“Science and technology revolutionize our lives, but memory,
tradition, and myth frame our response.”
Arthur M. Schlesinger
How very true in life. But this quote also aligns beautifully with
the current state of the insurance industry. Our memories,
traditions, and ways of thinking about the current state of the
business are framing how we respond to the changing world
around us. What has emerged from this mindset is what we at
SMA describe as two ecosystems running parallel to each other
in insurance: the traditional system, influenced by memory and
tradition; and the system influenced by science and technology,
the emerging/Next-Gen ecosystems.
The traditional ecosystem, with a perspective that looks from
the inside out, is where older values and tried-and-true processes
prevail. The viewpoint on external influencers and industries
comes with a preference for, or adherence to, traditional processes and tools that have worked forever for insurers.
The emerging ecosystem in insurance has an outside-in perspective, in which external industries are used to shape internal
and outdated processes. The internal transformations that result
from a reliance on the new technology of the digital age and the
external influencers that turn old business models upside-down
play major roles in reshaping the internal business. The outcomes give rise to what we refer to as the Next-Gen Insurer.
The digital age has shaped the Next-Gen Insurer and created
a new ecosystem; traditionalists carry on with an insular perspective and a traditional path forward for strategic decisions
and investments. There is little room for cohesion or blending.
Traditionalists operate autonomously, but the Next-Gens gather
external industries to grow their practice and expand influence.
However, there is a more perfect way to develop an ecosystem that combines the successes of insurance tradition with the
obvious advantages that new, emerging trends and technologies
can bring to the business. Insurers need to take stock in both
ecosystems, build strategies to bridge the two worlds, and realize the benefits of both.
Historically, insurers, agents, brokers, and even reinsurers tend
to be internally focused. The outside-in-looking Next-Gen
insurers are still a bit of an anomaly in insurance. As the econ-
omy struggles to grow, insurance stays financially healthy and
strong. Our strategies, business models, and products continue
to provide value to policyholders. We have remained untouched
by the bad economy and all types of damaging world events—
both man-made and natural. We stayed true to what works and
watched the storms, sheltered by traditions and experience.
This strategy has proven to deliver solid profits and steady,
healthy growth. The mindset is that if insurance has weathered
world wars, major disasters, countless economic depressions/re-cessions, and even terrorist attacks, insurance can easily weather
the digital revolution and remain unchanged. Wrong!
This blending of ecosystems requires a continuation of traditional investments, but it has started to see experimentation
with sprinklings of new investments in the customer and Big
Data. This approach is leading to substantial innovations. We
have seen many insurers invest in core replacement and digital
customer portals and realize large scale innovation. As you walk
into work or attend a meeting, the business itself may feel the
same on the surface. They’re the same people and use similar
processes. It appears to be business as usual, but we are seeing
proof that the digital revolution is transforming insurance,
despite the perception that we are just weathering the storm:
K New Roles: At least a third of insurers are creating new roles
to match the digitalized world and capabilities—like the
digital officer, customer experience officer, and chief data
scientist. These new roles attract new talent and also allow
seasoned insurers to develop new and useful skills.
K New Strategic Initiatives: Over half of insurers have embarked on strategic initiatives like digital transformation,
customer experience, Big Data, and analytics. These initiatives are a result the competitive pressures stemming from
the new sources and quantities of data and the advancement
K Core Transformation: 74 percent of insurers have transformed their core operations—underwriting, billing, and
claims—with core modernization initiatives that establish a
platform for modernization, optimization, and innovation
that is ready for the emerging digitally-connected world.
K Innovation: Through innovation labs within the business
and outside the operations, a culture of innovation has been
encouraged. These innovation labs promote ideas from
within and transform the way in which individuals work
and are rewarded.
Industries external to insurance are adopting emerging technol-
Change and Acceptance
Change is inevitable, but unless insurers have the mindset to deal with change rather
than simply shrugging their shoulders the benefits will be lost or delayed.
By Deb Smallwood