Krak des Chevaliers is an imposing castle dominating the countryside. The Knights Hospitaller rebuilt an existing fortification from 1140 to 1170 when it became the administrative and military centre of the surrounding County of Tripoli. Continuously evolving it reached its peak in the 13^th Century when it housed a garrison of 2,000. Thereafter it steadily declined as artillery and mobile warfare flowed around these fixed, legacy fixtures.

Armies leveraging mobile artillery made medieval castles obsolete. The idea stayed alive however; the Maginot Line was a 20^th Century version of fortifications planned to contain attacks and give time for the French Army to deploy and resist any invasion force. It augmented fortifications with modern technology and mobility but we all know how that went.

The German Blitzkrieg just bypassed this imposing edifice with an ‘ecosystem’ of mechanised, motorised, armoured and mobile army infantry supported by artillery, air assault,and close air support. An overwhelming, agile, and battle-winning combination.

I can’t help thinking of many of today’s insurance core systems also being a prison to captive carriers, brokers, and MGAs. Once leading-edge core systems of record and ideally suited to an insurance world that did not change much from one year to the next. Comfortingly large and imposing, costing a great deal, and once built, upgraded every three to five years.

They have advanced from being fixed on-premise systems to being squeezed into containers on hybrid cloud versions but often with less functionality. Upgrading them requires freezes to all applications connected to them until ages later when VersionN+1 is deployed. There is so much plumbing and infrastructure to upgrade that these core systems can stifle innovation.

They still work of course in the same way that the Maginot Line was meant to but the politicians and generals became too fixated on static plans and massive but inflexible structures. They became too complacent as opposing forces changed the rules of war. 

Looking in from the outside it may seem that carriers, brokers, and MGAs have viable core systems (castles) surrounded by fortifications (third-party applications built around the core) and even mechanized units with new tanks (fancy new AI technology). But at its core,  still, a fixed, complex, hard and costly to upgrade ecosystem.

The paper "Creating value, finding focus: Global Insurance Report 2022" by McKinsey described 9 key strategic policies for insurers to pursue. One was “Modernise Core Technology Platforms'. Insurers may well be highly constrained in achieving the other eight policies without the right core systems."

• Modernize core technology platforms. From 2012 to 2020, technology’s average share of operating costs rose by 36 percent (for P&C) and 10 percent (for life). The key driver is increasing digitalization—at both the front end, where technology enhances the customer experience, and the back end, where digital drives productivity gains and operational performance. Digitalization is straining legacy systems, some of which are decades old, and many insurers are considering a replacement of core systems with tech platforms that support the requirements of the digital age.

Today we can see islands of cloud-native, API-rich and microservices architected platforms poking up around the oceans of legacy technology inherited over decades of mergers & acquisitions.

It is not unusual to see twenty-five or more technology stacks with 40%-60% of data and processes still running on old AS-400s. Yet carriers, brokers, and MGAs are challenged to launch new UBI, embedded, and subscription products very fast for unmet needs and to compete against new full-stack insurers.

Insurers have invested billions $/€/£ etc in core technology like Guidewire and Duck Creek in the quest to innovate faster and maintain their market position rankings. Before they know it some carriers have sunk $100m plus in technologies like these.

Yet the costs, resources requiring commitment, and lengthy Go-To-Market lead times make it hard to implement these core platforms across all lines of business. By the time motor, or home is implemented the time, money and stamina can run out to deploy again across the next LOB.

Whilst each core platform offers a wide range of modules, they tend to be best at the policy administration and sales and distribution aspects of insurance. Insurers invariably look for specialist underwriting, claims, and digital payments solutions to integrate with these newer but still traditional core systems.

The key challenge is that they are a mix of legacy and newer technology and even with the online cloud implementations they are still the older technology squeezed into containers and not truly cloud-native.

It takes a major and compelling challenge to change that. The acquisition of carrier esure capital by Bain Capital can be said to be the motivation for the management team and CEO to agree ambitious targets to “Fix Insurance for Good” and leapfrog incumbent carriers in one major transformational leap with modern-day CoreTech and ClaimTech. In this case EIS, RightIndem, Cloud-based Amazon Web Services (AWS) and Omni-channel contact centre Amazon Connect.

EIS is a blitzkrieg alternative to the Maginot Line options of core systems. It is best matched to Tier 1 and 2 carriers whilst smaller Tier 4 to 5 fit the capabilities of less expensive but functional rish platforms like Genasys, Instanda, FintechOS, ICE, Ignite etc.  These share the fast low-code/no code approach to innovation and deployment.

" “For too long the insurance industry has been held captive by monolithic giants. This was not an issue when things didn't change much from year to year.  That's no longer the case.  API first architecture core-tech platforms give insurers optionality, optionality in turn is the insurers' insurance against unforeseen changes. The new superpower is the ability to change and pivot when your competition cannot.”

Andre Symes Group CEO Genasys

Over 400 carriers have committed to Guidewire and, once deployed, insurers are hardly going to throw out the baby with the bathwater. From the big insurers like AXA to national champions like DLG and NFU Mutual the investment of time and money invested in this gorilla in the market ensures that these insurers will deploy Guidewire for many years.

That does put them in potential danger. 

“People often overestimate what will happen in the next two years and underestimate what will happen in ten. I am guilty of that myself.”

That was Bill Gates in 1996 after underestimating the impact of cloud computing and The Internet and Microsoft trailing behind competitors. 

New MGAs, specialist full-stack insurtech, and more agile insurers that are not shackled to inflexible core systems are able to test, iterate, improve, and go to market with new and niche products faster and more effectively. Initially, that may not make a big impact on the market and incumbents will maintain their leadership positions. 

It is not of necessity a case of one or the other option. I have observed a trend that is growing. Carriers that are trialling new products, pricing, and underwriting models on a fail-fast, fail-often approach to leapfrog less agile competitors.  And have they built these out on the traditional core systems? No!

They have adopted new Coretech like Genasys, FintechOS, Instanda, ICE, Ignite etc for these new ventures to support agile, faster deployment and financial models that can deliver competitive pricing with profitability. These platforms also support the ecosystems that insurers need to build and maintain. To be able to swap out those ‘Lego Bricks” that were world-beaters once but begin to lag as others over-take them in utility and capability.

That requires not just API-rich libraries and the ambition to integrate but also the capabilities to ensure all the other applications platforms, data connections, and workflows still work alongside the new apps.

This will become more challenging with the interest in LLMs and generative AI. It is a truism that if you have not succeeded in leveraging RPA, you are hardly likely to leverage AI effectively. Add in generative AI and that just complicates the issue. Cost-effectiveness decrees that whilst a ChatGPT approach may be used to train from an initial LLM, insurers will need to switch to closed and narrow-use LLM and generative AI applications to ensure good governance and practical outcomes. That is a subject in itself which I will publish soon on www.InsurtechWorld.org

The interesting point will be when a multitude of these newer Coretech products gain market traction, and volume and begin to replace traditional products. Will carriers see a tipping point when they are completely re-platformed on modern CoreTech technology or continue with their incumbent multiple stacks?

In the meantime, there is the possibility of ‘death by a thousand cuts’ for those insurers that do not experiment with modern-day core Coretech and suffer the Bill Gates syndrome above.

I recently read this helpful description of the benefits to be gained by the combination of new Coretech and DevOps. Anthony Gross CMO of EIS kindly let me reproduce these below.

1️⃣ Streamlined Collaboration: DevOps emphasizes collaboration and communication between development and operations teams. By integrating Coretech technologies with DevOps, insurers can break down silos and foster seamless collaboration. This alignment ensures smooth coordination and accelerates project execution, preventing roadblocks and bottlenecks.

2️⃣ Continuous Integration and Delivery (CI/CD): Coretech technologies, combined with DevOps practices, enable insurers to implement CI/CD pipelines. This means that development and operational processes are automated, allowing for continuous integration of code changes and streamlined delivery of new features or updates. The result is faster development cycles, reduced errors, and quicker time-to-market for insurers' digital transformation initiatives.

3️⃣ Agile Development: Coretech technologies integrated with DevOps facilitate agile development methodologies. Insurers can adopt iterative development, where smaller, incremental changes are made and tested in real-time. This iterative approach enables insurers to respond swiftly to market demands, adapt their strategies, and make necessary adjustments throughout the digital transformation journey.

4️⃣ Automation and Efficiency: Coretech technologies offer automation capabilities, and when combined with DevOps, insurers can automate various aspects of their development and operations processes. This includes automating testing, deployment, infrastructure provisioning, and monitoring. By reducing manual efforts and automating repetitive tasks, insurers can achieve greater efficiency, reduce errors, and accelerate project execution.

5️⃣ Continuous Monitoring and Feedback: Coretech technologies integrated with DevOps enable insurers to implement continuous monitoring and feedback loops. Insurers can gather real-time data and insights about the performance of their digital transformation projects. This allows for quick identification of issues, timely corrective actions, and continuous improvement of the project's outcomes.

With the combined powers of Coretech technologies and DevOps, insurers can overcome the hurdles they face in executing digital transformation projects. Streamlined collaboration, CI/CD pipelines, agile development, automation, and continuous monitoring provide insurers with the tools and capabilities they need to rescue their projects, accelerate their digital transformation initiatives, and stay ahead in a rapidly evolving industry.

What I have described for CoreTech is equally relevant for ClaimTech.

Many carriers have a mix of in-house built and licensed FNOL, IVR, case management, and even complete claims management systems. Others have invested in end-to-end systems like CoreLogic for Property, including supply chain partners and orchestration to address repair and restoration from small houses to palatial stately homes and soaring cathedrals.

The same issues surface, however. As nimbler, or niche market competitors launch new products better suited to modern use case requirements and changing customer behaviour do they match this speed to market innovation at an acceptable cost?

Take NeoBanks offering new financial services and insurance for Pets, property renters, short-term car rentals, and bikes. Or embedded insurance for products purchased via the bank. It’s great having a world-class and intuitive UX for the purchase but an aged and hard-to-understand UX for the renewal and claim. The Neobank needs a consistent UX across all products and embedded insurance which is best delivered by modern-age CoreTech and ClaimTech.

Carriers need to have that same consistency across all lines of business whether GI Motor, Home, Pet, Gadget, Bike, or Commercial Lines. Few carriers achieve that and that may well be an outcome of having older core and claims systems.

Carriers, brokers, and MGAs really should demand: -

• Self-service eFNOL for customers from any device and via every channel of data entry
• Conversational style UX whether by voice, text input, photo/video/document input. Live streaming
• Save and resume so customers can pick up where they left off securely and without hassle
• An orchestrated ecosystem delivering the optimal mix of:
  • CoreTech
  • ClaimTech
  • FraudTech
  • PaymentTech etc
• To make claims decisions better and with the optimal level of automation
• To get customers from FNOL to settlement faster (and effectively & fairly)

Claims technology providers that fit that bill?

RightIndem, 5 Sigma, Salesforce, CoreLogic, Verisk,for starters though there are many more.

But some others don’t even offer eFNOL. Some have good technology but lack the implementation, deployment, and scalability required. Others offer APIs and integration but don’t like to do the hard yards to integrate with core systems. 

How should you evaluate these? 

Here is a basic template- just score each category out of 10 for each supplier. If you want to focus on your priorities, weight each factor according to its importance to your business.

In conclusion

Imagine you are in the horror of the war in Ukraine. Would you rather be trying to defend the country from the castle of Krak des Chevaliers with the hierarchical and inflexible command and control structures of current Russian armed forces?

Or would you prefer to leverage the IoT and ecosystem capabilities of Ukraine’s armed forces with the agile and proactive command and control they have developed choosing the best tools for the job?

Today’s market may seem more benign than the stark scenario above and in favour of incumbent carriers and brokers. Yet the warning signs are there.

A transport revolution that includes electric vehicles, autonomous vehicles, robotaxis, and a move from vehicle ownership to a mix leasing, short-term rental, and subscription services. This opens up the playing field to new players and even auto OEMs unless incumbents chose to innovate fast, fail and learn fast, and adopt ecosystem-enabling technology partners.

The deep hole that insurers have dug for themselves by competing just on price and exacerbated by comparison websites means customers are reacting to sharply rising premiums by looking for cheaper and more relevant products. Incumbents must compete on value delivered, service and product innovation rather than on just price.

McKinsey has long proposed that only 20% of incumbent insurers make an economic return on capital and this has surely worsened as underwriting profits dissolved and claims inflation hit. It makes sense to make the right strategic decisions to anticipate the future and beat competitors by innovation and faster time to market.

Decline in a castle, or thrive aided by the introduction of CoreTech and ClaimTech?

Further Reading

Motor insurers endure worst underwriting conditions in a decade

Mitigating Home Claims Inflation

Navigating AI usage in the insurance sector