There are two main groups of technologies in the insurance technology ecosystem. One group includes foundational technologies — the enablers of digital transformation — and the other is comprised of ancillary technologies. (Shutterstock)
P&C commercial line insurers have been historically slow to invest in technology. That began to change in 2001 with the emergence of the low interest rate environment, and accelerated after the 2008 economic recession when investment income dried up and insurers were forced to tighten underwriting practices in a number of ways. For example, data analytics emerged as an effective means of mitigating losses through better risk selection and pricing. That's when the modern insurance era began to take shape.
This once highly-conservative approach to technology has now been replaced by investment strategies that consider a plethora of technology options designed to provide immediate business value. But emerging technologies, including blockchain, AI, and chatbots, along with new sources of data such as social media and IoT, create the type of innovation noise that can make it challenging for insurers to focus and to identify how to best utilize their limited IT budgets.
There are two main groups of technologies in the insurance technology ecosystem. One group includes foundational technologies — the enablers of digital transformation — and the other is comprised of ancillary technologies that insurers can add-on once they've developed a foundation for innovation. Before insurers consider ancillary technologies, it is imperative that they initially focus on the foundational IT infrastructure which drives the modern insurance business.
Let's explore the main technology components that underpin this strategy.
Advanced data capture and processing
In today's digital environment, insurers are as much in the data processing business as they are in the insurance business. This poses several challenges for insurers going through digital transformation. Many insurers have already begun modernizing their core systems, but have yet to invest in digital platforms that improve data, management, and analysis, which are essential for critical decision making. Typically, as they migrate away from legacy platforms, insurers remain on disparate systems for some time during which information isn't seamlessly shared across departments.
Should these issues not be adequately addressed, they can adversely impact the businesses' ability to drive new growth. The bottom line is that data holds no value if insurers are unable to capture it efficiently, store it in the appropriate data warehouse, and make it available it to the business units that need it, in a timely fashion.
Modern insurance platforms also offer enhanced integration of third-party data and services. This is important as insurers increasingly rely on third-parties to automate and enhance their internal processes, reporting capabilities, and end user experiences. These insurance platforms are built with microservices and incorporate an API-based architecture that structures an application as a collection of loosely coupled, independently deployable services.
Simply put, this enables the easy integration of third-party data and services necessary to remain competitive. This design approach, coupled with low-code/no-code environments, enables business analysts to build their own insurance applications with minimal involvement of IT, and dynamically scale resources on an independent basis to meet demand.
Cloud computing
Cloud computing has enabled the insurance industry to scale in order to accommodate the vast amounts of data it accumulates each year. A recent IDC report predicts that the collective sum of the world's data will grow from 33 zettabytes (ZB) this year — that's one trillion gigabytes — to 175 ZB by 2025, for a compounded annual growth rate of 61%. While over 70% of carriers are already using cloud computing in some capacity, many have yet to move their core systems to the cloud. As the use of cloud within insurance continues to grow, this growth trend will continue to intensify.
Cloud computing is a true digital enabler in the sense that it allows insurers to rapidly deploy new products, scale services up and down as needed, and bypass the enormous IT backlogs associated with on-premise infrastructure. Cloud alleviates the need for insurers to procure, install, and maintain hardware and software, and also enables IT resources to focus on high value business areas that are aligned with the insurer's core competency. Most cloud deployments also involve a SaaS partner that understands the depth and breadth of the insurance industry and specializes in running cloud-based platforms.
As insurance carriers demand more data and technologies to remain competitive, cloud computing will inevitably be the only way to process this data with sufficient speed and in a cost-conscious manner.
Predictive analytics
As a foundational technology, predictive analytics platforms in underwriting were one of the first universally recognized use cases of modern insurance technology to have a direct benefit on an insurer's bottom line. Armed with analytics, insurers were able to make quicker and more-informed risk assessments that have led to improved underwriting results. A.M. Best acknowledged the overall positive effects on underwriting in commercial lines in a recent report.
While using analytics for underwriting purposes is well-documented, it is also essential for claims triage and can positively impact the customer experience. Apart from new business and renewals, claims stand as the key engagement with policyholders that can make or break the relationship.
In fact, just last month I switched my home and auto carrier due to a poorly-handled claims experience! And evidently, I'm not alone: Accenture's "Claims Customer Survey" found that of the 14% of participants unhappy with their most recent claim experience, 83% plan to switch to a new provider or have already done so. Analytics can be used in claims for a range of business use cases, including identifying "jumper claims" (i.e. smaller claims that have the potential to become costly or complex), properly assigning experienced adjusters to high-risk accounts, predicting litigation, determining the likelihood of fraud, and assisting with loss reserves management. Using data to make improved decisions during the claims triage process can serve to mitigate high value claims while creating a smoother experience for claimants.
Innovative technologies with compelling value propositions continue to emerge at a growing pace. But as insurers are faced with countless investment options relating to data and technology, it's important that they remain intently focused on the foundational technologies of digital transformation that will readily provide business value, prior to layering-in emerging technologies. Cloud-based insurance platforms and predictive analytics are essential enablers for insurers to drive innovation and maintain their competitive advantage, while keeping pace in today's insurance marketplace.
Jonathan Victor (jonathan.victor@insurity.com) is CIO of Insurity, Inc. These opinions are his own.
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