Just last week at Insurtech Insights Europe Julian Teicke the CEO of wefox explained how the combination of the wefox indirect business model and digital insurance platform has made it the #1 digital insurer with a low loss ratio and exponential international growth.

This strategic partnership announcement is the launchpad for wefox to promote the development of new fleet vehicle insurance market scenarios such as 

• Pay-As-You-Drive (PAYD)
• Pay-How-You-Drive (PHYD)
• and Pay-As-You-Go (PAYG). 

It is also expected to foster the foundation of a next-generation insurance platform based on cloud Edge AI architectures. This technology helps ensure data can be collected and decisions made offline even when vehicles are operating in areas with poor or unreliable connectivity, solving a problem with today’s cloud systems.

The competition with incumbent carriers grows and when Julian Teicke says he will pass Allianz and become the #1 global insurer by the end of the decade you have got to pay attention.

How can a carrier compete when it has a multiplicity of platforms stitched together with hard coded integration. It is not un typical to see a combination of, say, Guidewire as the core system of record, Control €pert for auto claims, another new insurtech for home claims policy coverage validation, almost half the carriers data hosted on banks of AS400s and a another claims platform being evaluated for property claims.

Most global insurers have 20 or more technology stacks acquired over decades of M&A and  financial, time and resource allocation burdens of major upgrades every 4/5 years that freezes innovation.  At best innovation is incremental and held back and worst it is held back.

Meanwhile wefox and those carriers that have migrated to single and modern architectures characterized by microservices, extensive API toolsets, SOA/Web services integration, native cloud deployment and no-code/low code configurability. Not to mention dynamic scalability up and down to reflect market changes.

You can characterise those carriers as tending to: -

• Need to innovate over multiple geographies and lines of business
• Strategy to build out ecosystems of products and services including non-insurance e.g. prevention of risk and/or spanning mobility services AND Smart Cities
• Supported by a technology ecosystem of partners like that announced by wefox above
• Overcoming the limitations of legacy systems or the mishmash of systems described above
• Want the peace of mind of always being on the current version of software thus avoiding that upgrade pain and cost

At Insights Europe UK insurer esure described that very strategy . 

“We’re on a mission to transform our business into a world-class digital insurer, and to disrupt the insurance industry as we know it by always being on the customer’s side. The flexible EIS platform will help us leapfrog the competition by providing a tech enabled customer experience, tailored propositions and attractive pricing. Our strategic partnership with EIS is a hugely exciting and a significant milestone on our digital transformation journey. We are excited to move ahead with our bold plans.”

– David McMillan

CEO at esure

It takes courage and it will  not be easy; the carrier has to have planned the transformation and got buy-in across the organisation. But once achieved the carrier can compete with wefox and leapfrog other carriers constrained by the mix of systems held together with digital string and tape much of it by developed long-since left with the coding unrecorded. 

Until now incremental innovation and iteration has sufficed but the success of full-stack digital insurers like wefox, Bought by Many (Many Pets rebranding), ZEGO and others makes this a dangerous strategy. Auto OEMs headed by Tesla are embedding insurance underwritten by their own insurance companies and all the large OEMs have existing financial companies. Revolut heads neobanks embedding insurance products with the delightful CX and DX that puts traditional insurers on he backfoot.

Carriers could embed with the help of Wakam but how does that help with the confusing mix of technology cobbled together?

We must not forget brokers and MGAs of course. They can benefit from these modern technology platforms like Ignite Software or HUGHUB and in fact must do so to combine the best of advice to commercial & P&C/ Health & Life customers. 

Modern CoreTech partners like EIS and Genasys cover different parts of the market. EIA for Tier1 to 3 carriers and the big global brokers and Genasys for smaller Tier 3 and Tier 4 insurers. Smaller and national brokers might look to Genasys, Ignite or HUGHUB.

The core technology companies that I painted as hard-coded on-prem (or on-prem crowded into cloud-hosted containers) will evolve of course. The question is how fast can they without sacrificing current business and technology models? Duck Creek in partnership with World Programming is delivering a new auto insurer called Adiona on a cloud-based platform later in the year which suggests they are on that path. 

Whichever choice an insurer makes I firmly believe that they cannot rely on their traditional technology partners. hey need to go head-to-head on equal terms with wefox and other competitors and allow these new Coretech platforms to free them to focus on their strengths and deliver the new ecosystem of products and services at a furious pace to survive in the future. 

If you have your core platform recently you will be committed and constrained for he next three to five years. But in that time you should have teams of business and technology architects anticipating the business models, products and services, ecosystems and technologies to slug it out with wefox et al. 

Best not to be a chicken when there's a fox prowling about! 

What choices do you have? 

Core Systems

These include the old legacy, mainframe driven systems still prevalent across incumbent insurers. Large insurers may have 15, 30, 50 or more technology stacks inherited over years of M&A around the globe. Then there are the more modern legacy core systems like Guidewire and new modern architecture CoreTech like EIS and Genasys.

These core systems are the central computing brain, heart and muscle of insurers.

Old Legacy

Old legacy systems show that mainframes are still relevant whilst at the same time the skills and people able to maintain and upgrade them shrinking. We all have seen cases of bank legacy core systems literally failing during upgrades as one or more links in the high number of workarounds, many times undocumented, fail. Customers without banking for days and even weeks at a time!

Technology partners can create ‘digital wrappers’ around them and integrate at various points of the system. But at the heart of matters you still have an old and vulnerable set of often incompatible mainframes, AS400s and UNIX servers chugging away like steam engines in our current digital worlds.

New Legacy

That gave the opportunity for Guidewire which formed in 2000 and went for IPO in 2012. It underpins over 450 insurers globally and is the gorilla in the market and Gartner Magic Quadrant Leader for North America and Europe. Duck Creek, Sapient, Majesco and others have established themselves in the market since 2000.

Why do I term them new legacy? Because they are rooted in a traditional server platform. They may have deployed to the cloud but no more than stuffing a large, inflexible, and traditional enterprise app which behaves the same. Like the on-premises model it is dependent on armies of Systems Integrators, Consultants and Developers to help scope, spec and deploy them. The result is hard-coded, complex, and generally inflexible platforms that involve expensive and long-winded upgrades every three to five years. There is no dynamic scaling up or down capability by specific products, markets or lines of business as demand changes. It’s an all or nothing deployment on the cloud.

But they work, are comprehensive, have international coverage and cope with high volume transactional models required by Tier One to Tier Three insurers and brokers.

They have partners and marketplaces to help insurers integrate best-of-breed point software like Shift, Tractable. All have cloud versions, but these vary in completeness and Gartner may, for example, warn that

“XYZ does not offer a true SaaS model. The application is not deployed multitenanted, and the vendor’s contract requires commitment to minimum terms and minimum volumes. Insurance CIOs will need to ensure they do not overcommit to volumes and capabilities to ensure they are not overpaying for the solution over the term of the agreement.”

Gartner may question the capabilities to execute well particularly the further from their core home markets e.g., North America.

Size has its advantages and I have included an indicator in the table below i.e., the number of deployments in North America and Europe. The data is supplied to Gartner by vendors for 2021 and where you see N/A the vendor does not appear in the 2022 Gartner Insurance Core Systems (P&C) reports for an insufficient volume of deployments.  

Tellingly, many insurers implement one line of business, e.g. auto, with these core systems but not another like home. The time, cost and shear resourcing requirements can drain ambition, budgets, and people. That’s not to say insurers cannot run all lines of business on them- just that the cost and effort is high.

That opens potential for the cloud-native, serverless, micro-services and API architecture platforms that can be scaled up from one line of business and across all lines. Subscription licensing removes cost as a barrier especially as you can say goodbye to expensive upgrades. Every customer will be on the latest version of the software and that being so can be assured of competent support by the vendor. Deployed on public cloud platforms like Amazon AWS and Azure they are infinitely scalable and their large API libraries make them ideal for integration with 3rd party applications and data sources

Many new legacy vendors will say they have SaaS versions, but they are rarely complete and often a mix of vendor or customer hosted rather than public cloud.

CoreTech

This is a term coined to describe 100% cloud-native core platforms that can deliver the functionality of ‘new legacy platforms’ from serverless platforms like Amazon AWS, Azure, Google.

They can scale up to millions of transactions whilst starting on the initial steps of the "stairway to heaven". They can license specific modules and offer subscription licensing for cost-effective means to transform and move away from legacy and new legacy platforms  at the speed insurers require.

The list below is not exhaustive whilst giving a good indication of the choices available. You can read detailed SWOT reviews in the Gartner Magic Quadrants:

• Magic Quadrant for P&C Core Platforms, North America
• Magic Quadrant for P&C Core Platforms, Europe

Further Reading
Everyone wants to be a beautiful butterfly or how to avoid staying an unagile caterpillar of a platform

"Tesla, Other Car Makers Have Edge Over Incumbent Auto Insurers: Moody’s" Or do they? 

Creating value, finding focus and choosing the right insurtech partners