The insurance market in Canada is expanding and changing. With the economic and climate-related rollercoaster we've been experiencing, insurers are, first, being expected to introduce new products to meet their customers' needs.
According to the Insurance Bureau of Canada (facts), as of 2016, approximately 203 private property and casualty insurers in Canada were writing about $ 53.4 billion in direct written premium business. While that number moved up slightly from the previous year, the market is also becoming more complex, with edges blurring among insurance carriers that were once specialized in P&C, or health or life.
Traditionally, property and casualty, life and health, and group insurance have tended to be sold by companies that specialize in one of those areas. But now we’re seeing more consolidation of carriers, distributors, and agencies; more bundled products; more cross-selling.
To this end, Canada is following, to some extent, the U.S. model of one-stop, multifaceted insurance and financial services companies and agencies.
Everyone is trying to get a bigger share of the pie, too. For example, if you asked any of the larger carriers how many of their products a typical household owns, the answer would be, predominantly, one. Understandably they are looking to cross-sell more and different types of products to this ready-made client base, in order to get more share of wallet from existing, as well as new clients. Also, they're trying to use data to figure out which new products they should be offering, and when.
In Canada, we are seeing a trend toward more complex, IoT based products, as well as broader client engagement across multiple channels. Insurance companies are looking at ways to give their customers an omnichannel experience in distribution. Some clients, and especially younger clients, want to engage in different ways than the traditional face-to-face meeting with an agent. Take, for example, the success of online insurance startup Lemonade in the U.S. market. However, it will be a truism for some time to come that most insurance companies will still keep agents out there, providing the personalization and service that their clients need.
Is IT keeping pace?
While channels are expanding, product offerings are diversifying, and regulatory compliance is getting ever stricter and more complex — resulting in tightened margins — there's the technological backdrop of an aging industry IT structure. Though P&C is a bit ahead of life and health in this regard, most large Canadian carriers have legacy systems that support older products that are no longer on the market or are being phased out.
Because of organic growth and a series of acquisitions, one company may be housing multiple legacy systems that don’t work very efficiently with one another. This needs to be resolved or integrated with technology that can handle these changes, whether it’s expanding to include new types of products, other ways of paying agents, or to stay in compliance. Many companies are stuck with these core platforms that hold masses of data. How can they best move forward toward integrating these older systems with the new, efficient, all-inclusive platforms that are available?
The short answer for how Canada's insurers (or any companies with aging IT infrastructures, for that matter) should execute on transforming an insurance IT system is: Do it a little bit at a time. Every legacy system is a little different from all the others — so the first rule is to have a strategy in place that gets IT and business working together toward the common goal of gradually phasing out the older system without too much disruption of workflow. Taking an agile approach of replacing small pieces of the overall system incrementally has been shown to create a more successful changeover and integration over time.
Ideally, the process would begin by putting a virtual fence around the existing legacy system, and decoupling some of its core functions. Then, picking a smaller channel or portion of those decoupled functions, replace it by loading the old data from it onto a new, modernized platform. Slowly bring the other outmoded functions off the legacy system in the same way, plugging them into the new, integrated platform.
Broadly speaking, for insurers taking this on, they need to look at their systems to figure out how to minimize the risk inherent in any upgrade. You're probably not going to be able to get rid of the legacy system in its entirety, but particularly in P&C, those policy administration systems were all-encompassing — they did everything. Legacy systems were used for underwriting, claims management, paying commissions. You can decouple some of those functions, such as underwriting, claims and distribution.
Moreover, given the new products Canadian insurers will be ushering in, it's key to not put any new products onto the legacy system, or do anything new to support those old agent codes that are on the old system. Let them die off. Once all this is accomplished, it should be possible to work at ways of consolidating the system into one new, modernized platform — usually without needing to write any code to do so.
The Canadian insurance industry is changing rapidly, pushing out in all directions — with new products, new consolidated business configurations, and new and faster ways of covering agents, advisors, and customers alike. But to support all this growth, the industry needs to take a long, hard look at its existing technology infrastructure and begin making strategic moves toward modernizing and integrating it with the new modular systems that will help them keep it all straight, at much lower cost. And with efficient technology driving faster and better service, the industry will strengthen its immunity to economic ups and downs, and our changing climate — shifts that keep our eye on the bigger picture.