7 ways Insurers can reduce complexity

Rapidly changing technology is disrupting and redefining the insurance landscape. Smaller, innovative insurtech startups have entered the industry, while larger incumbents are embracing digital transformation in an attempt to maintain their competitive positions.

With digital transformation, comes an opportunity for insurers to reimagine the way they do business. But with so much uncertainty and opportunity, what should you focus on?

As someone who’s worked as a CTO and CIO at several large organisations, I’ve seen first-hand how taking a simple approach can produce fantastic outcomes for businesses. In my view, increasing your operational agility is critical to enabling your company to adapt to changing market conditions, and reducing complexity is a key component of this.

So, let’s look at some of the latest technology trends for insurers, and how you can simplify your approach to get a head start on the competition.

Move to a “jobs to be done” approach

When considering which, if any, new technology to adopt, one of the most valuable shifts you can make is to focus on what the technology needs to do, rather than the system you think you need.

As an example, I’ve seen businesses decide that they need a claims system, look at various systems, go through a full RFP process, implement the solution, and only then realise that it doesn’t do a lot of what they need. They find claimants aren’t able to lodge and view claims online, the business can’t triage claims, and they can’t generate estimates of the claims cost or duration to provide data for reserving. Or, they discover their reinsurers cannot login to view and approve the claims that they’ll need to pay, and there’s no data warehouse export so they cannot analyse the data.

In the end, while they may have picked the option which got the highest score based on their selection criteria, ultimately that doesn’t matter if it doesn’t have the specific functionality they need it to have every day.

Streamline the paperwork and approval processes

Many companies have particularly exhaustive capex processes which see teams spending more time trying to get a new project approved than it takes to implement the solution. Even then, it’s often not until the project is well underway that they work out what they really need.

At the other end of the spectrum, we’re frequently asked for an estimate of a project’s expected costs and benefits, based on a two-sentence description of what’s needed. How valid can the cost/benefit case submitted for capex approval be? Does the business really know what it’s approving and how much it’ll ultimately cost? No wonder two thirds of large scale enterprise software projects have large cost overruns.

Alternative approaches such as running a pilot or having in-depth meetings with some of the vendor’s other clients would provide much more insight before a final decision is made.

Regardless of the approval process, clients always should review the project regularly and be prepared to cancel if it becomes clear that the solution isn’t going to work. The only thing worse than making a bad choice is persevering with it to the bitter end.

Focus on a product not project approach

In an article highlighting the practices that maximise success in digital transformation, McKinsey points out, “The breakneck speed at which competitors and customers move in the digital economy means that businesses must revisit and rearrange their priorities more often than ever.”

This means that it’s time to forget costly, big-bang projects that involve a great deal of stress and the mistaken belief that they need to be right first time. Instead, high-performing companies are adopting a more agile approach, where smaller teams progressively roll out solutions and continuously enhance them as they discover and pursue new opportunities.

Reduce the number of components in the IT landscape

Many large insurers have hundreds of production systems and, including all the development and test environments, thousands of servers running in their server farms or out in the cloud. On one project I managed it cost $5M just to set up five complete environments for a new system - one for development, three for testing, and one for production.

Because interfaces are rarely one-to-one, as the number of system components grows, the number of interconnections needed goes up almost exponentially. This blows out the system complexity along with build, test, and deployment costs. These escalate further when the components are based on different technologies and need different teams to support them.

Reduce the number of technologies in use

One benefit of fewer systems is the reduction in the number of specialists needed to develop and support those systems. With fewer systems in place it’s easier, when needed, to ensure you’ve the talent base to quickly mobilise a skilled team to work on any area of the systems.

This doesn’t mean taking a purist approach such as standardising on a single database, programming language, and a minimal set of applications – is there’s nothing wrong with using a variety of options. My suggestion is to pick a reasonable range of technologies without unnecessary duplication and without having to force your technology to do things it wasn’t designed to do. I would, of course, make sure you leave yourself open to using specialist tools and applications. Where they’re so effective it justifies making an exception.

Avoid trying to pick one best of breed option for each component

In the 80’s, the trend was to assemble your stereo system with multiple components from the “best” suppliers. Now, except for audiophiles, it’s okay to use Spotify and a single high-quality Bluetooth speaker.

I think the same is true for business. Rather than trying to decide which is the “best of breed” for each component in your system, the aim should be to find one that’ll get the job done, and nothing more. Note that what jobs you need it to do will shift over time, so make sure you get a flexible solution that can adapt to the inevitable need for change.

Don’t buy technology based on a brand name, irrelevant factors like how many clients they have, or a set of attributes you’re rarely going to use.

For example, if you’ve a system that has a perfectly good inbuilt document generation tool, do you really need to pay extra for the interfaces just so you can say you’ve a single ‘best of breed’ document generation tool?

Keep the product configuration simple

This will of course depend on your individual business, but here are some suggestions to simplify even further:

• Look for ways to reduce the number of brand and product variations. Do you really need 365 different products for home and car insurance all supported by different code, like one company I worked for? Instead, you could have one master car product and one master home product with the brand and product variations supported by configuration.

• Most life insurance premium rating formulas are based on individual base rates for each combination of cover, age, sex, and smoking. These could be replaced by a set of formulae so that premiums would be much easier to change and test.
• Change of address and contact details for agent-sold business is often troublesome. Why not allow these customers to log into a secure portal and update their details directly?

Bringing everything together

With technology disrupting the insurance industry, it’s not a question of when, but how insurers will embrace digital transformation. Reducing complexity is a key component of increasing organisational flexibility and agility, and in my experience, through a combination of cultural and operational changes, you can simplify and standardise the way the business operates and safeguard your competitiveness.