InsurTech digital implementation is the strategy insurers have been looking for

Why now for InsurTech?

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

Nonetheless, this is about digital implementation for insurers, who have failed to keep pace with technology since the mid 90’s and the birth of the Internet. You only have to consider the iPhone, already a decade old, and yet the 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. More so with the emergence of InsurTech. Which is why many of them are scrambling around looking for ways to engage with the InsurTech ecosystem. If anyone is going to be disrupted by InsurTech, then it will be them!

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, functionally deep and rich, generalist and built to last (well, at least a minimum of 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 the InsurTech’s are like the latest generation of robotic armed patrol boats. Agile, automated, much lower cost, shorter cycle times to commission, task specific.

The demise of core systems

In the traditional software licencing model (the way these legacy systems are sold), the insurer buys a licence to use the software. For this, they typically pay a large one-off upfront fee. They then pay an annual maintenance charge that is based on a percentage of this fee, in the 15-25% 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 10s, if not 100’s of millions of dollars. And they’re big decisions that the insurer is going to have to live with for several decades! Which 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 they see customer opportunities and competitive threats in a constantly moving market and are powerless to respond.  IT has become a constraint and not the enabler it was always meant to be. Speed to market has become an oxymoron!

The rise of the Platform

By contrast, the InsurTech’s are digital natives, mobile in nature, cloud-savvy. The entrepreneurs and founders are borne 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 for 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;“partnering”. In this model, the insurer picks InsurTech platforms, rather than deploy 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. Their approach is to provide their own underwriting platform as the back end engine whilst 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 that Insurer ‘A’ wants to launch a health product in a new territory. Their 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 them 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 modelling. It is a platform that emphasises 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.” 

Digitalisation 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 their opinion than the well qualified Martin Pluschke, Head of Digitalisation for NuernbergerVersicherung.

We met up recently at a RiskMinds conference in Amsterdam, where we were both speaking.  Martin and I had 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 programme. Martin has 25 years in the insurance industry, but 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. “Digitalisation 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 21^st century InsurTech thinking inside one of Germany’s oldest Life insurers. Formed in 1884, Nurnberger have plenty of experience adapting to challenges and changing customer behaviour. They are no strangers 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 1950’s into the Internet age and now 21^st century digitalisation.

Moving from Passive Risk Taker to Active Risk Manager

“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 their customer through the use of tech, such as wearables, telematics, IoT. The result is enhanced customer loyalty where value replaces price as the key buying criteria.

Executive mind-set is critical to insurtech digital implementation 

I asked Martin, in his experience, how well prepared are insurers for digital implementation? “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 start-ups 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, it will be those that did and did not embrace an InsurTech digital implementation strategy that will define the incumbent winners and losers. 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. These will be amongst the winners. 

Ditching the legacy

The only way that the 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, modernise or migrate their existing core systems. Or redirect precious resources at another operational efficiency programme to take out huge swaths of costs. At the end of the day, all these programmes 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 their investments in legacy operations and start new business ventures based on InsurTech partnerships. And they will put the customer at the very heart of their thinking. That will be the InsurTech legacy!

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The author, Rick Huckstep, is an InsurTech thought leader, advisor and speaker. He is the Chairman of The Digital Insurer.