Is the insurance core system the lowest common denominator in the InsurTech (r)evolution?

This one has been a long time coming, nonetheless one I have discussed time and time again, both on the podcast and with many folks - both in incumbent insurers and at startups breaking new ground. In fact, it's the countless conversations with startups that have led me to this conclusion.

Quite simply, the more InsurTech founders I meet across the globe, the more partnerships we create, the more and more convinced I am that the lowest common denominator for the InsurTech (r)evolution is the core system itself, most notably the Policy Admin System and Quote and Buy process.

Claims is present in some of the new platforms but seems to be a slower follower here for new / low code / business focussed aimed platforms, I'll come on to that later. It links nicely back to the early stage InsurTech investment race which focused on distribution - or just coincidence perhaps?

The Holy Grail

Having been involved in many large-scale core system transformations over the years, I feel the pain here. Ultimately, I believe this is the holy grail of holy grails.

I have worked with many clients on 'core system transformation' projects and thoroughly enjoyed the challenge, these typically replaced decades of legacy claims, policy and billing platforms respectively. These old systems were not built for the current (or future) market environment with it's very specific and demanding requirements around data and engagement that enables us to support today's very different customer expectation.

This multitude of platforms is the result of a whole host of factors, anything from increased M&A activity, out of support platforms, security issues with legacy or in the insurers latest effort to modernise or simplify the legacy estate and reduce cost and technical debt. All valid reasons if the business case for such stacks up. Sadly, more often than not - it doesn't. And yet, we still have to launch new products to market. The dilemma is very real.

What's the alternative?

On fire, but not hot enough

Unless there is a compelling burning platform, then I am seeing more and organisations lean towards leveraging an InsurTech solution to help solve their challenges and address the key challenge of product speed to market, something I have talked about and seen time and time again

Insurers are typically adopting a two-pronged approach, these being:

1. Left to Right - solving the core system challenge from the foundations upward, addressing the burning platform issues mentioned above. These are the more traditional transformation programmes, bigger in nature using some of the industry's leading core systems technology such as Guidewire or DuckCreek. For as long as we have legacy debt, combined with large scale volume - I don't think these are going away anytime soon. In certain markets they will have more success than others. Typically, slow moving, large programme - months to years.
2. Right to left - Starting with the customer and working backwards into the organisation addressing the very specific 'product speed to market' challenge that almost every carrier I talk to is looking to solve. Their internal change stack is either full up and/or their existing platforms can't get there at the right speed or price point to test the market or launch something quickly to meet a specific market demand that has been identified. Typically, fast moving, short project - weeks to months.

These are not mutually exclusive. Many of the folks I speak to are doing both of these in parallel and aiming to meet in the middle somewhere. Both require very different mindsets. I don't think this is the death of Goliath - I genuinely see the case for both in some of the insurers I work with. You simply can't run 30-year-old platforms and expect to meet modern-day agility requirements. That said, I wouldn't want to be the large core system transformation project when the next round of cost savings come around. The ratio from 2 to 1 above feels like 20:1, anecdotally at least.

The second approach above of course is where the InsurTech (r)evolution is playing out right now in full force and ultimately, are more InsurTech's simply solving for this holy grail.

Finding our feet

To explore these further, I categorised these challengers into three broad categories.

• Category 1 - These are modern day equivalents of the traditional (large) core system providers, albeit cloud native and built for speed to market, all-encompassing with a huge amount of flexibility, either to operate standalone or integrate into the carriers existing standard tools for rating, documentation etc.
• Category 2 - as above, but with the added benefit of being able to write business in specific states or geographies, given they are authorised to do so by local regulators
• Category 3 - Adjacent InsurTech players that have been built from the ground up to solve a niche, single specific problem - but could easily be repurposed to solve another challenge or address a new line of business.

To bring this to life, I then mapped some of the existing players into each of these groups per the summary below. This is not exhaustive, we know there are north of 2,000 InsurTech startups and over 100+ providers in the platform space.

A little more detail

Category 1 - INSTANDA for example have 45+ clients from MGA's to Insurer's that they have helped launch new propositions and products to market in c8 - 12 weeks each, often less. Like everyone in this space, cloud native, sitting on Microsoft Azure, the ability to spin these up and down in a heartbeat is key. The screenshot below shows the simple, logical flow a business user can follow to create full insurance products, from rating questions, calculations to documents and endorsements. Add to this, INSTANDA will also quite happily deal with the FNOL phase for claims, passing then on to the clients preferred/in house claims or TPA platform post notification.

We work closely with the team at INSTANDA and have some great examples of this in action and the speed at which this is deployed.

• Category 2 - Slice not only have a cloud-based platform with ICS for policy and claims, they also have the ability to write business in specific states. Built from the cloud down, Tim and the team are outsourcing the speed to market challenge with some great examples from AXA XL and Legal & General.

• Category 3 - Finally, these folks have been on their merry way solving very specific challenges - whether it's Tobi at Laka reinventing the business model while solving cycle insurance, to Ed at Flock with his head in the clouds with drone insurance or Tahir with Canopy for Renters, Jimmy with MyUrbanJungle, Becky and the team at Buzz (plus so many many others). What's true of all these startups is they have built in most cases an end to end platform focussed on one line of business or one specific product. There is nothing stopping them leveraging this technology for another line. For example, let's take Ed and the great team at Flock. What else could you insure that needed: location, real time pricing, 3rd party data and much more? yes you guessed it - anything in the mobility space, and I probably wouldn't limit it there either. Have a look at the Flock full Insurance Stack below.

My view here is that those in Category 3 are more likely to (will need to?) Pivot into Category 1 or 2 in the search of scale, unless of course the business segment they have gone after is large enough. I would be asking; how can I turn my platform and capability I have built to broader and greater use?

Solving business challenges

I see insurers leveraging any number of these platforms depending on what their specific business challenge is to address new market pressures very quickly, whether they want

• new capability, flexibility and speed (category 1)
• above, plus the ability to test easily in new states/markets (category 2)
• or simply address a new specific product/line of business (category 3)

Interestingly, many of these are country specific or country focussed (not to say they can't work across geographies), a lot of these operating in the individual countries where they started - hence the large volume of them in my view, unlike the enterprise players that have already figured out how they support multiple geographies. Of course, this comes with an overhead and cost. You don't always need a sledgehammer. The other observation here is that they are not only cloud native, but they are also geared up for the API economy. If you follow my thought's around embedded and invisible insurance (sorry Matteo!) then they are already here and enabling this - a great example being the folks at CoverGenius, who integrate at the commerce layer, not an additional task for the customer to then go on and purchase insurance. (here the interview with Sarah and them here.)

As with the approaches, there will not be one single platform here - it's great to see insurers leveraging the right one to address the business problem.

New platforms, new challenges.

Jump forward 5-10 year's and we may well be back to insurers having more platforms to manage than they currently do, but be less reliant on any single one monolithic slow old beast. I'd hate to share some of the numbers that I see when it comes to the numbers of PAS platforms in play at most insurers, needless to say it's never 1!

Maybe it will go full circle and we are headed back to mainframes in 10 years time, but I very much doubt it. My hope and expectation are we get the data right and we end up with a beautifully orchestrated ecosystem of capabilities with multiple platforms doing what they do best and meeting specific market demands.

Growing up, what next for the startups

As the startups in Category 3 mature and scale, I see this as a typical sequence of events:

1. The early years: As a new startup, most founders I know build their own tech stack, and to be honest - do a bloody good job of it. They are unbound by legacy, free from data, customers, partners and all the other the things that often get in the way and give you the benefit of a clean sheet of paper. This is enough to prove the concept, business idea, ability to acquire customers and get our seed / series A round under the belt.
2. The growth stage: We need a platform that does this stuff better. There is no value in building this when others do this for a living, and we are starting to hit scale problems. Let's spend our energy on places we can truly differentiate in, not reinventing the wheel.
3. We're a serious player now: We want to grow exponentially, we have money, scale and lots of customers. We are going multi country multi product and much more. Time to deploy the enterprise big guns ready for hyper growth or an exit.

This leads me to believe that they will engage the folks in category 1 and 2 as they mature creating a new market and ecosystem for those folks.

Is there space for everyone?

Sadly, probably not, and in line with Sam Evans' recent comment at the InsTech event around an increased number of InsurTech failures, I think we will see a whole host of consolidation in this space, with many of the smaller or local players getting together to builder longer runways, greater customer bases and drive scale. They will then face their own challenges in combing platforms and technologies. We have already seen some of this in Germany with the likes of Knip and Komparu in 2017.

A timeless debate

We have had this debate again recently, and it's a recurring theme. If we were to start the industry today with a blank sheet of paper, of course we wouldn't design it the way we did 30 years ago, nor did we have the same ability back then to adopt a capability driven and services enabled approach to plug the necessary components together easily, or swap out capabilities quickly and easily. We simply have a better start point today than ever before and this will no doubt continue to improve. Here at Deloitte we have been helping organisations assemble the right capabilities and components, whether it's to launch a new product, enter a new line of business or start establishing an entirely new MGA.

Insurers of the future will be assembled, not built. These new platforms are an essential component in the rapid assembly process.

There are of course a whole host of other categories across the entire insurance value chain that InsurTech has been addressing. Many of these are incremental in nature and in essence point technology solutions within a broader insurance ecosystem that address a specific problem area within the broader insurance value chain, whether it's an efficiency play, helping price better, understanding risk differently, leveraging processing power, aggregating new data sources, addressing fraud and so many more - all of them however are reliant on being able to develop and launch the product in the first place. We are merely at the tip of the iceberg still.

I would love your perspectives and builds on this.

1. Are the two approaches correct and make sense (left to right and right to left). Have you seen others?
2. Does the categorisation of startups feel right in the platform space? Who would you add and to which category? if you comment below, I will update and share.
3. Is my outlook for startups in this space correct?

Ultimately my question remains - no matter where you start, is the lowest common denominator for InsurTech's, the core system holy grail? I genuinely think so.

Nigel Walsh | @nigelwalsh