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14 April 2020 Technology

Appian business briefing: insurers opening up as the pace of change grows

"'Less weightlifting, more yoga' is a good rallying cry for today’s organisations seeking to maintain their edge on the competition."  Appian industry leader, insurance Europe Gijsbert Cox and insurance thought leader Rob Galbraith.

Capabilities exist today that were unimaginable 10 years ago—and no doubt the same will be true at the end of this decade. Insurance is not immune to these fast-moving changes. The expanding technology capabilities hold the promise of new products, new business models and new distribution channels.

It is not too far a stretch to say that the next decade will hold more change in the insurance industry than the past three decades combined.

Opportunities and challenges

While new technologies hold vast potential for traditional insurers, they also present challenges. New entrepreneurs, armed with an intimate knowledge of the latest technological developments and easy access to capital, make it possible for new market entrants to appear rapidly.

Unlike other industries such as manufacturing, insurance does not require massive investments in physical capital or managing global supply chains. In many respects, insurance is the ideal product for our digital age—remarkable given that it has a long and rich history spanning centuries.

While some of these startups are looking to compete against incumbents, many are seeking to partner with experienced players to gain knowledge and improve customer experiences across the insurance sector. This timing is fortunate as individuals and businesses who are consumers of insurance products have rising expectations in today’s market.

Insurance agents, brokers, carriers, reinsurers and other organisations that serve the industry can all enhance their current offerings by leveraging these new technologies. Whether this development occurs in-house or through partnering with third parties, being open to change and innovation is a core competency of leading companies in today’s world.

The idea of open innovation is not a new concept in the technology sector, but it is uncommon in the insurance world. Many companies run on legacy systems which are secure and reliable, yet difficult and expensive to change and can limit innovation.

While replacing these core systems to take advantage of modern computing power and efficiencies is ideal, this digital transformation journey is expensive and time-consuming.

Open insurance, defined

What exactly does it mean for insurers to be “open”? The definition can vary based on context. In the banking industry, the EU has made changes to payments regulation that are designed to promote “open banking” and increase competition by challenger banks.

The UK has made similar changes. Other regions around the globe are looking at ways to promote the rise of new financial startups (commonly referred to as fintech) in order to promote competition and consumer choice.

In the insurance world, a similar regulatory approach has not yet taken hold for a number of reasons. Organisations such as ACORD have developed industry standards that a number of firms abide by, but they are strictly voluntary and have challenges in terms of data quality and more widespread adoption.

What are the implications? Being open builds a strong business case for providing integration points to credible third parties through application programming interfaces (APIs). Think about your systems as a platform that can be made accessible to third-party developers and organisations, rather than a siloed store of data, procedures and algorithms.

Organisations can gain the benefit of new innovations without the need to complete a full digital transformation journey.

Legacy systems can co-exist alongside an API integration layer and other enabling technologies such as an enterprise low-code platform.

Automation technologies can provide value across a range of functions from agent and broker lifecycle management to contact centres. Leveraging partnerships can help insurers tackle challenges such as complex policy quotation, billing, claims first notice of loss and fraud detection.

Think about the inclusion of external services into the relevant operational process. Also, being open enables partnerships in local and specific markets, with specialised managing general agents (MGAs) or communities, allowing the insurer to access these specialisms and local markets more easily. Through partnering with others, insurers can move much more quickly than if they sought to make all of these enhancements internally—at a fraction of the cost.

A new approach to compete

Some insurers are already taking advantage of the new possibilities that an open approach using newer technology provides. Companies around the world have found a variety of non-traditional partners with which to integrate and provide novel products and services through new distribution channels.

Some of these offerings take the form of on-demand insurance, such as buying coverage for a single ride on an e-scooter or a single drone flight. Others take the form of embedded insurance where coverage is, in essence, packaged in with other features and premiums are baked into the overall price that customers pay.

Finally, insurers are finding new markets by being part of online communities and social places where people gather, such as offering pet insurance on websites dedicated to sharing stories and pictures of your favourite furry friend. The main point is that the nature of competition is changing in its form.

To effectively compete in the next decade, companies must be able to design and execute on new business models quickly. There is a common misperception that the insurance industry is slow to adopt technology. In fact, insurers were among the early adopters of technology—from the 1970s and the era of big mainframe computers.

These machines were optimised for batch processing of large volumes of transactions, ideal for common business processes such as issuing policies and handling renewals. Large-scale solutions, deployed on premises, have many advantages: they are optimised for handling a fixed number of products efficiently, prizing throughput over customisation, all while being highly secure in an installation on premises.

Two things have radically changed over the past 30 years: the pace of technological change and resulting changes in customer expectations, and this legacy technology of yesterday can be a limiting factor for carriers. Today’s modern cloud-based systems allow for fast transactional speeds while allowing for much more product differentiation.

The use of web services and APIs allows for core systems to serve as platforms rather than silos, all while maintaining the highest amount of data and systems security to protect against breaches and cyber attacks.

The potential of open insurance

In today’s world of accelerating change, organisations must prize flexibility and speed to market more than ever.

“Less weightlifting, more yoga” is a good rallying cry for today’s organisations seeking to maintain their edge on the competition. Traditional companies in the insurance sector have tremendous assets at their disposal that are the envy of new entrants: access to tonnes of policyholder information, mature processes and the ability to deliver at scale.

The task at hand is to leverage these legacy assets in combination with new technologies and opening up to new possibilities to remain as compelling and relevant as ever. The reality is that tomorrow’s strategic partner may not even exist today, so developing an open architecture based on a flexible and open business processing layer, APIs and the ability to integrate across a range of entities—large or small—is essential.

Gijsbert Cox is the industry leader for insurance in Europe at Appian. He can be contacted at: gijsbert.cox@appian.com

Rob Galbraith is a recognised thought leader on P&C insurance. He wrote “The End of Insurance As We Know It: How Millennials, Insurtech, and Venture Capital Will Disrupt the Ecosystem”.

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