How can we accelerate innovation in the insurance industry?
In a sector known for its inertia, let's take a pragmatic look at how we can reach for those shiny new things.
The innovation challenge
Everyone seems to be on-board the innovation train. Rightfully so, it is 2022 after all and we were supposed to have self-driving cars and deliveries via drone by now. But when it comes to the insurance industry, despite many Insurtechs entering the market and countless innovation conferences heralding a new age of insurance, the reality is that there is very little material change in the industry other than what we see from neo-insurers. Here’s our view on why that is the case.
Credit where credit is due - the industry is begging for change, but it's simply hard to do. There are many hearts and minds to win when it comes to tweaking the insurance value chain. Bookended by shareholders and customers, but in between there’s a complex matrix of reinsurers, regulators, brokers/advisers, administrators, distributors, and more. A decision to change may require many rubber stamps and can be polarising in an industry that is used to avoiding risk, and change always carries some level of risk. So does inertia though.
If it wasn’t hard enough, the fact that our better-known insurers have been around for so long means they implemented technologies back when rotary dial was a thing. Housing policy data and the processes that regulate how they change over time is not for the faint-hearted and in some cases those policies can exist for decades. It’s not hard to find war stories from failed transformation and migration projects, so it’s understandable that some insurers have closets full of legacy technology, wrapped in fragile packing tape, heavily guarded, curtains drawn closed. In fact, we’re yet to find a better showcase for the term “legacy” than the insurance industry.
That old legacy excuse is wearing incredibly thin though. Yes, it’s still a challenge and a good reason to step carefully. However, the technology industry has evolved sufficiently to offer palatable ways to navigate this. The challenge that remains is legacy thinking, not legacy tech. Shifting culture is hard in an old industry, but as some have already demonstrated, it’s not impossible.
But let’s assume the organisation is keen, ready and empowered to innovate. Let's tackle some myths, misunderstandings and mistakes when it comes to embarking on an innovation strategy in the insurance industry.
Timing is everything
Insurtech is more than just a buzzword now, with what seems like a new industry innovation entering the market every day. Many of these solutions are quick to draw interest, offering genuine alternatives to how we might approach insurance, from acquisition all the way through to claim time. However, whilst some may earn their way to pilot, few make it into production, which in turn can chip away at an organisation’s confidence in their ability to innovate altogether.
You can’t fly to the moon without a spaceship. As much as we may believe in and want the next shiny thing, we’re tethered to a reality that ultimately requires that we identify what the natural order of a transformation should be, which often means getting the basics right first.
Take AI for example. The AI conversation started a long time ago and is only now reaching its adolescence (tweenager perhaps?), but many organisations are still not ready, having both technical and operational constraints which undermine their ability to properly leverage this promising advancement in technology.
Telemetry is another one, offering immense potential benefit to the industry and the consumer at large, but with millions of hours and dollars spent trying to make it mainstream, success stories are in short supply.
Innovative solutions do well to stretch the imagination and courting them should be part of every CTO’s ritual. It’s important that the industry engages the Insurtech community, providing feedback that fuels further innovation to the point of maturity. It’s equally important that we identify when solutions are not ready and, just as importantly, when we’re not ready for them.
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Shoot for the stars, land in your backyard
The rate of change in technology is accelerating. Why then are we surprised when a 3 or even 5 year “digital transformation roadmap” ends up feeling like an anticlimax at the end? While you were busy delivering that roadmap, needs and desires changed, and quite likely the people that sold the dream in the first place.
Agility is the cornerstone of innovation and whilst major projects, like changing a policy administration system, can take a long time, if an organisation is planning to deliver today’s innovation needs in 3 years (or longer), then we can’t be surprised when we get to the end and find ourselves detached from what inspired the journey in the first place.
There’s a lot that the industry can learn from the Lean Startup playbook . Our challenge to the industry is to dream big, plan small, and test regularly. If you’re not convinced, just peek over the fence at your neo-insurer neighbours.
Keep it commercial
It continually amazes us at Digital Experience Labs how rarely innovation is measured with a commercial lens. Innovation costs money and the bigger you are the more it will cost. Failing to, or not adequately, validating the impact our innovations are expected to deliver can do one or all of three things:
Burn cash and divert resources from other valuable work
Undermine confidence, and the innovation culture
Complicate the technology ecosystem, which often brings with it hidden future costs
Sure, we (sometimes) do business cases and somewhere in there is a mention of ROI, but accountability often ends at delivery of the project.
The opportunity to be more commercial doesn’t just sit at the executive or PMO table though. It is something that can be instilled in the culture of the technology team, particularly at the analysis and design end of projects, where decisions surrounding requirements and design have an exponential impact on the volume of work and complexity that is required to deliver it. For example, we welcome the focus that the insurance industry is placing on user experience when it comes to acquisition and self-service, however there is always a point of diminishing return, where an awesome experience actually delivers no better return than a good one.
As much as we love seeing the insurance industry leaping at change, we urge it to ensure every innovation is directly linked to a strategic measure/metric – gross written premium, conversion, lapse rate, net promoter score, customer effort score – it doesn’t matter what it is, just being clear about which dial it is expected to turn and by how much and, where appropriate, even factored into forecasts. Ensuring that innovation is not occurring for the sake of innovation, but instead because it is expected to have a potentially material impact on the key business drivers.
Before chasing the next shiny thing, we encourage insurers to take their points of competitive differentiation and consider the role that the PAS and product catalogue play in supporting them.
Innovation via stabilisation
Let’s face it, legacy is the Achilles of insurance innovation. For many insurers, at the centre of that dilemma you will almost certainly find a policy administration system (PAS). Why? Because of the role it plays as the source of truth for the policy contract and everything that it then services – accounting, billing, bordereaux, correspondence and so much more. Changing, or even enhancing, the PAS almost always means reviewing everything.
Legacy is not a problem though, it’s business as usual. Learning how to architect to expect and embrace legacy (minimising it’s impacts), rather than viewing it as a problem child is the only way forward.
The PAS has a tendency to be dragged into any discussion that centres on enhancing the customer experience, whether it’s enhancing the buyer journey, self-service or claims experience. However, another common role the PAS plays is the custodian of the product definition, or product catalogue.
The product catalogue is the absolute definition of all products and their characteristics – a complex array of features, limits and rules. We regard this as one of the most undervalued, poorly designed and inadequately leveraged components of the insurance ecosystem, particularly in a market where product innovation is becoming increasingly important to competitiveness, experience innovation, and regulatory compliance. Product needs agility and when tightly coupled with the PAS, it is always going to struggle to keep up.
Before chasing the next shiny thing, we encourage insurers to take their points of competitive differentiation and consider the role that the PAS and product catalogue play in supporting them. Rethinking these, and other foundational technologies, to support agility is innovative in itself and if executed well can be the platform needed to embrace future innovation.
Insurtech inspires change, architecture fulfils it
If you haven’t spotted it already, we consider architecture to be the ultimate enabler in this fast-paced, digitally demanding world. The role of the enterprise and solution architects in helping us rationalise ideas and identify how to make them a reality is crucial, and sometimes underutilised.
A capable architect will interpret strategic goals, assess impacts, identify pathways, and help establish a blueprint and roadmap for success. They would also be well aware of today’s innovation landscape – policy administration, process automation, digital decisioning, data security and governance, mobility, big data and more – and understand if/how the organisation can leverage them.
Increasing pressure on labour supply means architects with the right skills are difficult to find. We place a lot of value on domain expertise too and the modest size of the local insurance industry means architecture is a capability organisations should consider as a crucial asset that provides valuable input into strategy and the innovation roadmap.
We at Digital Experience Labs are heartened by the level of attention the insurance industry is placing on innovation and the increasing level of engagement with the Insurtechs that are trying to help reshape it. However, we do feel there are some changes insurers can make in their approach to avoid overinvesting and underdelivering:
At Digital Experience Labs, we are advocates for the insurance industry and the important role it plays in protecting and preserving quality of life in our society. We’re also passionate advocates for change in the industry and have an appreciation for the many factors that drive sustainable change, having worked within it for a long time.
We offer our clients an informed, alternate and frank perspective on innovation in this ever-evolving industry and would love to explore what innovation means to you.