Adaptability

September edition (looking back at August), 2023

A Risky Business

To any new readers I want to make it clear from the offset, I am a huge fan of the insurance industry. Sure, I am often frustrated by the sheer overwhelming volume of left behind opportunity, and the slow speed at which we are transitioning business models. Ultimately though I've always come back to the same place. This is an industry predicated on an incredible role in our lives, businesses and society.

Insurance allows us to do things we would otherwise be prohibited in doing. It has freed industries, helped us push boundaries and it's often there to at least help us with the financial impact of a realized risk. All of that is wonderful!

However, and you knew this was coming, it is facing a huge set of macro and micro pressures and now needs to redefine itself in order to keep playing its role successfully from hereon. A big statement for sure, but a reasonable position from what I can see.

Bare with me while I get really basic..

There are many types of insurance companies and models. for example, Life insurance companies focus on legacy planning and replacing human capital value, health insurers cover medical costs, and property, casualty, or accident insurance is aimed at replacing the value of homes, cars, or valuables.

In most cases the insurance sector is fundamentally based on risk management(?). Policies written are analyzed with various risks factored into this process. Actuarial analysis is performed to better understand the likelihood of certain outcomes. Based on variances between statistical data and projections, premiums are adjusted or benefits are reevaluated. This is done in different time frames, but typically annually.

It's a massive balancing act, and this becomes even more complex when productized. A single policy or embodiment of risk varies. For example, a home policy can only cover the contents, a car policy might only cover 3rd party, fire and theft and so on. This is worsened by making other conditions of a policy varied, such as the "excess" or how and when certain services are valid. Making it hard for consumers to understand what is being offered and how to match the price to the risk in the optimal way for them. Hence why insurance has multiple distribution points from advisory based systems through to digital channels aimed at providing clearer choice and comparison. It's a complex thing, and often I've marveled that these business exist at all.

Another interesting feature of insurance companies is that they are essentially allowed to use their customers' money to invest for themselves. To make more money, and in some cases this is used to offset the premium or balance the book of business. This makes them similar to banks, but investing can happen to an even greater extent. This is sometimes referred to as "the float." And is another massively complex component in wider enterprise design changes.

The first "S" Curve of Insurance and Technology

We started with all that basic overview of insurance because it makes sense of the now "legacy" that came about in IT. To deal with all this complexity, administration and distribution (paper) scaled and reliable technology systems were needed.

They provided the horsepower to scale insurance businesses, and reduce the economic impact of those human and paper systems, which would limit not only the administrative agility needed to support increasing adoption, but also new insurance products and customer experiences. And it largely worked. In fact , it has worked so well legacy IT is still common place. And in some cases justifiably so.

I still think the best and biggest impact in this phase came from the "spreadsheet", and that's certainly stayed the course!

The next "S" Curve

The internet mixed it all up a bit - well a lot actually.

At the same time as the rise of the internet new technologies and technology service models appeared, and they offered a lot of "negative" business case potential. Up until this point fixed capacity models had also meant pricing certainty, but with the scale of the internet and distribution proliferation more generally this meant new approaches were needed. And in a lot of cases this provided a new flexible commercial model to power the further scale that insurers now needed anyway.

This wave of new technology gets called a bunch of things, often now referred to as "modern legacy" because it didn't aim to disrupt the insurance business model. Instead even software in this period was largely built on the same principles and structures, just better tooling and better at product distribution into those new internet channels, principally as it was a point solution.

Good things started to happen from this. "Digital Transformation" got thrown around a lot, but insurance has mostly embraced this by making what was once a human interaction into a multi-channel and sometimes purely internet based process. Or using technologies to extract point in time data, or further use computing power to process that surge in data.

And from this customers could get stuck into price, their now leading indicator of value. And in a B2B context there was a lot more transparency and fluidity provided as well.

Not everything made the leap though and things like the London Markets skipped this altogether, and they are just about to jump into the next era of ecosystems head first from here.

The economic stall zone

Then we went from SMAC to MACH, that's techno-nonsense for a big shift into theoretically infinitely scalable, adaptable, inter-operable technologies, with some built around the customer and not around the policy. These are now forcing business transformations, and addressing some of the other more vital changes needed.

This has come amidst some of the biggest changes in our lives for a long time:

• 'Post-Covid'
• Inflation and the cost of living crisis, with claims inflation and supply chains in insurance showing up even worse
• Consumer duty legislation in the UK mirrored in moves across all markets forcing insurers to take far more accountability for the customer
• Weather effects increasing, and macro environments shifting. And in a range of geo-demographic risk spaces insurers are "pulling" out or pricing out of those markets
• Further proliferation of distribution causing vast amounts of increased integritivity and new market potential as well
• Insuretech, insurtech or Insurance Technologies ( Ed Halsey - you pick ;) providing massive potential, threats and disruption
• The huge increase and now disparity in customer expectation, largely unmet by insurers
• And now with a tsunami of technology driven change awash in all adjacent industries, from cars capable of self-reporting a claim to health monitoring on our wrists there's more disparity to come

A stall-zone is often characterized as a move from one industrial revolution to another, but it has also occurred between "S" curves of technology driven change. From IBM believing there was a world wide market for one computer to the entire shift of power from one coast of America to another, and then the birth of the internet giving way to another period of dominant providers.

For me, this is likely a move to what is referred to as the ecosystem model (of which there are primarily two). And the reason I see this shift is because value chain business models in insurance are fading. Simply maximizing distribution whilst minimizing cost isn't going to build the resilient and adaptive insurance business models needed to keep pace.

Instead we need ecosystem insurers that maximize their knowledge of a customer and their ability to act on that knowledge. We need to shorten the time between data into underwriting & actuaries and back into customers, or in proposition changes. And we need down stream ecosystems too that allow for optimized claims experiences, or reinsurance services helping customers to build back better, or simply the much needed embedding of insurance into our lives fueling the cycle of data and value creation ever faster.

Whichever view you take, change is coming and it's coming faster than ever.

I was lucky enough to be interviewed by Mia Wallace and Insurance Business America on one of the hottest and most important topics in our industry:

?? Insurance fraud – why insurers have no excuse not to act ?? .

Go give it a read ?? and you'll find out why I say things like: “Up until now, [insurance] technology has let the side down,” he said. “Principally, because within the technology, fraud is essentially done on the side which means it's disruptive and interruptive to the insurance journey. It hasn’t looked to create that seamless, continuous anti-fraud operation sitting behind every customer interaction that is required." ??

Mia has obvs used her incredible journalistic talents to make the overall piece sing, and I am grateful for this honest and well thought through interview and write up. The ability to tell these stories in our industry, and have this sort of quality come from that is something I am always grateful for. ??

Click here.

Here's a little Blog'aroo from Chelsea U. and I on

?? The AI Surge in Insurance: What’s the Real Story? ??

"True innovation, especially with AI, isn’t just about trends; it’s also about creating value and enhancing humanity. Let’s navigate the noise and pinpoint the real story of AI in insurance today." ??

We have basically pulled together some reasonable use-cases for #genai in insurance today, hopefully cutting through the hyberbole a little in the process. ????

Click here.

David Worsfold takes a look at:

?? Embedded insurance: Blind to the risks? ??

in this article from Insurance Post.

Unpacking the various areas of opportunity and risk - of which there are plenty of both.Lots of interesting viewpoints from Simon Torrance, Gerry Goodwin, Dan Martin, Michal Trochimczuk, Tim Quayle and a little from me as well. ??One thing I always go back to is that this is no longer about simply embedding yourself into a purchase process, this can be about offering a different proposition and being active in the new ecosystems of the world today. Extending this idea to risk mitigation, the right coverage at the right time and operating the service data fluid and intelligent, fully integrated into our lives and the risks around us. And subsequently the downstream services becoming more intelligent as well. ??Also, please refer to our embedded insurance 2.0 hub for more takes on the potential this offers insurers (see in comments??)

Click here.

We are very proud to play our ecosystem enabling role in the core of the esure Group. What those guys and their Technology Champion (already in our eyes) Marco Perestrello are doing is incredible. #fixinginsuranceforgood #ecosystem #coretech #ambitiousinsurer

So this article featuring Marco Perestrelo and titled: ‘We have seen first hand how technology creates new experiences for customers’ was a particularly pleasing read.

Click here.

I got to write a piece for Insurance Thought Leadership on the

?? Sad truth about insurance technology ??

Some of the things covered:

--> The insurers of tomorrow won't be built on the technology of today.?The uncomfortable truth is that the industry hasn't fundamentally changed the way it operates. Nor is the implemented technology flexible enough to support the transformation now needed. ??

--> First, we must move beyond the legacy mindset of "how to do insurance the way it's done today, but better." ??

--> Driving risk mitigation by providing new or additional services should be at the heart of every insurance business. ??

--> Insurtech capability should be used to dramatically improve digitization and customer choice while expediting the most vital services an insurer provides. That means ending the emphasis on economies of scale in IT and focusing on speed, based on new, data-fluid and flexible foundations. ??

Click here.

Insurtech Insights directed a question to some of us:

What's your take on cost vs reward? Currently, the insurance industry is mid-dive into digital transformation via AI. What will the costs (other than financial) of that be?

I responded:

"There's a wonderful paradox in insurance where you can gain a lot more reward for a lot less cost than in most industries (more from me on this soon). What we need is greater vision, and a holistic transformation is needed in a lot of cases and it's going to be driven by new value, from new propositions delivered in a new enterprise design."

Go see some of the other thoughts here.

Finally, find out why David Cushman and HFS Research believe

"#GenerativeAI is turning out to be the last place you would want to suffer from vendor lock-in. Flexibility is going to be the name of the game as we strap in for a wild ride. It’s a fractured market currently, engaged in an arms race of capabilities. Consolidation will follow, but until it does, enterprise leaders must do all they can to keep their options open while managing costs."

Here's why.

And IMO these guys are generally a great resource for people looking for the wider and more challenging perspective on the best way to extract real value out of the technological change driving industries, employees and customers to change today. Great insight pours out of them, and their live and online sessions are great cut-throughs to get to the meaningful stuff as well. Please do check them out if you haven't already.