The skill sets and change management procedures required to undertake and successfully implement digital transformation throughout an insurance company can be lacking in among today's insurance industry leaders. (Photo: Shutterstock Stock)

Each year, Valen Analytics' annual Summit provides insurance leaders a venue to discuss the state of the market.

This year, more than 100 participants from carriers, reinsurers and startups attended to share deep insights into the dramatic shifts happening across the insurance landscape.

Innovation, funding, and collaboration were among the hot-button topics, each playing a critical role in shaping the future of the insurance industry.

Getting serious about innovation

A.M. Best Executive Vice President and COO Matthew Mosher previewed that agency's decision to begin factoring insurer innovation as an element of its ratings.

As the single most impactful insurance ratings agency, this decision has wide-ranging industry implications.

In its formal announcement, A.M. Best spotlighted a partnership with Insurance Thought Leadership to utilize that organization's Innovator's Edge (IE) innovation intelligence platform. The announcement explained: “The IE platform provides A.M. Best access to the best perspectives on innovation affecting the insurance industry and enables A.M. Best to deliver on its objective of providing the most reliable and accurate reflection of an insurer's financial strength in a growing era of innovation-driven transformation.”

Mosher delved further into what this means, both for now and in the future. As part of its ratings formula, A.M. Best will begin to include a section focusing on whether insurers are both thinking about innovation and putting processes in place to support new initiatives. At first, this will be a small component to ratings, but he cautioned that it could come to be more critical over time.

Funding enables transformation

The 2018 Valen Outlook Report found a growing divide between insurers that embrace technology, and at the other end of the spectrum (the laggards).

The rush of funding that's flooding the InsurTech and insurance markets is expanding the gap. While many insurers and startups are using the incoming funds to build new solutions, others are utilizing the increased revenues to lower premiums and compete by offering the lowest costs. While this can be successful in the near term, the consensus believes this philosophy is increasing the risk of adverse selection, limiting potential to impact customer satisfaction metrics, and ultimately putting insurers' core business at risk.

Reinsurers are among the biggest benefactors to the InsurTech and innovation capital influx; funding from this industry has increased 100-fold since 2013, according to CB Insights. Reinsurers are uniquely positioned to have an impact. On one hand, they've accrued years of experience and have an in-depth knowledge of the regulatory, technological, and financial complexities of the market. On the other, they have the considerable financial strength necessary to affect change but aren't inhibited by the long-standing obstacles legacy systems present.

The approaches taken by reinsurers can vary considerably. In some instances, they were funding the innovation initiatives in the companies they secure. One reinsurer explained that the company was absorbing the expenses for an advanced analytics platform for carriers they support, believing that having actionable information would allow the insurer to make smarter decisions and conversely, lowering the risk for the reinsurer.

Others are entering the insurance market as competition to the companies they support. This can be achieved with relative ease by backing an MGA. Across the board, there was a general curiosity about which reinsurance models would ultimately be most profitable, though the feeling of unease that comes with having “frenemies” was palpable.

Leveraging collaboration

Along with insurance leaders like AIG CEO Brian Duperreault, Valen was among the founding members of the Insurance Careers Movement (ICM), which aims to attract young talent to the field. Other major supporters include LLoyds CEO Inga Beale and Hamilton CEO Pina Albo, who has helped the organization grow to include more than 1,000 industry participants.

Valen is committed to leveraging all we've learned during the formative years of ICM to begin a new collaboration, one focused on connecting the InsurTech market with the insurers it serves. In short, InsurTech has crossed the chasm, and innovation is being more heavily ingrained into organizations, as evidenced by A.M. Best building innovation into its rating formula.

However, the skill sets and change management procedures required to undertake and successfully implement digital transformation throughout an insurance company can be lacking. This new program solves these issue by focusing on three fundamental issues:

Legacy systems: Insurers have typically spent years building and developing the core systems that power their organizations. However, these same systems can become critical barriers to entry for innovation.
People: There are employee concerns throughout the industry about technological adoption. Some view new technology as “coming for their job,” while others believe the status quo is simply an easier way to proceed. Since the path to innovation is predominately mindset-driven, Valen will leverage its experience in driving technological adoption throughout insurers to help the industry be more accepting of innovation.
InsurTech: Many InsurTech companies looking to gain traction in insurance have exclaimed how insurers are simply doing it wrong, how insurance is broken, and how Silicon Valley's focus on the customer will obliterate the market. However, alienating one's customer base in order to close sales can be short-sighted and largely ineffective. This new collaboration will aim to bridge the gap between technologists and insurers, which we believe will help lead the industry to a new level of prosperity.

There will be considerably more information to share in the coming weeks and months.

Valen's 2018 Summit highlighted how the confluence of financial strength, technology and collaboration presents a perfect storm for insurers looking to grow their businesses.

As A.M. Best ratings become dependent in-part on innovation, the bolstered demand throughout an industry flush with capital provides significant opportunities for InsurTech companies, which can thrive in collaboration with incumbent insurers.

The insurance ecosystem is set for seismic shifts, aimed at increased profitability and improved customer experience.

Kirstin Marr was recently appointed president of Valen Analytics, an Insurity company. Valen provides proprietary data, analytics and predictive modeling for property and casualty insurers. She can be reached by sending email to Kirstin.Marr@valen.com. Or connect with this author on Twitter: @kirstinmarr

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