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Enter the World of Insurtech

Jennifer Overhulse | November 10, 2016

It’s probably a holdover from all those years of starting school in September that drives a desire to change (just about) everything to kick in with a vengeance around this time of year. As adults, September doesn’t typically offer the reset school kids are afforded, and even if it did, it seems unlikely that the dramatic level of change required year over year could still be covered by a new notebook.

Adulthood in the insurance industry is particularly difficult these days. Years of consistent underwriting profits, above average investment returns, and plentiful organic growth made complacency, well, commonplace. Now, following fast on the heels of a full-blown fintech revolution and significant advances in other industries in terms of service levels, accessibility, personalization, product flexibility, and the overall customer experience, the insurance industry must stand up and face the music, no matter how difficult the change may be. 

Let’s Clear Up a Couple Things

Considering the industry has set a pretty low bar, it’s not hard to be persuaded change is necessary, and insurers across all lines of business appear to be embracing transformation on some level. The health and personal lines segments have seen the most change thus far, with health insurance changes necessitated by a complex and changing regulatory environment, and personal lines insurance changes driven by an influx of new technologies requiring business-model modifications, new product types, alternative billing methods, increased accessibility, and adoption of more modern distribution channels.

Unfortunately, all those years of complacency mean there is a serious gap between where the insurance industry is now and where it needs to go in terms of technology adoption and maturity, in-house IT expertise (especially as it relates to evaluating and implementing new or emerging technologies), and maybe, worst of all, data mastery.

Consider these “elements of (insurance technology) style.” With few exceptions, insurance organizations:

  1. Have a problem with technology (or lack thereof). But, the industry has been making magic out of the mundane for ages, becoming experts at extending the lives and capabilities of legacy systems beyond what is sometimes either reasonable or responsible.
  2. Have an entirely different problem with data. Mergers and acquisitions, impartial replacement efforts, and implementation of point solutions have resulted in a patchwork of systems and inaccessible, siloed data which can’t be converted into new systems or formats. Compounded by the volume, velocity, and variety of Big Data, it bears noting that new data in new siloes is no better than old data in old siloes.
  3. Have an even bigger problem with talent. The industry has passed the point where talent retention is going to cut it, and acquisition is now required, but insurance isn’t sexy and largely viewed as populated by technology luddites, so attraction of prime candidates is going to be problematic.  
  4. Love a good buzzword. That’s right, in the absence of a good strategy, the shiny object syndrome wins every time, and in the interest of getting a “quick fix,” the insurance industry is absolutely guilty of jumping on some buzzword bandwagons, which were not ultimately going in the right direction.
  5. Bust budgets for a living. With the possible exception of the solutions managing airline operations, insurance core administration system replacement projects demand more insight into and oversight of untold numbers of moving parts, incremental milestones, and effects on downstream systems than other large scale IT initiatives. Scope creep, anyone?
  6. Knows vaporware when they (can’t) see it. Insurance is a tough business that demands a high degree of domain expertise and which recognizes successful shortcuts are few and far between. Industry insiders have long been able to spot companies with slick websites, a lot of marketing hype, and secret hopes of signing up co-development partners disguised as fully-implemented, paying customers.
  7. Adore strategy. Over the years, insurance organizations have been charged with development of an internet strategy, an e-business strategy, a legacy replacement strategy, a mobile strategy, an IoT strategy, and most recently, an innovation strategy. Unfortunately, since insurers spend the most time and budget on maintenance of existing strategies and systems, insurance IT executives often lack the expertise to do it right, or the budget to implement it fully once a strategy is approved.

Enter “Insurtech”

The problems above have been begging for a solution for years, and each new trade-show season produces a whole new crop of trends, technologies, and ideas vying for the industry’s attention. And, until recently, few of these silver bullets have proven to have true staying power. Enter insurtech.

One could argue that insurtech, as a literal combination of insurance and technology, has been around forever. But, there is another element which goes into defining this movement, and that is innovation. In better defining insurtech, it seems worth mentioning that in some circles it is popular to attempt to limit this definition to companies offering technology products or services to and for the insurance industry. Unfortunately, this definition excludes startup or greenfield insurers, new distribution channel disruptors, and more traditional insurance organizations using technology in new, innovative ways to achieve a true competitive advantage.

Matteo Carbone, principal for Bain and Company and founder of the Connected Insurance Observatory, said in a recent interview with Business Reporter in the UK that an insurtech firm is “…a player that uses technology to achieve a strategic goal.”

In the interest of being inclusive instead of exclusive, it seems fair to say insurtech also includes any insurance-focused business driving a majority of revenue from the sale of technology products and services or which actively engages in research and development (R&D) efforts to find technology that can have a transformative effect on the industry, or which has used or is using technology to drive a change in business model, distribution channel, and the industry at-large.

This broad definition creates an insurtech universe currently experiencing its very own Big Bang, expanding almost exponentially each day. The sheer size of the movement, let alone the level of complexity involved, makes it challenging for insurers to engage successfully.

A Jumping Off Point

But, as previously noted, challenges present opportunities, and the insurtech challenge is no different.  Since the launch of the Insurance Technology Association, ITA Pro has provided coverage and analysis of insurance and technology, and now, through Launchpad, provides a starting place for insurance organizations, industry executives, and interested parties in need of a tool for better interpreting, evaluating, internalizing and operationalizing insurtech.  

Make no mistake, this is a danger point for the industry where it has yet to be determined whether insurtech will have a real, positive impact, or whether innovation budgets, venture capital (VC), and private equity (PE) money will end up in a black hole without ever creating measurable change in any area or line of business. In fact, many insurers today have actual innovation budgets in addition to technology or IT budgets, which anecdotal evidence says remain, with as much as 70 percent of spending, focused on keeping the lights on (KTLO). 

Few, unfortunately, have a solid approach to allocating innovation budget money. Must innovation spending naturally include emerging technologies provided by startups, or can incumbent technology providers and insurtech firms benefit from this trend as well?

Once, the industry worried about technology being implemented for the sake of technology, for the sake of being one of the proverbial cool kids. Today, innovation is being demanded not only by insurance customers, but also by board members and C-level executives throughout the industry. Insurance organizations must now determine how to invest in innovation responsibly and quickly.

Change is coming to the insurance industry. It cannot be avoided and mechanisms for engaging in the insurtech revolution are needed now more than ever before.

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