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Digitizing Insurance: Get a horse!

  • 6 min read

“Get a horse!” people would yell in the early 1900’s as motorized vehicles were starting to gain in popularity. The majority of the population would not believe or could not understand that the trusted horse used for over 1,000 years could possibly be displaced by a machine.

This disbelief led to public displays that included races between horses and cars. In 1900 the Automobile Club of Great Britain and Ireland organized the 1,000 Mile Race with the goal to prove that the car was “a serious and trustworthy means of locomotion; not a toy dangerous and troublesome alike to the public and its owner.”- Brisbane Courrier.

Today it is hard to believe that anyone would question the superiority of automobiles over horses for practical transportation. And, then again, all the wonderful next generation of inventions that the automobile spawned.

How does this have anything to do with the insurance industry? At this moment and from now on everything! The burning question today is going digital. Even the Geneva Association (leading think tank for strategic insurance and risk management issues) entered the debate and issued a paper called “Harnessing Technology to Narrow the Insurance Protection Gap”. They suggest that by investing in digitization existing protection gaps can be narrowed. Insurers will be able to reach more customers easier, cheaper and insure sectors that have typically too expensive to reach.

I see a broader opportunity for the industry to recreate itself. However, I have seen that insurers and especially insurance agents have been reluctant to invest the necessary resources to even begin the journey. Pat Speers (former editor-in-chief of Insurance Networking News) commented on the Geneva paper and, in my opinion, nails the industry on the head by saying “…the global insurance industry is known for its conservative, “walk before you run” culture, and for insurers of all sizes, digitization requires an enterprise-wide transformation of technology, vision, and execution.”

Implied in the paper is the reality that significant investment over time will be required to achieve digitization. Or, as Pat Speers sums it up “…digitizing the entire value chain will require significant investment of time and resources over a multi-year period…”. While I agree that it is an investment, it is not the money but the legacy mindset that is required to get any insurer digital. Having been involved heavily in the digitization of the industry for the past decade, simply suggesting that firms must undertake the journey to digitization or face their own irrelevancy in an increasingly digital marketplace is not enough. The problem, as I see it, is that it is very much like my original example where most found it very difficult to understand that a machine could beat a horse. I think that the concept of what digitization means is very hard to understand or accept.

From my perspective, a digitized insurer is NOT:

  1. An online consumer or agent portal or
  2. Ability to have customers reach you any way they want including via smartphone or
  3. 100% of your information contained in data or
  4. The ability to service your customers in real-time or
  5. Instantly issue new insurance policies upon conclusion of the sale as well as policy changes and renewals or
  6. The necessity to leverage “Cloud” technology or
  7. Paperless environment

It is all the above and more.

As well, it takes more than digitization of one stakeholder in the value chain, it takes all stakeholders working together to make digitization a reality. Which is why, right now, the opportunists are eliminating insurance agents and offering direct to consumer insurance. But it is not only down the value chain, it is up to reinsurers as well. ALL stakeholders must work together to benefit together.

Being costly and difficult to understand is just the beginning. I have heard just about every excuse as to why the journey to digitization must be delayed (and yes, these are real comments):

  1. “We just don’t have the resources to invest.” This is the weakest argument of all. Given the advantages that digitization holds as well as the potential of extinction of those that don’t invest it should be a number one priority of every board and every executive of every insurance company.
  2. “We customize our products to individual customers, underwriting is our core competence and cannot be reduced to strict rules and rates.” Having worked with many insurers over time, this is a provably false argument. Of course, if you digitize you must have a defined set of rules and rates. When it comes down to it, there are few products that can’t be expressed in a set of rules and rates. The process to map your rules and rates doesn’t have to end with 100% total digitization, but even 75% to 80% is an achievable and desirable goal.
  3. “We don’t have rates and rules.” Believe me, this is an excuse that I have heard. Quite frankly, I don’t have an answer for this one. Not sure when these groups will go out of business, but the odds aren’t good.
  4. “This won’t integrate with our legacy systems.” Don’t let legacy systems prevent digitization and, in fact, since legacy systems were built before the concept of digitization was imagined, this shouldn’t be a problem. I have had a CIO state that it would cause “duplicate entry” – don’t make me laugh!
  5. “This will reduce my head count.” While no one has explicitly expressed this thought, I am confident that more than one CIO or Chief Underwriting Officer has viewed this as a negative. Yes, if you are applying the right concepts to achieve digitization, head count reduction is a reality. Managing this head count reduction is going to be a challenge.
  6. “We can already issue policies, we just can’t rate.” There were a few things completely wrong with this company. Firstly, they were still in business and doing quite well. Secondly, they did not understand the concept of digitization at all. And lastly, they ended up buying a seriously expensive policy administration system (hundreds of millions of dollars) that largely will not take them into the digital era. Yes, the future will see winners and losers, this one’s fate can only rely on the industry remaining status quo for a long time.
  7. “We just invested a ton of money in a __ system. We can’t justify the investment in digital now.” Like the case in #6, sometimes mistakes are made. It is a virtue to change your strategy when new information comes to light. Or is your excuse simply “Get a horse!”?