Complexities are holding the insurance industry back
Despite innovation in technology and pressure to move faster, the complexities of the insurance industry remain a hindrance.
The P&C insurance industry is on the brink of change. Fresh perspectives, innovative technologies, and revolutionary approaches are available now more than ever to help companies to move forward.
Change agents (such as my colleagues at INSTANDA) have been on an express mission to encourage insurers to capitalize on innovation, become more agile, and drive revenue and growth. However, complexities and cumbersome processes are holding businesses back. These complexities fall into two major areas: the complex nature of insurance itself and its systems.
Insurance is inherently complex
If you think about why insurance is complex in the first place, the entire business is concerned with figuring out how to predict and price risk. Looking back over the last couple of decades, there has been significant growth of the insurance market, with many new coverages being added. While important, these new coverages have only contributed to the increasing complexities of the market.
As new coverages are being made available, insurers have looked to technology to aid them in predicting and pricing risks. Over the last 20 years, companies have spent loads of money trying to build a better mousetrap by implementing complex models. They have talked themselves into the idea that they need to spend loads of money on more actuaries, risk models, and data, hoping this would allow them to price the risk better. The reality is that they have muddied the waters by throwing money at the problem rather than simplifying the process.
To make matters worse, all this activity has garnered the attention of regulators and government officials. These officials have thrown legislation at insurance companies, which has further added to the complexity of the industry. Insurance companies have essentially ‘shot themselves in the foot because the government does not trust them. So now, these companies not only have to figure out how to predict risk but also how to remain compliant with regulations.
Legacy systems are like a game of Jenga
Not only are predicting and pricing new risks and government regulations adding to the complexity of insurance, but the insurance systems themselves also are a major component of these complexities. Every insurance company has a boatload of systems that have been around for more than 20 years. The issue is that the companies do not understand what all these systems do or how they fit into the business operations. It is like a game of Jenga — CIOs do not know what would happen if they pulled one system out because they have hooked so many other systems to it.
Additionally, staff turnover often leaves junior employees responsible for their implementation and upkeep. It is a daunting task for insurance companies to unravel these complexities. Instead of throwing junior staff at the problem, a strong architecture plan will provide insurance companies with a good line of insight over all your systems. This way, insurers can decide which systems need to be commissioned and decommissioned.
Insurance made simple
Many businesses try to boil the ocean by attempting to fix everything at once. There are good reasons to depart from this approach. Using a cloud-native platform, insurers can build a new system for products to sit on in the future and slowly transition from older systems over time. It is like building a new bridge alongside an old one; cars can drive along the old bridge, which can then be taken down seamlessly once the new one is built.
Two decades ago, the underwriting process would have been time-consuming and labor-intensive. It would have involved site visits, manual searches, and trips to courthouses to qualify details like ownership, coastal proximity, and other environmental factors. Today, underwriters can enter an address into a GPS system that can verify its existence within seconds. In addition, advances in artificial intelligence instantly read images, and high-cadence satellite and drone imagery work in harmony with analytic solutions.
Innovation in the insurance sector should be limitless. It should truly fit individualized insurance business models and evolve in real-time.
Greg Murphy (Greg.Murphy@Instanda.com) is executive vice president of North America at INSTANDA, a company that thinks differently about insurance systems, helping companies to move with the tide of progress rather than against it. An insurance revolution is making waves in the industry, and INSTANDA invites you to join in and make a change.
These opinions are the author’s own.
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