Many property and casualty (P&C) insurers are adopting new core technology platforms from companies such as Guidewire and Duck Creek as a way to incrementally improve operations and modernize processes. These platforms, however, should invite insurers to go well beyond updating legacy processes. They offer a new slate to reimagine existing workflows and develop new products and services.
With their flexible, open architectures and application programming interfaces (APIs), the new platforms enable insurers to marry data in their systems of record with next generation transaction and engagement layers. The new capabilities allow business data to flow more efficiently throughout the organization, across the insurer’s ecosystem and into apps created by insurtech firms and established vendors. That means P&C insurers should use the platforms to incorporate the best of today’s digital offerings and prepare for the future.
Yet many P&C insurers are falling into the trap of legacy thinking. They tell us they plan to wait until their platforms are implemented before they create new operating models or launch change management activities. Their thinking is that this approach will expedite implementations by taking a traditional path. However, that approach may lead to disappointing returns and missed opportunities from these platform investments. Using the platforms mainly for streamlining existing processes could entrench those older ways of working and make it even more difficult for insurers to imagine and adopt new business models as they become satisfied with mere incremental progress. To ensure the platforms go beyond operational excellence to power new P&C concepts and services, we recommend that insurers assume a more forward-looking stance by adopting the following steps.
Imagine what new services and products would result if companies were not inhibited by current systems, people, technology or distribution models. With open architectures and APIs, these platforms are flexible enough to support virtually any data connection and workflow insurers can dream up.
Consider this not-too-distant scenario. A delivery vehicle is rear-ended while idling outside a business. Boxes inside tumble, and items break. Sensors on the boxes, on the delivery person’s clothing and on the vehicle capture real-time data about the accident. The P&C insurer’s platform accesses this data through the delivery company’s system via an API, then processes the information and quickly calculates a claims amount. The platform then pushes a notification to the delivery company to accept or reject the claim; if accepted, the platform initiates an electronic funds transfer to pay the claim and emails the benefits explanation to the delivery company. The claim is adjudicated in a completely automated, touchless process.
The need to accommodate real-time, touchless processing requires insurers to rethink fundamental claims reporting and adjudicating processes and build into the platform the flexibility to adopt new practices as technology advances. Many of the industry’s newer customer-facing features — including online quotes, newly purchased vehicle changes, discounted renewals, online customer portals and online billing — are essentially tightly tied to legacy hubs to extend aging IT investments. The often-custom connections behind those facades are too inflexible to adapt to the new era of ubiquitous connectivity and vast streams of Internet of Things (IoT)-created data.
The new class of core platforms can absorb these data streams and feed them to rules engines, algorithms and apps. Yet if payers choose instead to optimize platforms primarily to adjudicate paper-based claims and largely manual processes, these objectives may improve operations —though in the long run, essentially support processes headed for obsolescence. Now is the time to imagine what services could be offered if paper and time weren’t involved.
These new capabilities should encourage insurers to expand their planning beyond a two- to three-year horizon, typical for most of our clients. We recommend an eight- to ten-year perspective for imagining the impact and promise of new technology. Without a long view, it’s easy for companies to get trapped in a “stall zone,” the time between one technology era reaching the end of its useful life and the emerging dominance of a new paradigm. Within the stall zone, returns from new tech investments tend to plateau, and companies often continue investing in their familiar business, operations and technology models for incremental improvements.
A continued focus on old technology clouds a realistic view of how the market is changing and rarely factors in competitor advances and future customer expectations. To wit: Blockbuster Video chose not to buy Netflix and its DVD-by-mail rental service, seemingly convinced it knew video customers and their desires better than upstart Netflix. An analogous instance in insurance may be how most traditional insurers rely on experience and expertise to determine fraudulent claims, whereas new entrants such as Lemonade rely on artificial intelligence (AI) machine learning algorithms to do so.
In addition to AI, insurers must explore and invest in other future tech, such as 5G wireless networks that will enable virtually instantaneous connections and data streams; the IoT, by instrumenting devices and processes with sensors; and cloud, with its ability to provide powerful processing at the edge of networks. These technologies, plus new core platforms, can power paperless, real-time application decisions and adjudication and even real-time risk monitoring, to cite a few ideas.
Many insurers we work with are still in the retooling phase to meet customer expectations for seamless, streamlined services, which continue to grow. Consumers are turning to AI agents such as Alexa, Cortana, Google Assistant and Siri to help them select products and services, remind them when bills are due and carry out bill payments. They demand transparent, self-directed and 24x7 solutions and support. Similarly, sole proprietors, artisans, S corporations and limited partnerships, and gig-based workers, who represent growth areas, behave similarly, acting more as individual policy holders than large corporate customers.
Insurers must anticipate customer demands to be ready to meet them. Anthropological studies can provide insights on current and future consumers’ attitudes about insurance services and reveal cultural trends that could affect insurance design and choices. These insights can spark ideas about what new offerings customers really want and how to deliver them. In turn, the flexibility of the new platforms enables insurers to design new products and services with a customer-first approach versus trying to work around limitations of legacy systems. Highly individualized insurance services, need-based products and self-service options are just a few concepts that insurers could explore.
The pace of innovation in the P&C industry is not keeping pace with evolutionary changes. Digital product development cycles rely on rapidly testing offerings with customers, refining the offering based on results, then releasing new versions.
In this cycle, perfection of a process is not necessarily the goal. In a fully automated touchless claim-adjudication trial, bots or algorithms may occasionally make wrong decisions. Yet after weighing those errors against the reduction in process costs and increased customer satisfaction, the net value to the process could still be highly positive.
Insurers can begin to innovate more quickly by establishing innovation hubs, or labs, that are free to use external data, influencers and technology to promote innovation and entrepreneurial thinking. Hubs can generate proof of concepts for apps and services built on automation, AI, IoT and voice biometrics. They also should feature an agile operating environment to support the rapidly changing ways and channels through which customers will interact with the business. The goal is to launch minimum viable products in weeks rather than months and years and then continually refine them.
Many of our P&C clients view their workforce as their best and deepest resource. Automation, AI and analytics can augment employee abilities, helping them be more effective. Imagine adding insights about customer attitudes and needs via natural language processing and sentiment analysis to enable a service representative to fine-tune a phone or chat conversation. Systems can provide “whispered” advice to help associates express more empathy or ask a key question to gauge policyholder comprehension. These touches help ensure the engagement is successful and create a more positive, lasting customer impression.
Insurers may tap their vast troves of data to identify the highest-cost interactions and processes that would most benefit from AI and complementary technologies such as robotic process automation.
While many large incumbent players have moved slowly to adopt new models, P&C and life insurtech players received almost $6.4 billion from global venture capital firms in 2019. P&C insurers can use their new core platforms to tap into the capabilities of these insurtechs to exploit lucrative market opportunities and accelerate performance. Those that treat platforms mainly as a means to streamline existing operations may cede market share to new players. By making the shifts we recommend, insurers can build on their new core platforms to expand their growth funnel and create competitive advantages now and into the future.