurers have to think now. That is the way startups and entrepreneurs think and act. But that is very difficult for insurers who are risk-averse. Which is why the strategic commitment to digital implementation can only come from the top layer of management.

In my view, this is no longer optional for insurers. The only way to stay in the market is to become totally digital. It is a matter of survival.”

I totally agree with Martin on this point. When we look back at today, the winners and losers will be defined by those that did and did not embrace an insurtech digital implementation strategy. The likes of Munich Re, Swiss Re, Aviva and others are all showing a clear intent towards embracing insurtech digital implementation through partnerships and a customer centric digital strategy. They will be among the winners. 

Ditching the legacy

The only way insurers can fully embrace an insurtech digital implementation strategy is to take a clean-sheet approach. This means ditching the legacy!

IMHO, we will start to see insurers separate out their current operations, books of business and all the legacy that goes with it. They will no longer try and re-platform, modernize, migrate their existing core systems or redirect precious resources at another operational efficiency program to take out huge swaths of costs. At the end of the day, all these programs do is shift cost from one place to another. They seldom drive truly permanent and radical change.

The insurance digital implementation strategy will be to run down investments in legacy operations and start new business ventures based on insurtech partnerships. And companies will put the customer at the very heart of their thinking.

That will be the insurtech legacy!

10 Predictions for Insurtech in 2017

It’s time to reflect on the passing year, mark my predictions from last year and throw some light on what I see 2017 holding in store.

In my post from this time last year, I made a number of predictions, so, now, I wanted to look at how I did. Feel free to jump in and see how close to the mark I was and share your perspectives.

Reviewing 2016 — How did I do?

1. Fintech and insurtech.  In last year’s piece, I said that 2015 was the year of the zone, loft, garage and accelerator and that this would continue in 2016 with more focus. Regarding fintech and insurtech, I was right. We have seen some heavyweight investment (more so in the U.S. and Asia) and no major failures, to my knowledge. Trending up. Points: 1. 

2. Evolution of IoT. In 2015, I wrote, “2016 will be the year we all realize (IoT) is just another data/automated question set.” Evolution here is continuing, but not at the pace I expected. New firms such as Concirrus (and many others) have come up with some great examples of managing and leveraging the ecosystem. Points 2.

3. Digital and data. At the end of last year, I said 2016 would continue to be a big area of growth for both. There’s been progress, yes, and pace and traction ahead of what’s expected. Points 3.

4. M&A will continue but will slow. I think this has slowed this year, with two of the three major regions in the latter half of the year focused on Brexit and the U.S. election. Now, folks are trying to work out where that leaves fintech/insurtech. Points 4.

5. Will the CDO Survive? I said I thought we’d see a move back to the chief customer officer. Well, no sign of my chief customer officers yet! (Although, after writing this, I came across three chief customer officers, so it’s a start). Have you ever asked an insurance company or people inside the company “who owns the customer?” To me, we’re still product-centric rather than customer-centric. Points 4.

6. New business models. I said last year that we’d need to be clear on what the new business model will be — and what it needs to be. This year, there’s been lots of talk in this area, including here at Deloitte in our Turbulence Ahead report. We identified four business models for the future: 1) Individualization of insurance, 2) Off-the-shelf insurance, 3) Insurance as utilities and, finally, 4) Insurance as portfolio. It may take longer for this to materialize, but, without doubt, these models are coming. See my colleague Emma Logan describe these here. Points 5.

7. What we buy and sell. I believed that, last year, we’d move away from a product mindset to become more relevant and convenient. But we’re still in talking mode, although the ideas here are evolving rapidly. Expect an all-risks policy in Q2 2017. Points 5.

8. Cyber is the new digital. There has been an increase in the number of products and players, but there still hasn’t been any personal cyber policy. I expect that to come in 2017 still. Points 6.

9. Partnerships and bundling. In 2015, I thought we’d see a big rise in the partnerships between insurers and third parties. That’s happened. Points: 7.

So I’m marking my 2015 predictions as 7/9 (or 78% ) — a good effort, but I may have been a bit too ambitious.

See also: 4 Marketing Lessons for Insurtechs  

Moving into 2017

Re-reading the above, I still feel all my predictions are valid, be it the end of the CDO, the birth of personal cyber or an all-risks policy. I’ve been involved in enough conversations over the last 12 months to say these are all very real, although some are closer to seeing the light of day than others.

Moving into 2017, here are my top 10 trends to watch:

  1. Speed. Almost all conversations about insurance start with a statement that we’re not moving quickly enough — from transforming and modernizing the legacy estates to quite simply getting products to market quicker. We can no longer wait six months to launch new or updated products. Look at those who managed to capitalize on Pokemon Go insurance cover. In insurance, we’ll move from fast walking to jogging and sprinting. But take caution: This is still a marathon, and there’s still a long way to go. In fact, as Rick Huckstep wrote recently, the sheer speed at which the insurance market has grown in the last 21 months is part of the challenge and attraction.
  2. AI, cognitive learning and machine learning. AI has been long bandied around as a material disruptor. On the back of collecting/orchestrating the data, it’s critical to drive material insight and intelligence from this and allow organizations, brokers and consumers to make subsequent decisions. In 2017, AI will come of age with some impressive examples, including voice. In 2016, we saw Amazon’s Echo and Google Home product launches, as well as some insurers — like Liberty Mutual — giving voice a try. Imagine asking freely, “Am I covered for…?” or, “What’s the status of my claim?” Adding this skill to the mix will likely be table stakes. In addition, AI will augment other solutions to drive value, e.g. robotic process automation, which I wrote about here. All this boils down to getting a better grip on the amazing data we have already while leveraging the vast open data sets available to us.
  3. Line of business focus shift. The insurtech world will make a definitive shift from all the wonderful personal line examples to SME (the next obvious candidate) and to more specialty and complex commercial examples. Will Thorne of the Channel Syndicate wrote a great piece on this in November. While the challenges are harder and more complex, I believe the benefits are greater once we get to them.
  4. Believers. The market has polarized somewhat between those who believe in major innovation and are pushing hard, and those who don’t (or have a different focus and near-term objectives). The range is from those who worry about the next 90 days/half-year results to those who are actively looking to cannibalize their business and investing to find the most efficient way to do this. Here, there’s no right or wrong, with hundreds of organizations strewn across the path. I still believe more will move to the cannibalization route as the first carriers start to unlock material value in 2017, including continued startup acquisition. Oliver Bate (Allianz) had an interesting and positive perspective on this during his company’s investor day in November.
  5. Scale and profitability. Over the last 12 to 18 months, I’ve seen some great startup organizations; internal innovation and disruption teams; VCs; and more. Now is the time to work out how we industrialize and scale these. This is the very same challenge the banking and fintech communities are going through. If you’re an insurance company with 30 million or 80 million global customers, should you be worried about Startup X that has 10,000 or 100,000 customers? If they do manage to scale, can they do so profitability? This reminds me of a recent article about how unprofitable Uber is, but, with millions of engaged customers, they have our attention now. Profitability will become front and center. In fact, Andrew Rear over at Munich Re Digital Partners put together a good post on what the company looks for and why he and the team chose the six they did.
  6. Orchestration. With all of these startups in insurtech, we’ll need to quickly understand what role they play. Are they a platform play, end product play, point disruptor or something else? Regardless, given the volume and velocity of data generation, the importance of both API connectivity and the ability to orchestrate it will increase dramatically. For me, these are table stakes.
  7. External disruptors. In the Turbulence Ahead The Future of General Insurance report released earlier this year, we identified six key external disruptors that are happening regardless of the insurance industry. These are 1) the sharing economy, 2) self-driving cars and ADAS, 3) the Internet of Things, 4) social and big data, 5) machine learning and predictive analytics, and 6) distributed ledger technology. The key for me within insurance is to identify what role we’ll play. I believe we’ll continue to firmly be the partner of choice for many given our societal and necessary position in the global economy.
  8. Micro insurance. Here, I specifically mean the growth of micro policies, covering specific risks for specific times. Whereas we typically annually see 1.1 policies per customer, we’ll see eight to 10 micro policies covering a shorter period (episodic or usage-based insurance) as per our business models described in the Turbulence Report. This will be true for all lines of business. We’ve already seen some great launches in this space — including Trov, which partnered with Munich Re in the U.S., AXA in the U.K. and SunCorp in Australia. There’s been global access through partnering with established players that has created a new way to market to the next generation. While we switch this on manually by swiping left and right (given some of the external disruptors and location based services), this will very much be automatic going forward. Insurers will need to find new ways to orchestrate, partner and find value to bring in clients. It won’t be just one policy, it will be many that they orchestrate to deliver clients everything they need.
  9. Blockchain and DLT. I almost didn’t include blockchain here, but two factors have led me to include this for the first time: 1) the number of requests we’re now seeing in the market for both specific solutions and more education/use cases and 2) the fact that nine of the 18 startups in the FCA’s new Sandbox are blockchain-related. In 2016, we saw lots of PoC examples, trials and the first live insurance product on the blockchain (see: FlightDelay). Some use cases are more developed than others, and some markets are more suitable than others (I’m still looking for good examples in personal lines), so I believe this will evolve in 2017 but that there won’t be scale breakthroughs. However, along with the World Economic Forum, I firmly believe that “The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector.” We still must ask, “why blockchain?” Just because you can use it? It needs to be the right solution for the right business problem. Horizontal use cases such as digital identity or payments offer compelling use cases that can easily be applied within insurance. In many ways, blockchain, for me, feels much more like an infrastructure play in the same way we would do core systems transformation (policy, claims, billing, finance, etc.)
  10. Business as usual — for now! Partly related to No. 4, we still need to run our business. How we do this and how we set up for the future will be another challenge — not just from a technology perspective but from a people and organization design perspective. (How we work, collaborate and more.) What are the transition states from our current models to a new world in 12, 24 or 36 months. Forward-thinking organization are putting plans in place now for their organizations in the years to come. This will become more important as we embed, partner and acquire startups and move toward new ways of engaging and working with customers.

Interestingly, there are now also so many accelerators, garages, hubs, etc. that startups all now have a lot of choices regarding where to incubate and grow. This presents a whole new challenge on the rush to insurance disruption.

See also: Asia Will Be Focus of Insurtech in 2017  

Finally, there are two other observations I wanted to share:

  1. China. While I don’t spend any time in China, it’s hard not to be in awe of what is going on — specifically, the speed and scale at which things are happening. China’s first online insurer, Zhong An, did an interview with Bloomberg regarding what the company is doing with technology (including blockchain) and, more importantly, its scale ($8 billion market cap in two years, 1.6 billion policies sold) — and the only concern from the COO, Wayne Xu, is that the company isn’t moving quickly enough! Step away from this and look further to what’s happening with disruption in general with Alipay and others from the BAT (China’s equivalent of GAFA — Baidu, Alibaba and Tencent) is simply amazing. There’s a good FT article on Tencent, the killer-app factory, and the sheer speed and scale of disruption.
  2. Community. The global insurtech (and fintech) community is an amazing group of people from around the world who have come together across borders and time zones to further challenge and develop the market. Each geography has its own unique features, mature players, startups, labs, accelerators, regulators and, of course, independent challenges. We don’t always see eye to eye, which makes it all that more rewarding because you’re challenged by industry veterans and outside-thinking entrepreneurs. This year’s InsureTech Connect in Las Vegas with more than 1,600 people was truly amazing to see. Things have clearly moved far beyond a small isolated hive of activity with varying levels of maturity to a globally recognized movement. It was great to meet and to see so many carriers, startups, VCs, regulators and partners looking to further the conversation and debate around insurance and insurtech. This community will, no doubt, continue to grow at a fast pace as we look for insurtech successes, and I look forward to seeing how the 2017 discussion, debate and collaboration will continue.

As always, I look forward to your feedback! What I have I missed?

Here’s to an exciting 2017!