‘Swings in weather, high inflation, and strained supply chains all combined to drive up home insurers’ losses last year. The sector posted a net combined ratio — at a lossmaking 122%, according to figures from consultancy EY. It was the worst period of trading in data stretching back 30 years, it said.’

Ian Smith FT 29th October 2023

It's not as though these are new trends so it makes me wonder about the adaptability of the core systems, underwriting, claims and supply chain management technologies deployed currently and, as always, data management and analysis. Why can't predictions be timely, accurate, and applied in decision-making better? 

For years, too many insurers have competed on price using aggregator sites to tempt and acquire new customers with low prices whilst abusing loyal customers with higher pricing. Legislation and customer awareness have changed the scene beefed up with statutory ‘Consumer Duty’ imposed by the FCA for insurers to put their customer's needs first.

Nevertheless, you have to have some sympathy for insurers. Hit by general inflation, supply chain disruption, delays in sourcing parts and materials, longer claims settlement times, and an increase in customer complaints. A perfect storm. See: Customer service is getting worse

Every day you see complaints about rising renewal premiums and insurers have to an extent been hoisted on their own petard. Having offered such low prices for home and auto cover for so long they have no margin to absorb the inflationary pressures. But, they have not been good at explaining the true value of insurance, and so now customers used to such low prices think they are being ripped off. They are shipping around for the best products and services and the best prices. 

On the other hand, insurers have not been served well by technology providers that persist with complex systems that are unresponsive and expensive to update. Core systems, policy admin, underwriting, data management & analytics, claims and payments systems. There is a case to be made that technology providers have for too long been used to high ticket prices and the acceptance by insurers that every change and upgrade fee will pay for an army of consultants and developers. 

Just as consumers are looking around for the best suppliers so are insurers. You can see the urgent need to trial, test, and learn from rapid product and service innovation leading to insurers adopting new core systems for these like EIS, Genasys, ICE, Instanda, Fintech OS, Ignite etc. Not ‘throwing out the baby with the bathwater’ as the incumbent core systems are too entrenched. Rather, in parallel experimenting with new brands, and new products by leveraging the speedier time to market these modern core systems offer.  It will be fascinating to see which of these will begin to usurp traditional incumbent core systems. First gradually and eventually suddenly. 

There's that old saying that change happens gradually, gradually, then suddenly. Firms that are slow to change may be left behind at that sudden pivot point. That leads to an observation about adaptability and flexibility. It is important to consider these in the context of the short-term, medium and longer terms.

Adaptability in the face of the emergence of autonomous vehicles, battery electric vehicles, and a shift from owning/leasing to booking robotaxis might take a decade to move outside cities but the strategic innovation planning must be in place now.

In the short-term renewing capacity for existing books of business is in full swing right now and yet far too many MGAS and brokers are using incomplete, inaccurate, outdated data when presenting their cases to capacity providers.  These companies need service providers that can access, normalize, and analyse underwriting and claims data, slice & dice to the detail necessary to measure the profitability by asset category and model, location, and time, and predict future outcomes right up to ultimate loss ratios. 

That's not just a case of AI-driven platforms but a depth of domain expertise and hard graft to respond fast and deliver the insights that make the critical difference when capacity providers are more hard-nosed.

MGAs and brokers can look to adaptive and responsive Analytics-as-a-Service companies like Giroux.ai

Brokers and carriers have the likes of Cytora and Hyperexponential combining the traditional disciplines of data analytics with the new wave of GenAI and LLM-powered tools that avoid the potential dangers of these new technologies.

CGI has launched a new underwriter's workbench and integrating combinations of the technologies described is enabling the vital ‘ecosystems’ that can help empower an adaptive strategy and business. 

Across the whole insurance value chain technology service providers need to deliver short, medium, and longer-term innovation strategies and implementation capabilities.

I have written in the past about the combination of EY, AWS, EIS, and RightIndem to deliver transformation innovation for UK carrier esure. 

EY, Cap Gemini, CGI, Palantir, Aiimi, and a host of such companies are piloting GenAI use cases for insurers in parallel with digital transformation to deliver the pro-adaptability that will mark out truly innovative insurers. 

Adaptability is easy to print and say but covers an enormous set of challenges that differ over different time periods from tactical to strategic. Technology providers need to take the time to understand all these issues and be able to help plan and deliver the required outcomes from step one to the ultimate longer-term goals. That paragon of anticipating disruption and ‘Crossing the Chasm’ of technology adoption Geoffrey Moore described this as the ‘Stairway to Heaven’.   

Because of the new digital economy, because of changing customer expectations, because of aggressive competitors coming at you with advanced technologies in tow, you have seen you are going to adapt, and fast. Specifically, you must change the way you operate, decommissioning the old methods to implement the new ones.

To begin that journey, you need to build clear representations of your current state and your desired future state. Capturing your current state involves an act of description.

Capturing your desired future state requires an act of design. If you do not have a clear design for your future state, you have no north star by which to navigate your digital transformation, and it cannot possibly succeed.

So, let us assume we have a clear design for our desired future state. It won’t take you long to realize there is little chance that a single intervention can get you from here to there. So, the next major deliverable must be a roadmap organized around a maturity model. What Moore describes as a stairway to heaven. Each step up the stairway should be designed to deliver value upon completion, thereby allowing the organization to pace its change management, funding things as it goes, building its confidence, and reassuring its various stakeholders. 

With such a roadmap in place, now you have a current-state/future-state accountability mechanism that can govern each stage of the transformation—the software and systems, the systems integrators, the process owners insider your enterprise, and the people responsible for executing the processes. As we have noted elsewhere, digital transformation is not a restaurant. You cannot simply pay for it and have it delivered to your table. It is a gymnasium. You still must pay for it, but to get any value out, you have to actually do the transformational work yourself. Transformational software, in other words, is like a Peloton—it’s cool, but only if you engage.

Further Reading

UK car and home insurance complaints accelerate; is transformation working?

Creating value, finding focus and choosing the right technology partners

UK car and home insurance complaints accelerate; is transformation working?

 'Adaptability' by Rory Yates which includes a critical review ' The Sad Truth about Insurance Technology'. 

'It's time to be Pro-Adaptive'