How many (insurers) will look forward and realise that this problem could now recur year after year as Coronavirus and other mutations become more common and, most importantly, that they need to abandon sunk-cost fallacy today and grab the future before it grabs them?

Adrian Webb Director Gocompare.com 

The full article adds depth and context to my earlier blog "What Comes After the Coronavirus?"

" When IT systems are tied to particular buildings or front-ends, insurers risk failing in their simplest obligation: to honour the contract of insurance and pay valid claims as they arise.

Swine flu, Avian flu and SARS all put pandemics on the risk registers of insurers but no-one genuinely expected a global super-spreader to hit us. Now it has, millions of people around the world are unable to co-locate. It isn't just back-up 'Hot Sites' but bars, coffee shops and in Austria anywhere where more than five might come together.

If as an insurer, you had a vision at Christmas of what was going to hit us with COVID-19, plus an insurance genie loaded with three wishes what would you have wished for? I suspect the following:

  • Cloud based systems where users can log-on and manage claims from any laptop or PC located anywhere. (Thus freeing the company to allow working from home while maintaining their obligations);
  • Digital capability so claimants can kickstart an end-to-end digital claims process from their smartphones by uploading pictures and videos or even streaming footage of their homes/cars etc into the claims ecosystem;
  • All of the above delivered in a way that does not trash NPS scores and make customers determined to leave at next renewal.

For a few years now, this has been possible but so many companies have been tied to legacy technologies that need £ms each year to employ the developers to move them forward. In this environment, the choking power of sunk-cost fallacy has prevented them making the necessary decisions. In 1985, Armes and Blumer defined sunk-cost fallacy thus:

"Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort)"

Behind the decisions to run with pimped legacy or (sometimes worse) 'new' legacy in the form of massively expensive platforms that can be installed to do everything (if you pour sufficient money in). The two problems with both? Poor digital capability and they tie you down.

As insurers look into the Corona abyss and earnestly try to address the issues facing them, how many will look back and wonder why on earth they tied themselves in a Gordian knot to their current claims IT mast?

How many will look forward and realise that this problem could now recur year after year as Coronavirus and other mutations become more common and, most importantly, that they need to abandon sunk-cost fallacy today and grab the future before it grabs them?