Other parts of this series:
- China: A Decade of Blazing a Digital Trail
- Juggling Act – Part 1: Transforming the claims space
- Juggling Act – Part 2: Keep the Customer Satisfied
- Juggling Act – Part 3: Modernising core platforms for P&C insurers
- Juggling Act – Part 4: Modernising core platforms for life insurers
- Digital decoupling: Unlock value and protect your market
In this series of blogs, my colleagues and I will look at the insurance sector in Growth Markets, with a particular focus on technology, digitisation, platforms and ecosystems.
One of the most crucial issues facing insurers is how to modernise their core platforms, which in most cases are unfit for the digital age. The challenges and solutions differ for P&C and life insurers, so I’ll tackle P&C insurers here and life insurers in my next blog.
Insurance distribution has shifted in recent years – largely due to changing customer needs and habits and the digitalisation of markets. Customers expect to find the P&C products they need online and expect those products will be easy to use. Few see much need for agents (though that’s less the case for life insurers).
In short, P&C customers want a different relationship with their insurers. This holds true for both the sales side and for services, where customers expect to be able to, say, update their addresses or their insured value online.
Changing customer expectations, then, is one major factor. Another is the rise of consumer platforms. These have entirely remade how insurance is distributed, reshaping perceptions of who customers feel can legitimately offer them insurance products. Many airlines, for instance, offer travel insurance when you buy your ticket. Ride-hailing firms like Uber, Gojek and Grab offer insurance products, too.
The question is, how can insurers access these customers? To do so, they need systems that can connect to digital platforms, and that are speedy and reactive enough to match evolving customer expectations. That’s impossible with outdated core platforms.
Although modernising core platforms is essential, replacing them is costly. Here is where P&C insurers have several advantages over life insurers.
Their first is that P&C insurers can buy superb software off-the-shelf that will see them become more reactive both in creating and distributing products and in servicing customers. While the software isn’t necessarily easy to implement, rapid change is certainly achievable. In particular, P&C players can bolt-on product catalogues to existing systems to create new offerings fast and release them to the market. The right digital solutions also give insurers the capability to analyse data to micro-segment customers and target them with bespoke products.
A few years ago, I saw for myself how efficient these systems are. The Malaysian government had recently scrapped regulating premiums, leading one client to seek to position itself more aggressively in the market. To that end, it installed a product catalogue that meant it could change its premium ratings in days rather than months. That put it far ahead of its peers.
Such solutions are available for servicing and claims administration too, with software running in the cloud, maximising efficiencies. A key benefit is that this allows insurers to capture the data they need to leverage for analytics purposes. One health insurer I worked with, for example, can now analyse hospital bills in detail, so it can compare, say, the invoiced sum for an X-ray against the average cost for that country.
But where these solutions truly come into their own is in getting products to market fast and exposing them to new partners. Consider this: if Uber came to your firm for P&C products, could you connect products to Uber’s systems in a week? That’s what digital platforms expect, yet few P&C insurers can achieve.
The challenge is selecting the right platforms for P&C insurers’ needs. While there are many good software solutions, these won’t work equally well for all. In my experience, the most common failure comes from selecting the wrong software for the wrong reasons – which results in the wrong platform for that P&C insurer’s needs.
The right approach is to ensure that you understand, upfront and in-depth, what the prospective platform needs to be able to do. For that reason, if you’re looking for a software solution, the first step shouldn’t be to draft a questionnaire with thousands of questions and hundreds of product specifications, and then run the request for proposal (RFP) ruler across candidates based on that level of detail. (I recall one very large company that called us for an RFP that covered everything – from front end to CRM to policy management to claims to accounting. That was simply too unwieldy.)
Instead, it’s best to shortlist software based on what it can help your company deliver for the future. In practical terms, this means devising a selection process based on a few dozen questions – focusing on core capabilities like configurability versus coding, technical architecture and APIs, cloud/SaaS availability – before identifying a narrow list of possible solutions based on factors like pricing and potential. Only after this should you undertake a detailed assessment, which should largely involve real-life examples like how to create a new product or how to connect to an external distributor.
That’s the approach recently taken by a client who wanted a product catalogue that its actuaries could use to configure products without any intervention from IT. After narrowing down options, we spent a week showing the actuarial lead the tools. By the end of that week, the actuary was designing new products from scratch. With the right delivery system to hand, the insurer could roll out those solutions in days.
Earlier I said the situation is more challenging for life insurers. Stay tuned to find out why, and what steps life insurers can take to ensure their core platforms are fit for purpose.