Speed-to-Market: Ease of doing business is all well and good
as long as a carrier has the product in place at an acceptable
price for the insured to select or the agent to propose. We have
all heard many times about carriers who gave up on business
opportunities when they found out how long it would take IT to
enable a line of business, a new state or even a rate change. For
a different perspective on speed-to-market, consider the direct
companies that write auto business in the UK. These carriers do
rate changes daily; often in support of an advertising campaign
aimed at a certain demographic in a certain geography. Yes, they
run “specials” on insurance.
Pricing Accuracy: Finally, the point of writing more business
is to write more profitable business. For many carriers still toiling
with data-poor legacy systems it is a significant challenge to
understand and segment profitable from unprofitable business.
Legacy vendors have minimal ability to run “what if” analyses to
assess the impact of possible rate changes. In a business world totally dominated by numbers these carriers are largely flying blind.
Further, a carrier needs to know what it can charge for a product
and still make a profit. In some markets margins are paper thin:
Consider again the commoditized personal lines market where it
is commonly assumed that an insured will change carriers for a
savings of $50 to $100 of annual premium.
Expense savings come in two main flavors. Neither is seen as
K First there are savings projections which can be made based
on staff reductions. If a modern system has rules and workflows and wizards and straight-through processing than fewer
people are needed to do the same amount of work. While
this is true the equation gets changed to: The same number of
people can do more work, which will be generated by business growth (see above). Insurance companies in general do
not like to fire people, and significant cost savings in operational expenses usually require staff reductions.
K The second and potentially bigger area for cost savings is
in claim payments. While this notion usually causes an
outbreak of the vapors amongst carrier management there
are sometimes opportunities to reduce indemnity payments
while increasing customer service. We had one client who
reduced the average number of days an insured needed a
rental car as a by-product of implementing a modern claims
platform. Seven-figure savings in rental car reimbursement
were realized and the insureds were getting their own vehicles
back more quickly.
So, growth and savings can materialize from legacy transformation. However, the process may be more complex and lengthy
than it seems from this discussion. If you recall my conversation
with Larry Fortin, seven years into its transformation Millers
Mutual has saved no money on staffing—IT is bigger than it has
ever been and the business is not significantly smaller.
What is in process is the company is becoming knowl-
edge-based with fewer employees to administrative or process
work, and more to knowledge work. IT is bigger but does more to
provide information and insights to its business customers. Now
the company knows more about where and how it can grow and
what lines and classes of business make money.
One would expect that at some point in the future these
promising developments might yield measurable results that can
be attributed to the work and costs of the past seven years.
But to Fortin’s major point, that’s not really the point. The
point is, for many carriers in this age of accelerating competition
and disruption, the justification for legacy modernization is not
return on investment. Rather it is survival and relevance. Insurance is nothing if not data. Pretty much everything an insurer
does—issuing policies, billing premiums, paying claims—can
now be rendered electronically.
There is no physical product in insurance. Fixing cars, replacing
furniture, defending law suits, cleaning up oil spills are usually done
by partner service firms. We print fewer policies, process fewer bills,
and issue fewer checks. We mail fewer envelopes. Today I pay my
insurance and get my policy and ID cards via the device I am sitting
at writing this article. My daughters get theirs on their iPhones.
There is nothing significant that an insurer can do today to
grow, change or merely survive that does not rely on computers
and data. The basis for everything we do is information: cap-
tured, validated, persisted, aggregated, analyzed, segmented, and
augmented. The first part of this formulation—captured, vali-
dated and persisted—requires a data-rich, modern core systems
platform. Without rich transactional data as its basis, analysis and
segmentation are useless.
Data warehouses are built on and are dependent upon the
core insurance systems—policy, claims and billing. The days of
insurance companies surviving on agency relationships, human
capital or niche market expertise are largely over. Carriers such as
Slice and Lemonade and, to an extent, Hiscox are not some weird
and faddish outlier; they are the future of our industry and they
are as much technology companies as they are insurance carriers.
Maybe a better formulation for thinking about core systems
replacement is Return on Information rather than Return on
Investment. Information is where carriers now compete, and
where they will win or lose. This is recognized and reflected
in the amount of money, resource, and attention that data
warehouse, reporting and analytics now receives. But, as we
noted above, these are secondary (and higher level) information
functions that rely on the underlying transactional data from
core systems, which are the bedrock for any successful insurance carrier going forward. To recast the military dictum: He
Who Knows Wins. ITA
George Grieve is a popular writer and speaker on the
subject of insurance technology solutions. He is the author of a book composed of a collection of his popular
columns, “Shop Talk,” and is CEO of the consulting firm