This article in The Financial Times caught my eye. Insurers moving from a reactive relationship with customers to a proactive ‘best friend’ relationship that helps prevent risk is not a new strategy. Yet many insurers only communicate with customers annually when it's time to renew a policy.

Is this because a policy-centric core system of record is the heart of an insurer's customer relationships? Or is it because insurers sell and distribute so much business via MGAs and brokers that their contact is second-hand?  Or, the combination of both as the latter wants to ‘own’ the customer and the former has such little data on policyholders, and that which they have is in different data silos?

“ The shift, from “repair and replace” to “predict and prevent,” as insurers put it, has been made possible by technological advances. It also reflects a growing consensus that intervention ahead of time is not only cost-effective but necessary in the face of mounting expenses. If it takes hold, it could transform how society approaches everything from cancer screening to natural disasters. ……Today, more personalised approaches are possible. Auto insurers opened the door a decade ago, by offering lower premiums to customers who installed data recorders, known as telematics, in their cars to monitor their driving.”

FT June 26th 2024

Rewarding drivers for good behavior also means penalising drivers for bad behavior. Insurers leveraging telematics will potentially make friends with drivers with good driving habits and upset those with driving characteristics that raise premiums or for whom they do not renew coverage.

When UK insurers overall have suffered two years of adverse combined ratios they have to mitigate underwriting losses by increasing premiums. If that is only communicated at renewal time, as is the case most times they have to bear the brunt of criticism from customers who do not understand claims inflation, or CORs above 100. Why should they when most insurers do not proactively communicate and explain these trends?

And if they communicate better on motor claims how about home, property, and contents cover? Too often these other lines of business are on different systems, different data silos, and any hopes for multi-product offerings are no more than a dream.

Dreams and Vision. 

To be best friends with customers means having a clear vision of what the company is all about. That might be hard for global insurers with both personal lines and commercial insurance offerings that differ from region to region. 

It is easier for a focussed carrier like motor insurer SABRE in the UK which reported a COR of 83.6% H1 2024. The CEO Geoff Carter puts that down to a clear strategy to write business that will be profitable and still grow the business. Avoiding the slippery slope of competing on price via price comparison websites SABRE offers value and raised its premiums earlier as it predicted the ravages of inflation.

It implements what Carter describes as a dumbell strategy. The “barbell approach” delivers the margins it needs to function at a smaller scale. 

" Carter explains: ”You can think of the barbell as underwriting across various customer segments. An easy example is wealthy people with expensive cars in central London, where there’s a fairly limited market for people who are prepared to underwrite that business, but we’re very happy to do it. 

At the other end of the market, we’re also very happy to underwrite people who are in less affluent areas or higher-risk postcodes. The important thing is that we treat both of those customer groups exactly the same, going for 25% margins across the piece.” 

The visual metaphor of the barbell describes a focus on these two unique ends of the motor market, with Carter noting that Sabre’s approach to seeking out margins leaves it unlikely to win business in the crowded, less risky middle of the market where other major motor carriers operate. "

Insurance Times August 1st 2024

Insurers are battling to reconcile different and often diverging goals as they try and adapt legacy and new technology core systems to speed up time to market with personalised offerings that offer good value, competitive differentiation and profitability.

Several trends and strategies combine to shape the evolution of the insurance landscape. They often pull in different directions adding to the challenge if insurers are to innovate at pace. Just as traditional banks built on platforms of mainframes and COBOL code are being run ragged by neo-banks like Monzo, Starling and Revolut, so traditional insurers will see margins and business niches stolen by top decile insurers and newcomers unencumbered by technologies born in the 1950s and 60’s.

These drivers of growth and profitability can be summarised as: -

• Vision
• Personalisation
• Channels to market
• Compliance and legislation
• Profitability
• Technology

Vision

Insurers have their views whilst most people view insurers as a necessary evil – sometimes mandatory as with motor insurance and at other times essential to provide a backstop against suffering damage, injury, disruption to business, and all the other cover on offer. That perception is reinforced if the only communication is an annual reminder that the policy needs renewing.

Insurers must communicate why they are in business. What makes them stand out from the competition and how are anticipate future trends, the impact on customers, and the solutions being developed to counter risk.

Those insurers that put prevention of risk as one plank of their strategy have an interesting story to tell. Research, practical advice, and a combination of programmes and technology to identify and predict risks before they happen. Whether it’s the NFU in the UK with its long association with farming and agriculture helping its customers counter the rising rural theft of technology and animals or Progressive in the USA leveraging telematics to help customers improve driving and reduce premiums. Health insurers helping customers improve lifestyles and fitness to reduce injury and sickness by leveraging wearables and AI-powered analysis.

Add to that innovation and personalisation of products and customers can enjoy the benefits of products geared to their specific lifestyles and businesses. 

However effective these prevention schemes deliver value, at some time customers will suffer loss and make a claim against their insurer. And as always pain will be remembered after the pleasure of prevention is forgotten.

A recent report by UK consumer group Which? published disturbing news. Nearly half of customers reported at least one problem with how their claim was handled from:-

• Poor processes at every stage of claims handling
• Insurers failing to ensure vulnerable customers' experiences are as good as those of other customers
• Insufficient oversight of how customers are treated via contracted third parties 

Which? Has launched a campaign to catalyze the Financial Conduct Authority (FCA) to get tough with insurers that do not deliver service and value and we know the FCA has teeth.

Insurers have to decide which business they are in, communicate this well, and deliver higher standards of service and care.

Personalisation

Much has been written about the need for customer-centric rather than policy-centric strategies  and relationships. Customised products and services require a deeper knowledge of customer behavior and needs but most systems are rooted in a policy-centric approach.

Personalisation is driven by: - 

• Customer-centric relationships
• Tailored Products
• Management of intermediaries

Customer-centric relationships 

These are built over time in earned trust such that customers are willing to share personal data for perceived extra value. That data increasingly reveals customer behavior and allows positive interaction to improve risk prevention and customer behavior in return for tangible benefits. The customer gets better value, and the insurer has competitive value and improved COR. 

Data silos constrain such a relationship, the inability to join ‘data dots’ across the whole business and from all the participants in the insurance value chain and incompatible technology stacks.

Tailored products

The richer the granular data customers are willing to share the better insurers can innovate with new products and services. Trust is key to this exchange of data and the delivery of demonstrably better value for customers.

Usage-based Insurance (UIB) Progressive, Root, Hippo, ByMiles, Flock, and many other carriers and MGAs offer UBI products and whilst the large global carriers have not seen these penetrate large parts of the market there are over 20mill UBI auto policies in place now- some from traditional insurers. 

Parametric insurance offers a simpler and faster way to get cash into customers’ bank accounts when their lives and businesses are disrupted. An early pioneer was Floodflash. Customers choose the depth flood waters rise to, and the amount of cover they want, Floodflash works its underwriting magic and offers a personal quote. Sensors are installed and once the floods rise to the specified height a payment is made electronically into the customer's account. That can be the difference between surviving or closing a business. 

Embedded Insurance; The NeoBank Revolut, Amazon, airlines, motor dealers, retailers, and others offer insurance at the point of sale- usually with cover from incumbent insurers and the customer chooses between convenience, value, and trust in the seller to deliver when a claim is made.

That makes a bank vulnerable to claims management that does not deliver to the ambitious standards of the bank’s brand. Reputation can be lost quickly especially if a bank’s digital customers get dragged into claims handled via phone by TPAs.

There is exciting potential but also a great challenge. Tesla has its own insurance company to offer competitive rates to Tesla drivers leveraging the rich data it ingests from vehicle tech stacks and its evolving self-driving software. But motor insurance is complex and Tesla is not getting it all its way. 

Amazon UK launched its Home Insurance shopfront in the UK and closed it creating a chorus of doom-sayers, but Amazon has always been willing to fail often and fail fast to collect the data to refine business models and relaunch them.

The key advantages sellers have is a better knowledge of their customers, refined online UX and formidable logistics operations. The same can be said for Apple with its wearables and Applecare which is a major oat of its revenues. 

Management of intermediaries

Brokers are an important distribution channel for carriers and are often resistant to the imposition of digital transformation projects from carriers. The want own the customer, not be inundated with masses of irrelevant data, but at the same time get answers quickly. Have their cake and eat it!

99% of insurance organizations have a plan to change their technology systems.

Of those, 41% plan to make a change in the next 12 months. Broker/agency management platforms like Novidea and Ignite and policy administration systems including Genasys, Instanda, EIS and ICE offer the means to let a significant proportion of brokers have their cake and eat it andenable carriers and MGAs improve products, underwriting, and claims to increase customer satisfaction, efficiency and profitability.

There is a black hole in the supply chain that challenges offering a good claims experience. The major contractors, subcontractors, repair networks and a host of loss adjusters, TPAs and inspectors are involved. Sharing data between these participants and brokers and insurers is patchy at least and often analog and written.

Claims platforms like RightIndem  and 360Globalnet are tackling these issues.

The key point to make is that transformation projects insurers plan must include channel partners in parallel with transforming the insurer's own products and operations

 Compliance and legislation

These two factors are often cited as being a protective wall for incumbent insurers from new entrants to the market but there is another side to the coin. The regulatory body the FCA in the UK pressures insurers to provide value and fairness to customers and ensure vulnerable customers get as good an outcome as any customer. Carriers have already had to own up to offering low cash settlements to customers whose vehicles have been judged a total loss. And paid the undervalued amount back to customers.

The pressures will only increase as the new UK government states it will investigate perceived unfair premium increases for motor and home customers over the last two years. 

Insurers with systems based on legacy and new legacy will find themselves spending more time and resources on delivering the outcomes demanded by the FCA and other regulatory bodies. That will reduce the bandwidth available to transform the business, innovate to deliver the products to meet changing behaviors, and maintain the competitive advantage of the past.

Profitability

When you read headlines like “US home insurers suffer worst loss this century-

Natural disasters, inflation and population growth prove toxic mix for industry” and “UK motor insurers endure a second year of major underwriting losses”, you know something is not right. A toxic combination of competing on price rather than value, chasing volume rather than profitability, and a wide gap between the top 8% of insurers delivering stellar underwriting performance and the majority of laggards.

Cap Gemini delivered deep analysis of the reasons for the gap and a practical workbook to move up towards the top 8%.

Some key findings: -

83% of insurance executives believe predictive analytic models are critical to success but only 27% say they have them.

70% of trailblazers integrate third-party data effectively with traditional data compared with 12% of typical insurers.

65% of trailblazers deploy mature, optimised underwriter’s workbenches compared with 19% of typical carriers.

78% of trailblazers deploy underwriters as sales enablers compared to 36% of mainstream insurers.

Fortunately, Cap Gemini offers a practical and actionable underwriter’s playbook to bridge the gap to which I have added my insights in this article. ‘Connecting the data dots’ is the key first step. I fully agree but it is a sad truth that after all these years most insurers still find data and analytics a barrier to success.  The report states that a serious lack of data mastery harms most insurer’s core business.  73% grapple with insufficient pricing precision and 70% say inconsistent underwriting decisions are a prevailing headache. 

8% of insurers surveyed are described as underwriting trailblazers i.e. actively providing automated, data-driven decisions or recommendations utilising advanced technology to integrate third-party and traditional data sources. Critical to this superior underwriting performance is underwriters being actively at the heart of internal collaboration, customer transparency, and selling cover. Being a trailblazer means underwriters can deploy the playbook. 

• Connecting the data dots
• Unlocking actionable insights
• Evolving the underwriting role.
• Delivering business results

Connecting the data dots

You would think this was a fundamental priority achieved by most insurers investing heavily in big data management, data lakes, and AI-driven projects. 

Data silos still prevail, and these grand projects continue to go over budget, over time, and invariably under-achieve. Not just carriers, but also brokers and MGAS including the trend to  global conglomerates that have acquired diverse businesses covering every kind of risk from aviation to zoos. So many applications, platforms, and core record systems are still based wholly or partly on legacy technology, hindering data connectivity. 

Too many core platforms are policy-focused rather than customer-centric hindering personalising solutions and optimising lifetime premium potential. 

Cap Gemini urges insurers to master the intersection between underwriting-specific technologies, CoreTech platforms, and data lakes to turn brilliant dynamic underwriting into the products customers want now, and in the future, plus world-beating customer experiences.

Digital workbenches can help evolve the underwriting role and boost productivity, customer experience, and discipline. ( page 20 in the report). 

It is no good jumping in the deep end without a sound plan, strategy, and the resources to execute transformation projects. Lack of data mastery is just one business challenge and, unless insurers know all of the enterprise’s predictive analytics gaps, transformation advance will be limited. We must first know our customers’ challenges and opportunities before looking at our own. That's an essential first step before you start planning underwriting transformation so that the right customers, markets, and risk cover can be optimised for lifetime customer revenue/premiums and profitability. That requires relevant, actionable, and accurate insights.

Unlocking actionable insights

Modern MACH-architected core systems, data insight engines, and predictive analytics are key to unlocking the insights identified as vital to meet an insurer’s goals, strategy, and business plans. They can enable insurers to ingest diverse data and power AI from extractive and conversational to full-blown generative AI. 

Combining Cap Gemini’s examples with those described in InsurtechWorld.org you can see examples of good practice.

• Munich-based Allianz with UK Insurtech Cytora to drive AI-powered risk processing and management (page 19 of the report) 
• Cytora and hyperexponential partnering to “provide commercial insurers with a more streamlined and informed understanding of risk. The move improves underwriting decisions by basing pricing on real-time data and driving profitable growth.”
• CGI’s Elements 360 underwriter’s workbench plus Ratabase360 rating technologies power major insurers- over 200 worldwide 
• Quantee partnering with Zurich Insurance to “provide state of the art, flexible platform that blends traditional and next generation AI-driven techniques for Pricing”
• MGA The Demex Group analysing and transferring climate-related risk with innovative re-insurance solutions for US carriers and self-insured
• Predictive insurance analytics-as-a-service provider Giroux.ai found a niche providing data mastery and predictive underwriting insights for MGAs large and small. . 
• Aiimi Limited with its Insight Data Platform delivering enterprise knowledge into the hands of customer-facing employees at the FCA, blue chip companies, and insurers. Ensuring data mastery vital for effective AI deployment including LLMs, teams of LLMs; an essential first step for underwriting

Modern MACH-architectured core platforms (see description in appendix below ) at the intersection of PAS Systems, Data Lakes, and underwriting technology e.g. Genasys, Instanda, EIS, Novidea, and ICE

UK carrier Esure had the vision, courage, and leadership buy-in to re-platform to the MACH architected EIS CoreTech combined with AWS, Amazon Connect, RightIndem Claims platforms, and GenAI with implementation partner EY

The report highlights that actionable insights should focus on efficiency, accuracy, and customer experience.

Evolving the underwriting role

Administration takes up 41% to 43% of an underwriter’s working day!  A further 32% to 33% of the day is spent on core activities leaving just 25% to 26% for growth and sales enablement. No wonder so much time is wasted on admin as they describe how this contributes to their main challenges.

• Data collection (28% to 33%)
• Pricing decisions (19% to 32%)
• Quote generation and policy issuance (45%)

With the right insights and practical technology underwriters can reduce the 55% spent on data collection and pricing to increase the time spent on achieving profitable growth. One major impediment is a lack of trust in the technologies currently deployed. The report highlights that only 43% of underwriters trust automation tools and regularly accept decision recommendations. 67% of underwriters say support analytics tools are too complex and 59% voice data integrity concerns.

Cap Gemini believes that underwriters are not involved early enough in transformation projects. Instead of engaging early with data scientists and engineers, the report recommends a change management cycle.

Early involvement means that underwriters will more readily trust the technologies chosen to enhance their roles and free up more of their time for: -

• Sales enablement
• Broker relationship building
• Book building
• New product development
• Achieving trailblazer standards of performance.

You can find a deeper analysis of the Cap Gemini report and a link to the original here .

Technology

To achieve that trailblazing standards of business technology partners must themselves collaborate to understand the business, the strategy, and spend more time on the insurer’s numbers than their own.

Underwriting Is just one part of the puzzle. Claims inflation has rocked many insurers whose claims management systems have not kept pace with the demandsof customers. If they get underwriting, pricing and claims management transformed it’s no good if the relationships and data sharing with MGAs, brokers and supply chain partners is not transformed in parallel. 

Most carriers look at the sunk costs of even new-legacy systems and tie themselves to unadaptive and complex systems where connecting the data dots is such a challenge. Some, sometimes spurred by VC acquisition and ambitions goals have taken the plunge and re-platformed to modern MACH architected systems ( see appendix for explanation of MACH)  like EIS, Genasys, ICE, and RightIndem and are not just connecting the data dots but combining them with AI to transform the business, augment staff so they can focus on delivering service and competitive advantage.

If your really planning to leverage AI then please read this report. Surveys highlight data maturity holding back AI deployment ambitions

Further Reading

Rory Yates discusses many of the topics above in his August edition of Adaptability

CoreTech, ClaimTech, and Ecosystems for innovative insurers

Appendix

MACH- architected systems and platforms

What is a MACH-architected system?

• Microservices 
• API first
• Cloud native
• Headless

Microservices architected means that you can build a software product as a set of independent components — microservices — where each component operates on its own and interacts with others through APIs. As a result, teams can deploy, change, and improve separate software components without disrupting the rest of the system.

API-first architectures are more flexible allowing teams to choose the most appropriate frontend technology to solve priority business problems. Developers can unify logic across touchpoints and avoid duplication of development work, as well as eliminate channel silos.

APIs allow for fast communication between components, meaning that businesses can reduce the time to implement new touchpoints and accelerate speed-to-market processes.

Cloud-native platforms use the public, private, and hybrid cloud as part of a cloud migration strategy to develop scalable and dynamic data solutions. Insurers will be more resilient to performance issues that often bug on-premises systems.

Headless - far from being clueless!  Insurers that employ headless architecture don’t have a default frontend system that defines how content is presented to end users. You will be able to deliver personalised products and services to your target audience using any channels, devices, and platforms.