Insurers fight for premium, it’s the lifeblood that allows them to take on our individual risk, the risks in business, and the risks in society. It’s a powerhouse for economies, allowing all of us to do more by pooling our money together and sharing risk as a massive community.
To do this, insurers have to “model” risk using vast amounts of data. That data was historically retrospective, but gave insurers the ability to model likely outcomes depending on different variables. Now it is increasingly based on real-time, live, and organic data extracted from IoT and smart devices, and even physical and civil infrastructure.
To accomplish all that, insurers have always needed a complex business model and to balance the premium, investment, and other income sources against their exposure. It blows my mind sometimes! It’s really very impressive that the insurance business exists at all.
Insurance’s balancing act
The challenge that insurers face today is that they need to compete on something beyond price and become more customer centric.
At this point I hear myself say: “Hang on, insurers have to juggle all that complexity just to make a policy possible and now they have to center all of it around customer experience just to compete?”
It hardly seems fair, but this is where technology should have stepped in long ago. Instead, tech arrived at the party looking like everyone else. Sure, it fit in. But tech hasn’t brought the change in atmosphere it was invited to bring.
Conversely, in nearly every other industry, the experience economy has made huge advances in customer experiences, often changing the nature of the products and services themselves. Even banking is now more often about how our money and debt is entwined into our lives than it is about transactions and financial performance. That’s differentiating, and it’s valuable.
Insurers have created lots of convenience, made accessing complex products a lot easier, and even made people feel happy, reassured, and saved them from moments they needed to avoid. However, in insurance that has been hard. People know insurance is important, but it’s a grudge purchase, ideally something you would not have to purchase. All that pesky risk, it almost feels like insurers are imposing it upon us. It feels even worse if the claims process is seemingly engineered against you.
The unfortunate focus on insurance efficiency
Insurers’ drive for efficiency and to keep costs low and subsequently profits up keeps the ratios looking viable. That, in turn, means more competitive prices for consumers.
So, when IT started creating huge amounts of process efficiency, that was a good thing. Insurers quickly became one of the biggest IT consumers in the world, and today they spend an estimated $210 billion annually on it.
However, insurers applied that same efficiency mindset to advances into the experience-economy technology, as well. For example, an email then wasn’t initially considered a great way to take advantage of hyper personalisation and customer engagement. Instead it was considered a lower cost option to print, mail, and call centers. The same was true in the early days of online quote and buy. I should know, I’ve designed 100s of them in my time.
When the first generation of software providers entered insurance, I was filled with hope. I leapt at opportunities to work with them. One became a customer of my own business. Guidewire and I built their digital experience capability working directly with their clients, only to realize they were designing for “how insurers had always done it” – around the policies and rendered in old tech principles. When you lifted the hood and peered in, it wasn’t really software at all.
The fascinating thing about all that early insurance technology work is that it never tackled the transformational purpose of IT. It was always to run the business more efficiently or, worse, to run it more cheaply per policy or per customer than yesterday. Not to become future facing, or to compete better, build new products and services at will and expand premium share in those markets, or transform the business model. Until now.
Insurance has always been an ecosystem business
Insurers have always created massive social networks, engineering people to share risks, allowing them to explore and exploit new business potential, and rebuilding things through vast supply chains in claims processes. Not to mention the power they can bring through investments.
Insurance was born to be an ecosystem business in technology terms as well. Built around the customer, scalable (cloud), adaptable (low/no-code, configurable, and integrative through APIs), and ultimately composite (microservices). This brings us to now, where my story gets positive again.
Insurers are inherently good. The industry has always attracted the brightest and best, and they have all learned loads – though sometimes through the clashing of business and IT – so that we’re now in a place where we all “get it.”
We need to look at what a real ecosystem business looks like in the post-digital era. New technologies are now providing even more power to the ecosystem business model and they are adapting all the time. So now the core of an insurer also must change. Insurers can operate like an Amazon. Even Amazon thinks so! It’s not fantasy anymore. What’s more, insurtechs and the rise of competitive threats are forcing this process to accelerate.
There’s more good news too. New business models are coming on stream, at pace. They are seamless and integrated into our lives, creating more value by being more than a product that pays out after the fact.
For example, pet insurance is now about me and my pet’s life, health, grooming, food, and even accessories. And I consume more than a policy as a result. My bank transactions can generate payment protection automatically. Usage-based insurance is changing how drivers switch between personal and professional use in cars. The list goes on and on. And the best news of all, perhaps, it’s all cheaper and more efficient as well.
This new generation of insurance tech – coretech – also is allowing insurers to evaluate what their global models look like. Iterating products and personalizing experiences becomes a non-tech function. Personalization, product development, and customer experiences are driven by data-fluid, 360°-customer cores. These models also mean that trans-creation into new markets is straight-forward, quick, and done largely self sufficiently. Insurance is now heading to where it should be: differentiated through value creation rather than competing on price, and built to make happier, healthier lives, businesses, and societies.
EIS is peerless and leading the way. This is our opportunity. You are all working towards this future as a team. What an opportunity we have in front of us!
Insurance is dead, long live insurance.
Sound interesting? We should chat. Book your discovery call.
Rory Yates has more than 24 years of business leadership experience spanning client, agency, consultancy, start-up, and private equity roles. As EIS’ SVP of Corporate Strategy, Rory helps insurers achieve their transformation goals and evolve toward ecosystem-based futures via insurance core systems transformation, including truly personalised engagement, taking innovation from concept to market quickly, and growing efficiently.