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Insurance industry in a spin


Insurance Consulting and Technology
Insurer Solutions

By Alice Underwood | March 21, 2019

With a transformation currently underway in the insurance industry, managing profitable growth and mapping out a technology and analytics strategy is a little like spinning plates.

Plate spinning, the trick of keeping multiple plates in motion, while balanced atop long, precariously thin sticks – has a history going back hundreds of years. Believe it or not, the Guinness World Record holder, ‘The Great Davido’, achieved 108 simultaneously spinning plates.

Yet in recent years, insurance companies could be forgiven for thinking their own juggling act, brought about by the various economic, technological, demographic and operational drivers of change affecting the industry, would give even the world record holders a run for their money.

Insurers today must balance a wide range of competing demands, risks and opportunities – with swiftly changing technological capabilities at centre stage.

Consider, for example: the impact and implications of widespread digitisation on the granularity and sophistication of pricing and the personalisation of customer relationships, the benefits of automating routine processes and the knock-on considerations for how work is done, the need for cost-effective claims management even as policyholders expect more customised and individualised service levels, the pressures of mounting regulatory and accounting requirements, and the ever-expanding array of options for risk management and transfer. It’s enough to make you dizzy.

Making connections

Unlike the champion plate-spinner, insurers are attempting to foresee, manage and create value from multiple moving parts that are not only interconnected but also far from uniform in size, weight or shape.

Instead, effective responses increasingly depend upon multifaceted initiatives – with a coordinated approach across risk, capital, people and operations – where technology is both a driver of and a response to change.

Despite its central role, technology alone is not the answer. People will continue to be involved throughout the insurance value chain, so insurers must anticipate how they will interact with, use and leverage technology to drive value.

Digitisation runs deep

As digital business models come to the fore, data and advanced analytics take on ever-greater importance, with the potential to wholly transform insurance company operations and the customer experience.

Core operational issues include what data to acquire and for what purpose, where and how to acquire it, how to store it and how to analyse it.

Going deeper, what challenges will the company face in connecting legacy IT infrastructure with new systems and data types? How can better, more predictive analytics provide new business value in previously untapped areas? What skill gaps may exist in the insurer’s existing talent base, and how might the workforce be differently structured going forward?

How might the target customer groups be changing, and what are their expectations about privacy, product customisation, distribution and other touchpoints? The customer who remembers watching plate spinners on a favourite TV variety show may prefer a very different experience from her digital native granddaughter – meaning the insurer who wants to appeal to both must adopt a flexible, multichannel approach.

New activity streams

Automation has been the tool of choice for routine tasks, whereas until recently advanced analytics and artificial intelligence (AI) have required more handcrafting. But harnessing automation and AI in tandem – whether through automated machine learning or ‘smart automation’ – can further streamline operations and create cost savings.

Between 40 percent and 50 percent of insurers surveyed for Willis Tower Watson’s 2018 ‘US Advanced Analytics Survey’ expect to be using automation and AI within two years to reduce time spent by employees on repetitive tasks, identify high-risk cases requiring special attention, and build better risk models for decision-making.

So a key question for insurers will be which parts of what tasks currently done by employees could be handled more quickly, accurately and efficiently by a machine, thereby saving cost and potentially freeing up people to focus their energy on more interesting and higher-value tasks? Which things, due to the required creativity, judgment, or emotional sensitivity, are better handled by people?

Automated pricing and underwriting, underpinned by advanced analytics, is already well-advanced in personal lines, and beginning to gain traction in the small commercial segment. The customer who wants a straightforward, standardised insurance product can get quotes more quickly – typically after answering fewer questions than in the past – and make a purchase quickly from their computer or mobile phone.

Moreover, appropriate use of external ‘big’ data and advanced analytics can enable insurers to provide products and prices that are better tailored to the individual customer.

Commercial underwriting, with its significant frictional costs, presents an opportunity to employ intelligent automation to determine which risks can run through a no-touch process, the ones that should go through a ‘low-touch’ process, and those that need a lot of underwriting intervention.

For the most complex risks, AI applications can populate a dashboard to make the underwriter’s job easier by providing supplementary information, potentially useful precedents or comparable risks, and so forth – as well as facilitating documentation and governance.

In claims processing, AI applications are already being used to identify potential fraud. ‘Smart automation’ in the claims process can extend this to bring the claims that need attention to the right handler and process the claims that don’t need close attention in a no-touch way.

New distribution channels and means of client contact run the gamut from simple online portals and automated reminders, to chatbot-facilitated purchasing and claims reporting, all the way through to automated brokers, digital MGAs, and commercialised trading hubs.

Using smart automation, these hubs could offer intelligent pricing from a panel of insurers and enable brokers to automate decision rules about which offer is presented to what client.

Regulatory compliance and financial reporting obligations, having increased significantly in many countries, legacy systems that require significant manual intervention may struggle.

Finance and process transformation, making wider use of technology and automation, can address these challenges while also delivering better governance and richer management information.

That said, another plate to juggle may be potential consumer and regulatory wariness about the use of data and complex analytics. For example, there is increasing interest in ways to explain and assess machine learning applications in the context of fairness.

Sharing economy

The challenge is integrating new technologies with legacy systems, and new ways of working with the existing culture of a business. In the past, a company may have wanted to control every part of a process, but that’s now changing.

It’s increasingly critical to connect and share tasks and information (with appropriate controls) across a range of systems, processing modes, and organisational boundaries.

Insurance products may become more fragmented, with coverages being divided – and potentially shared and connected – across several policies.

At the same time, there may be merging of protections that once were disparate. Given more pervasive automation in vehicles, there are new questions about where the liability of the driver ends and that of the vehicle manufacturer begins.

With the accelerating connectivity of information and technology, no plate spins in isolation. A nimble and truly transformative approach to change requires a ripple effect of responses, a view to interconnectivity, and a coordinated range of skills and contributors.

Not even the most accomplished ‘plate spinner’ can or should deal with everything at once. After all, even ‘The Great Davido’ himself had an assistant!

This article was originally published in Insurance Insider Quarterly: Spring 2019 and has been reproduced with permission

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