The value at stake in digitising commercial insurance

The commercial insurance industry is on the cusp of a radical transformation.

By Martin Stewart : 16th of November 2020

The commercial insurance industry is on the cusp of a radical transformation. The rise of insurtechs, changing customer expectations and accelerating digital technologies mean that traditional insurers have to adapt if they’re to survive.

The quest for top line revenue growth has historically focused on increasing sales and expanding product range. Today, to stay competitive it’s essential to rethink your business operations and customer engagement models.

However, traditional commercial insurers are weighed down by legacy systems that don’t support this type of transformative shift. Decades-old core systems have been added to over the years with bolted-on software that add features but don’t improve the underlying functionality.

Building an entirely new digitised
system from the ground up
requires more than just
a new system build.

Building an entirely new digitised
system from the ground up
requires more than just
a new system build.

Building an entirely new digitised system from the ground up requires more than just a new system build. It also involves reimagining the way your business operates.

Why the old approach won’t work in the new world

Legacy systems can no longer support unlimited growth. Changing consumer expectations and incredibly complex product models aren’t supported by decades-old systems—and the more you try and add onto them, the less manageable they become.

The COVID-19 pandemic has also highlighted the necessity for urgent transformation as insurance companies have had to make a mass shift to a work-from-home model.

Paper-based claims processing is impractical in a pandemic world, so your system needs to be digitally enabled. And with many companies now having distributed teams you need a robust IT system that’s designed for remote workers and deters cyber fraud.

Customers also expect to be able to interact with you digitally. People working from home are less likely to have access to scanners and photocopiers, let alone be able to meet with relationship or sales executives in person. They may also be unable to personally visit the site of the damage and will be reliant on colleagues sending images or files digitally. If they’re trying to lodge a claim or apply for a quote for a new insurance product, it’s imperative that you can offer customers digital options. This may include uploading photographs of property damage from a smartphone or adding e-signatures to a statement.

The value payoff from digitisation depends on your strategy

The hardest part of re-engineering
your business is working out
what your ideal end goal is

The hardest part of re-engineering
your business is working out
what your ideal end goal is

The hardest part of re-engineering your business is working out what your ideal end goal is. You need to respond to current market pressures while thinking ahead to the next set of fluctuations.

Before weighing up the options, you must be clear on your criteria. The ‘why’ of investing in technology is at least as important as the ‘what’. Some of the possible options include:

Customer experience

Customer engagement drives new sales and determines whether people renew their policy with you or shop elsewhere. Investing in technology tools that serve customer preference makes sense if you’re pursuing revenue growth.

Commercial customers want a faster and more engaging way to interact with their insurer. EY found that 80% of customers are willing or eager to interact with their insurer digitally.

It should be omnichannel so that people who prefer to lodge a claim from a smart device can do so while others can still pick up the phone. It should be seamless, allowing customers to lodge a claim and receive a pay out in one transaction wherever possible—some of the reasons Lemonade is considered best-in-class, providing a fast, easy customer experience (although it’s struggled with other aspects of building a profitable business).

Business resilience

If the pandemic has highlighted anything, it’s the importance of business resilience. Insurers are experiencing business disruption through:

  • Loss of new business thanks to an over-reliance on paper applications and agents meeting prospects in person, both of which are impracticable under lockdown rules.
  • Increased risk of cyber and other insurance frauds with staff working from home on less secure internet connections than in the office.
  • Difficulties in processing claims and information sharing due to a legacy system that was never set up for remote work.

Business resilience also means
looking at long-term operating
costs, which can squeeze tight
profit margins to nothing

Business resilience also means
looking at long-term operating
costs, which can squeeze tight
profit margins to nothing

Business resilience also means looking at long-term operating costs, which will otherwise squeeze already tight profit margins to nothing. McKinsey estimates that IT costs per policy for companies with a modern IT system can be 41% lower than those with legacy systems. Those cost differences will only widen as legacy systems age further.

Profitability

There are multiple ways in which modernising your IT system will help profitability.

  • A flexible digital system enables insurers to add and update products quickly in response to changing market demand. -Fully automated underwriting using a digital platform cuts down on operational costs and allows underwriters to more accurately price premiums.
  • A modern IT capability makes the claims process easier and faster. Utilising remote data from drones to assess claims more accurately will lower loss-adjustment expenses. McKinsey estimates that a fully automated claims process can reduce costs by as much as 30%.
  • A more satisfying front end user experience to help increase sales and retain customers.

Longer term, your goal should be to capture accurate data at scale in order to support detailed data analysis and machine learning. These insights can fine tune your business model and help develop a comprehensive road map towards a modernised system for your future operations.

Where insurers should start with tech investment to reach these goals

High volume products

Look to the areas where your company
sells the highest volumes. To get
buy in you need to deliver
benefits quickly and visibly

Look to the areas where your company
sells the highest volumes. To get
buy in you need to deliver
benefits quickly and visibly

Look to the areas where your company sells the highest volumes. Automating and streamlining those sections can deliver benefits quickly and visibly. If you write twice as many business interruption policies as you do directors and officers policies, it makes sense to focus your tech investment in that area.

This may seem obvious but a lot of companies start with a minor product as they are scared to jeopardise their major products. However the end result is likely to be a poor or negative return on the investment and the whole program gets cancelled.

Complex and rapidly changing products

Technology can make a big difference in simplifying complex products such as professional indemnity (PI) or cyber insurance.

With PI, for example, there are endless ‘professions’ to cater for, while cyber insurance assessment questions and rating rules need to be regularly changed as new threats emerge.

Claims processing can also be difficult for complex products like these. Assessing the loss can be time consuming and difficult, with a high likelihood that the assessment will be disputed.

Often a team approach is better, being able to quickly bring in specialist loss adjusters and legal experts. For this, insurers need digital workflow tools and data sharing capabilities. Investing in these technology tools enable insurers to assess complex claims faster, with minimal disruption in times of crisis.

Products where there is a key role dependency

Many commercial insurers have key product managers and underwriters who are assigned to particular products and have their own way of doing things. Rather than exploiting the algorithms and rules applying across the system, they use their own complex spreadsheets they’ve developed over time. As nobody else in the company can access their formulas or take on the underwriting, this creates a bottleneck and hampers the company’s ability to scale.

Experienced underwriters should instead work with the digital team to move their rules into the system. This will free them to add value by doing data analysis on claims and accessing industry databases to continuously fine tune the questions asked and the rating rules applied.

Direct or low-touch product sales

Identify products for market
segments that need little
interaction. Gig economy
workers for example

Identify products for market
segments that need little
interaction. Gig economy
workers for example

Identify products that need little to no interaction. Gig economy workers looking for temporary business cover can apply, receive a quote and complete their purchase online in one interaction. Insurtechs like CoverGenius already offer this service. By moving your low-touch products onto an online platform, you reduce overheads and free up staff to work on claims and other tasks that require personal interaction.

To get the biggest pay off from your tech investment dollar—clarify your strategic goals. Investing in one area of your business should be the start of a bigger journey to digital transformation.

Rethink, don’t reboot your commercial insurance systems

Whether you’re looking for an innovative platform to support business growth, you’re over capacity and need to outsource a project, or you’re in a jam and need a rapid solution, Axe is ready to support you.