Tag Archives: small insurers

Small Insurers and Digital Priorities

From what I’ve seen in recent insurance technology news updates, it appears that the insurance industry is finally ripe for change, ready to make the leap to digital technologies that will lead us into tomorrow. Or is it?

Consider these core drivers of change: digital innovations such as cloud, telematics, IoT, analytics and AI, mobile, real-time 24/7 access to data, the growing need for on-demand products and, in general, using these transformative technologies to create operational efficiencies, adopt new business models and anticipate and exceed customer expectations.

Even though we know these technologies are enabling new insurance products, methods, processes, services and business models, there is still an omnipresent culture that hangs on to the troubling “it’s the way we’ve always done it” battle cry. This is often voiced by insurers that share their frustrations with being challenged to change existing culture from inside out to address these digital drivers.

My view is that, while many of the larger insurers are making the hard move to adopt digital technologies, it’s still not a priority for many small- to medium-sized insurance companies. And now, more than ever, there is a certain urgency to having that discussion. Tanguy Catlin, senior partner with McKinsey & Co., when addressing the issue, referred to it as the “tipping point” that is “where those that have not adapted their [digital] strategies fade away.”

See also: Darwinian Shift to Digital Insurance 2.0  

In research results published by MIT Sloan Management Review (SMR) and Deloitte’s Digital practice, 87% of executives queried believe that digital technologies will disrupt their industries, yet only 44% felt they were adequately preparing for it. Gerald Kane, professor of information systems at the Carroll School of Management at Boston College and MIT Sloan Management Review guest editor for the Digital Business Initiative, compares insurers’ thinking about digital disruption to homeowners in disaster-prone areas who often seem caught off guard when an actual hurricane or cyclone strikes.

Source: MIT Sloan Management Review

So, why isn’t adoption of digital technologies a priority for more small- to medium-sized insurers? While many see the opportunities presented by digital technologies, perhaps they don’t believe the likelihood is high that digital will actually disrupt their own organization. But the authors of the research note that, if digital technologies represent an opportunity for your organization, they also represent a threat for your competitors — and vice versa.

I get it, change is hard… but, the argument, “we are not in a financial position to prioritize” is irrelevant to the discussion of digital technology investments. Competitors aren’t waiting for your company to be in a better “financial position” before they act. Moreover, because at some point in the coming years insurers will need to replace their growing faction of retirement-age employees with a younger, more tech-savvy labor force. And in a war for the best talent, the A and B players have absolutely no desire to work on outdated systems. So, what does that mean for the future of your company?

See also: Digital Insurance, Anyone?  

Just remember, technology is an accelerator for your company and your staff. In other words, the more digital technologies that are put into play, the greater and faster the return. Those insurers that ignore its call will fall further and further behind until they reach the tipping point and slowly fade away. Remember what happened to Blockbuster Video when it failed to adapt in a time of digital change. Don’t be a Blockbuster in a Netflix world.

Can Smaller Insurers Transform?

I don’t think any of us would dispute that the insurance industry is facing an inflection point, with changing market conditions, emerging technologies and startup insurtech companies. In an environment in which both personal and commercial lines of business are affected by a digitally empowered consumer, many insurers are rethinking their IT infrastructures, distribution networks and communication strategies. Yet recent coverage in the media paints a different picture for smaller insurers trying to achieve transformative change.

I was struck by a comment made by Tom Benton, VP of research and consulting at Novarica, in an article called “Smaller insurers lean on partners to navigate disruption.” Benton argues that, while all insurers continue to struggle with limited IT resources, capabilities and access to specialized skills while facing increased demand for operating efficiency, smaller insurers are at a disadvantage.

“Most insurers are focused on three things,” he said, “running IT for the organization, projects that help the organization grow and transformational projects. Most small carriers don’t have the budget or resources (including talent) to apply to transformative projects.”

See also: How Small Insurers Can Grow  

While it’s true that small property and casualty and commercial workers’ comp carriers, municipal risk pools, captives and self-insured groups may be vulnerable to more rigid budgetary concerns than their larger Tier 1 and Tier 2 counterparts, I’m not convinced that transformation is unattainable to them.

Although smaller carriers may not have the desired resources, they can move faster than larger organizations on certain initiatives. Smaller carriers don’t have to jump through all the organizational hoops usually present in a larger company. Plus, smaller carriers usually have a culture that embodies taking risks, getting faster approvals and moving into a pilot much quicker than larger insurers.

Let’s look at the agility of a smaller carrier and add the notion that these employees tend to “wear many hats” (often running IT operations while functioning in another capacity within the organization). Here, choosing the right technology partner is critical, and long-term issues must be considered when making decisions on platform, systems and applications.

For example, Maine School Management Association (MSMA), a state-wide non-profit federation that administers various insurance programs to the state’s school systems, replaced a decades-old process that involved spreadsheets and manual entry, with cloud-based insurance management software. The decision, made to provide secure and efficient online renewals of property and casualty (P&C) coverage for its 98 member school districts, is transforming the entire renewal process, reducing renewal process time and streamlining members’ ability to respond.

With just 23 employees, MSMA is an example of an insurance organization that has achieved transformational change due to its commitment to successful risk-taking, a calculated plan to work exclusively with “best in class” vendors that specialize in serving public entities and a culture that is committed to innovation-fueled growth.

Even less successful experiences serve to inform future operations. We aren’t perfect, and firms that proclaim, “not us,” or “we won’t have those issues,” are either disingenuous or naïve.

See also: Have Insurers Lost Track of Purpose?  

The call for transformational improvements is upon us, with pressure to innovate using technologies such as cognitive computing tools, machine learning, predictive analytics, robotics processing automation, chatbots and natural language processing.

Rather than be at a disadvantage, smaller insurers are embracing a new level of confidence that maintains that transformation is not only possible, it’s realistically attainable.

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.