Articles - Digitising Insurance just what does it take

Digital transformation is not a single proposition. To some, it means building an entirely new platform, way of underwriting, or changing the distribution channel to disrupt the traditional legacy players. To others, it means taking a legacy book of business into the 21st Century. There is room in the insurance ecosystem for both approaches. However, for both sets of players, the future is a potential minefield.

 By Graham Elliott, CEO of Azur.
 Reasons for reluctance
 There’s no getting away from digitisation; every company is going to have to embrace it at some point, but it can seem like a daunting leap.
 The challenge for incumbents is clear. Executive positions tend to be filled by those less versed in today’s technological capabilities, so they will tend to vote for the "lower risk option" and go with what they already know This is compounded by the fact that the savings and increased volume to be gained as a result of this digital investment are not yet proven, meaning that existing legacy will always appear cheaper than new systems. This is a particularly acute problem for publicly traded entities who are driven by the quarterly earnings cycle.
 All of this means that the drive to digital transformation is going to move at a more glacial pace than everyone imagines. The new entrants are going to find getting to scale highly challenging, and the incumbents are going to be slaves to external drivers that make the risk of digital investment unpalatable. As pressure to implement a personalised user experience grows, the enhancements to products necessary to deliver this will become increasingly challenging; legacy systems simply won't be capable of keeping up.
 Embracing change
 The analogy for digital transformation in insurance is the difference between building a new house from the ground up versus renovating an existing property. Some builders want to start with no legacy, whereas others are happy to work with what is already there and improve and upgrade the building. Both are valid, and both can deliver warm and stable housing. But what unites both approaches is the need for them to address the foundations of the property before building the fancy architectural features on top. If they don’t, disaster awaits.
 In insurance, it is highly improbable that the well-capitalised players in both broking and underwriting are going to be put out of business anytime soon by an Amazon-type disruption, but it is certainly true that those incumbents who are going to keep thriving in the long term will have to undertake extensive renovation of their businesses. This work will have to begin with the foundations, namely the core systems.
 The problem doesn’t stop there. When brokers are thrown into the mix, everything becomes even more inefficient. Data is constantly passed through too many channels; customer to broker, broker to insurer and all the way back again. As a result, it’s very easy for data to be lost or misinterpreted, exacerbated by the fact that none of the different channels talk to each other. For brokers, building a platform to solve this issue is one of the necessary outcomes of digitisation.
 The fourth age of insurance
 Of course, the insurance industry is not going to change rapidly overnight. The idea that the big, traditional insurers are going to be toppled from pole position by insurtech startups is unrealistic. The industry does need to change, however, and this means embracing some level of new technology.
 Big firms need to realise that the level of investment being spent on maintaining legacy platforms is simply unsustainable.
 Modernisation of their core systems is vital – there’s no chance of delivering a 21st Century user experience without allocating significant budget towards it.
 Nor does the future solely belong to insurtechs either. They, too, will struggle to survive on their own - even those that have attracted significant investment will find it difficult to scale up their proposed systems to the level needed for mass market propositions.
 The future is about collaboration and creating a mutually beneficial relationship. Insurtechs will increasingly realise that a pivot towards partnerships with incumbents is a valid strategy, and incumbents will realise that they can't reinvent themselves from within, and they will increasingly look to insurtechs to provide the innovation and risk taking that this digital transformation requires.
 This trend is already well underway: the number of investments made in insurtech firms reached a record high in the second quarter of 2018, including a significant contribution made by traditional insurance companies, according to figures from Willis Towers Watson.
 At the end of 2019, the insurance world will look largely the same as it does today, but the seeds of the future will start to take root.

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