Month: February 2024

Reflecting on innovation across sectors, McKinsey states the following analogy[i]:

“The question is not how fast tech companies will become car companies, but how fast we will become a tech company.” This is how the board member of a global car company recently articulated the central issue facing most incumbents today: how to operate and innovate like a tech company… IT is not a cumbersome estate “that gets in the way,” but an enabler and driver of continuous innovation and adaptation… These platforms are each managed individually, can be swapped in and out, and, when “assembled,” form the backbone of a company’s technology capability… This modular, platform-based IT setup of tech companies is what enables them to accelerate and innovate. They can experiment, fail, learn, and scale quickly: they can get products to market 100 times faster than their more lumbering peers (think weeks instead of months).

Sibylle Fischer, Director Strategic Venturing / Startup Scouting at Baloise Group, adds[ii]:

‘Today, cloud-based software and software platforms, open-API technologies, microservices, machine learning and A.I. are all helping to redefine everything we know about insurance — from the way we onboard customers, to how we process claims, to how we sell products and services. But to succeed and make the most out of the ever-evolving opportunities new technologies offer, insurers need to take decisive action. That means:

1. Moving fast and pursuing aggressive strategies that roll out digital acceleration in core tech that touch on virtually all aspects of their business;

2. Forgoing their traditional, on-premise systems for next-gen cloud-native platforms that will help future-proof many of their most essential business functions, and;

3. Looking across their business units (beyond IT) at where and how they can adopt next-gen core platform solutions to accommodate the kinds of open, real-time, personalized multi- and cross-channel experiences today’s customers demand.

The companies that can succeed at doing so will be in the best position to scale, compete, and introduce new revenue streams and business models into their ecosystem – now and in the future.’

Five to six years ago, when CIS modernization was being talked about for half a decade already, a study by Deloitte and LIMRA[iii] showed that the top 3 influential factors of core system transformation were – and probably continue to be:

1. Product strategy and objectives or being able to launch new products and/or alter existing ones easily and fast and make them available via the right distribution channel;

2. Technological relevance. Built on ageing languages, databases, architectures, and legacy systems lack flexibility and carry significant technological debt;

3. Service enablement and the capability of digitizing services to deliver an improved customer experience.

In 2020, when Forrester[iv] questioned insurers on what they thought were the most useful integrations capabilities – a basic aspect of any system – as they underwent core system modernization efforts, the responses emphasized facilitators related to:

• Deployment: simple, out of the box and range of options
• Maintenance: the cloud, low-code capabilities, continuous updates
• Ecosystems
• Library of configurations

The advantages of SaaS

While insurers easily consider it for peripherical functions, some are still sceptical about considering SaaS products when the subject is core modernization. Differentiating themselves in the market by the uniqueness built into their core, the fear of losing this difference by adopting a standard software makes them hesitant.

Not looking at SaaS, and with building their core on-prem out of budget, insurers turn to Commercial Off The Shelf (COTS) solutions. While cheaper and fast implemented than modern homebuilt systems, due to the standardization of many of the core insurance processes, COTS core systems tend to be very similar between vendors. Extra coding is then necessary, which seriously impacts initial investment, and timeline while cluttering the code base.

The advantages of SaaS when compared to other types of core system solutions are:

• Standard modules,
• APIs library to easily connect, including to low-code differentiation layers such as digital interfaces (e.g., mobile apps, bots, voice apps, etc.);
• Quicker and cheaper onboarding

In addition to standard processes and products that may be made unique through differentiation layers, choosing the right SaaS partner saves costs, improves service capabilities, and helps you meet your customers’ expectations.

Cloud as an enabler

“Products that are built with true cloud-first approach will usher in the next disruption in insurance core systems space … Big opportunities and next wave of transformations await products that are built on foundations of cloud and SaaS best practices and principles.” [v]

McKinsey figures [vi] that cloud adoption enables carriers to standardize, automate and benefit from:

• 30 to 40% reduction of IT overhead costs;
• Optimized IT asset usage by scaling processes up and down as needed;
• Improved overall flexibility of IT in meeting business needs through the use of business features made available by cloud providers;
• Increased quality of service through the “self-healing” nature of the standard solutions (i.e.: automatically allocating more storage to a database).

Overall, Cloud-native technology accelerates innovation, simplifies operations, works seamlessly with other systems and helps deliver personalized products and better customer experiences.

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Sources:

[i] In: McKinsey & Cy, Reaching the next normal of insurance core technology, June 2020, p.73

[ii] In: What’s Next for Innovation in Core Insurance

[iii] In: Legacy systems and modernization, Deloitte & LIMRA, 2017, p.3

[iv] In: Core System Modernization: Time For A New Roadmap, Forrester commissioned by Red Hat, May 2020, p.7

[v] SaaS core systems will enable Insurers to differentiate; Post by Sankar M, Associate Director at Cognizant; February 16, 2020

[vi] In: McKinsey & Cy, Reaching the next normal of insurance core technology, June 2020, p.40

Microinsurance, a small-duration, low-premium, high-volume insurance product appeared at the end of the twentieth century as a solution to cover the risks of populations belonging to the financially weaker section of society, mostly in developing countries. For a small premium, low-income populations have access to financial protection to offset the negative impact of an unexpected event, accident, injury, illness, or death. As explained in Microinsurance: The Drive of Technology, technology is paramount to reducing transaction costs, making this insurance easily accessible to the most and achieving the volume necessary to turn microinsurance viable.

Mobile microinsurance, for instance, consists in leveraging mobile network operators’ infrastructure to improve parts of the insurance value chain – such as product design, pricing, marketing and sales, policy administration and claims management. It is a technological innovation that contributed to boosting microinsurance in Asia, Africa, Latin America and the Caribbean islands, where the total covered population reaches an estimated 179 to 377 million, accounting for a share of 6 to 14% of the target population[i].

While a faster growth of insurance in emerging markets has attracted global insurers’ attention, microinsurance is also appearing in mature insurance markets.

In its original version, the philosophy of microinsurance is related to supplying populations with a social and economic net to soften the acute hardships of an unexpected negative life event. Another type of microinsurance has appeared that takes care of the day-to-day risks.

In line with the evolution of a society that is more and more digital, where convenience and immediacy prime in a changing risk environment, insurance is innovating and bringing about novelties the likes of:

i. Smart doorbell – where insurance is embedded in a doorbell so that when a parcel is delivered to the doorstep it is protected for a few hours until it is picked up by the person it is intended for.

ii. If the food you ordered for delivery is late, your food is free.

iii. If it rains so many days in your holiday, automatically receive some sort of compensation.

These products, which mix concepts such as microinsurance and parametric insurance, are embedded and sold in a customer’s journey when buying a non-insurance product or service.

Embedded insurance, estimated to reach a $29 billion market value in Europe[ii], is considered by many as the future of insurance for several reasons.

• It reduces the protection gap.
  • In insurance, context is key and often a trigger of purchase. Traditional providers are not meeting the demand for coverage across the wide-ranging categories in which consumers are interested.
  • Consumers are open to offers made by brands they trust that leverage data to offer insurance meeting their needs, when and where they need it.
  • Offering insurance at a time and place that is relevant to the very thing the consumer is looking to protect is appealing. Not having a direct and seamless route to obtaining insurance coverage may lead to neglecting it.
  • Making the decision, enrolment, and payment process of a relevant insurance cover as easy as ticking a box in a customer journey makes it a no-brainer and maximizes conversion rates.
• It brings down the cost of acquiring new customers
  By utilizing affinity partnerships and the primary product’s pre-existing channels to attract customers, embedded insurance experiences a substantial reduction in cost.

Experience in emerging countries shows that a successful digital embedded microinsurance strategy relies on mindset, strong partnerships, and technology.

Partners must have in mind to simplify the cover and facilitate the subscription process to a maximum. They must be prepared to iterate the process several times before coming up with the optimum solution.

The partnership that brings together the carrier and distribution partner must be meaningful and deep.

• The distribution partner must have a large customer base.
• Clients must use the service frequently. Frequent use and interaction mean the brand is trustworthy.
• The distribution partner must have a clear and important business problem to solve through the partnership. The sharing of risk and of profit is vital to align interests. It helps parties leverage their strengths and experiences. A strong partnership plays an important role in delivering tailor-made products that meet the needs of customers. Embedding microinsurance in a distribution partner’s offer needs to respond to a strong drive, which may be turning his offering more attractive, gaining market share, reducing churn, or having an extra revenue source.
• Any friction on payment must be removed.

A third element that is a threshold to engagement in a digitally embedded microinsurance strategy is technology. It must remove friction and provide a seamless customer experience facilitating subscription. In line with the mindset referred to above, the microinsurance offer must be simple and available for enrolment without the need for extra data, at the risk of lowering the conversion rate. The technology used must therefore be integrated with the distribution partner’s system to collect data, process and complete the sales seamlessly.

Technology should not only be integrated to offer customers a seamless purchase experience. It needs to offer the capacity to analyse data and make alterations in near to real-time. Microinsurance, a small ticket, one-size-fits-all, small duration cover, cannot be subject to extra data collection to price. It is a take-it-or-leave-it option that needs accompanying to make necessary alterations based on ongoing analysis. The duration of the cover typically ranging from a few minutes to a maximum of 30 days, changes have a close to immediate effect.

In a changing society and environment, where risks and customers’ needs are evolving microinsurance constitutes a renewed innovation. Technology aiding, a small ticket, small duration insurance with inception in emerging economies is now addressing new risks in mature insurance markets. The potential of digital embedded microinsurance is great and still being discovered.

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Sources:

[i] In: Europe Embedded Insurance Business and Investment Opportunities – Q1 2022 Update

[ii] In: The Landscape of Microinsurance 2021, <https://microinsurancenetwork.org/the-landscape-of-microinsurance>

Unlocking the potential of MicroInsurance, Richard Leftley and Niels Trzecieski, march 16, 2023

Microinsurance, a low premium, low margin and high-volume insurance has been the object of redoubled attention for a year or two. Why are insurers focusing their attention on a type of insurance uncommon in our more developed economies? What is microinsurance, how did it originate, and what is key to a successful implementation? While these are the questions we will answer in this article, in a future blog we will explain how it is being introduced in more mature insurance markets to innovate, as well as what makes a successful distribution strategy.

Microinsurance originates in developing economies in Africa and Asia, to offer protection to low-income populations with low-valued assets. To influence favourably the economic and social sphere, this instrument provides cover at an affordable cost to a vulnerable population. For a low premium, in line with their budget, populations may reduce their risk exposure with insurance covering life, funeral, health, property, crop or livestock.

The concept of microinsurance dates back to the turn of the century and is linked to microfinance with which it shares the common belief that very small loans or insurance can make a disproportionate difference to a poor person. While Micro Finance Institutions (MFI) were the first to respond to this challenge through a commercial offer, they soon realized that unforeseen events affecting the lives or belongings of their low-income clients or respective family could deplete their financial resources, affect their payback capacity, and induce them to close their savings account. To safeguard their clients against this risk, MFIs began to complement their banking products with insurance tailored to their clients’ specific needs.

As a result, microinsurance was originally developed by informal organizations or MFIs, the likes of Grameen Bank in Bangladesh, founded by Muhammad Yunus, winner of the Nobel Peace Prize in 2006 for the pioneering concept of microcredit and microfinance.

A main contributor and amplifier of the concept were MicroEnsure (originally Micro Insurance Agency). Founded in 2005 as a subsidiary of Opportunity International, one of the world’s largest MFIs, MicroEnsure started out providing credit life insurance to Opportunity International’s client base. It soon identified the need for other types of products as well as the need for larger client networks and therefore set up itself as a separate entity in 2006. It then moved on to work successively with local insurance companies, as a third-party administrator before becoming an insurance intermediary and a consultant designing low-cost insurance products. In 2012 MicroEnsure insured a population of 4 to 5 million low-income clients, which turned to more than 60 million spread throughout 12 countries in Asia and Africa, by 2020.

Given the specificities of insurance for low-income populations, Arthur D. Little[1] explains that a successful microinsurance strategy in emerging markets must:

• Simplify products
• Offer in-kind benefits
• Engage in public-private partnerships to improve local infrastructure and quality of life for consumers
• Partner with microfinance companies to offer bundled services
• Ensure applications and claims forms are simplified and accessible to consumers
• Use technology (mobile point-of-sale devices, smart cards) to overcome distribution challenges

Selling, underwriting and claims management not being proportionate to policy value and being the most significant costs related to insurance, minimizing these transaction costs with the aid of technology is as paramount in microinsurance, as is defining a product that adequately satisfies a dire need for a population.

A technology that contributed greatly to the spread of microinsurance is mobile telecommunication, given its penetration in developing countries. This gave birth to mobile microinsurance which refers to any type of microinsurance product that leverages the mobile channel to improve a part of the insurance value chain – such as product design, pricing, marketing and sales, policy administration and claims payment – be it linked or not to a mobile money platform[2].

Understanding the usefulness of mobile telecommunication, organizations such as MicroEnsure partnered with mobile network operators (MNO) to benefit from their installed infrastructure.

The communication channels (voice, SMS, USSD), offered by MNO made the promotion, sales and enrolment of insurance cheap and accessible to a great part of the population while facilitating claims handling.

Not always familiar with insurance and/or lacking confidence in the carriers’ brands, MNO’s retail sales and distribution networks of airtime dealers and mobile money agents can be leveraged to educate potential clients.

MNOs offer a set of solutions to the challenge of collecting premiums and paying out claims from or to often unbanked populations with irregular cashflow and poor access to traditional payment mechanisms.

The lack of historical data is another major difficulty for insurance practitioners in designing and pricing new products. However, real-time rendering of insurance and mobile transaction information can greatly improve this process by providing insurers with reliable data to find patterns necessary for better understanding their customers, ultimately leading to more appropriate product design. Mobile transaction histories can also be used to identify customers with low-risk profiles or a need for a particular insurance product, improve record-keeping, eliminate redundant processes, reduce fraud, and make claims settlement more efficient by reducing the amount of documentation required.

Finally, brand and trust being crucial, a prospective client will often recognize and trust more an MNO than an insurer. An MNO will benefit from greater brand awareness in the client’s market and regular (positive) interactions will induce him to buy insurance from him rather than from an insurance carrier.

Now that technology has helped microinsurance pick up pace in emerging economies, the determining factor in insurers’ growing interest in microinsurance is its potential versus the limited growth prospect of insurance in developed markets. While emerging markets account for around one-fifth of the total global premium, they represent 80 per cent of the world population[3].  Furthermore, as Swiss Re’s sigma World insurance study for 2020 on world insurance markets reports, premium growth in developing markets tends to outpace growth in advanced markets which is close to stagnant.

After emerging within the economic and social framework of developing countries marked by the disengagement of states from public health services and welfare plans and by the rise of civil society and the NGOs involved in sustainable development actions, microinsurance’s attractiveness is growing amongst global insurers from developed economies. Mobile telecommunications have been a trigger for the development of this recent type of insurance in developing countries and is now attracting further attention for its intrinsic growth potential in developing countries. As we shall see in the following blog, the same technological factor is making room for the development of microinsurance in the mature insurance market too.

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Sources:

[1] In: MAKING MICROINSURANCE SUSTAINABLE AND PROFITABLE

[2] In: “M-Insurance: The Next Wave of Mobile Financial Services?” by Jeremy Leach (available at http://www.microensure.com/news.asp?id=47&start=5)

[3] In: Background on: microinsurance and emerging markets, From <https://www.iii.org/article/background-on-microinsurance-and-emerging-markets>

Having been a laggard in digital transformation, the insurance industry has much catching up to do. The ever-changing digital landscape is forcing businesses to turn on their “all-things-digital” mode. From transforming its front end to offer its customer the seamless digital experience they are looking for to optimizing its internal processes to be more reactive and more efficient, the demand on IT is growing. While in the past a waiting list of IT project was normal and acceptable, the appearance of more agile technological competitors getting the favour of a growing portion of consumers are forcing carriers to adopt bolder and quicker transformative actions.

To tackle the accumulated backlog, the sector is confronted with two crucial obstacles. The unprecedented scarcity of IT specialized resources and conflicting priorities between perpetuating complex and inflexible legacy systems and innovating. In an attempt to solve or ease these hardships, low-code / no-code solutions and platforms have emerged. But are such solutions the panacea? Are they to be used indifferently across the organization? These are the questions we will here try to shed light on. We will start first by explaining what the concepts of low-code / no-code stand for and explain their benefits. We will go on to demystify a common idea that tends to prevail on the effectiveness of these new solutions, before rounding up on how they ought to be implemented for optimized results.

No-code platforms enable users to develop applications and solutions solely through a visual interface and drag-and-drop functionality, while low-code platforms involve a certain level of coding. Both types of platforms simplify the process of creating software and solutions for users.

With no necessity for coding skills, business users can create their own solutions in what has come to be called no-code citizen app development. The advantage is an increased capacity in two ways. Firstly, users no longer have to wait for extended periods to obtain solutions from the IT department. Secondly, software developers can free up their mental bandwidth to concentrate on more important business-critical tasks.

Overall organizations thus benefit from:

• Saving time and money – building app, processes and products require less coding making the development cycles shorter.
• A faster time to market – not dependent on IT skills, availability and timing, a product or app may be configured and launched faster.
• Empowered citizen developers – software development may be done by a wide population of business specialists.
• Efficient use of IT Resources – Your IT department can concentrate on more complex responsibilities by offloading digital experiences to no-coding resources.
• The advantages of SaaS solutions – no-code / low-code solutions being Software-as-a-Service, whenever your parent software upgrades its tools with security features, bug fixes, and other changes, your apps and tools get it automatically.

While Gartner predicts that by 2025, 70% of new applications developed by organizations will use low-code or no-code technologies, up from less than 25% in 2020[1], they add that there is no such thing as “no-code.” They are convinced that “no code” is more of a marketing term that implies the tools are for non-professional developers. On the other hand, low code suggests using a scripting language in addition to no-code platform capabilities[2].

To leverage the full potential of the low-code paradigm, insurers must carefully select low-code platforms that address their most pressing use cases. No one platform is a panacea; the key lies in the integration and coexistence of low-code enterprise platforms and low-code insurance platforms.

The article discusses the importance of selecting the right low-code platform for insurers to leverage the benefits of the low-code paradigm. No single platform is perfect, so integration and coexistence of low-code enterprise and insurance platforms are crucial. The article identifies the non-low-code nature of legacy platforms as the biggest obstacle to the full potential of low-code. For effective integration with other business IT systems, low-code compliance is necessary, especially in the insurance industry. The future of the insurance industry lies in multi-platform low-code systems that enable faster time to market, increased efficiency, lower costs, and citizen developer empowerment.

The results of configurable tech: more resources for other things

The real question of configurable technology comes down to resources. Would you rather spend more resources on custom from-the-ground-up software – development, staffing, maintenance, and upgrades – or on just about anything else?

The rise of low-code application platforms (LCAPs) is driving the increase of citizen development, and notably the function of business technologists who report outside of IT departments and create technology or analytics capabilities for internal or external business use. From: Gartner Says Cloud Will Be the Centerpiece of New Digital Experiences

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Sources:

[1] In: Gartner Says Cloud Will Be the Centerpiece of New Digital Experiences

[2] In: No-code and low-code platforms in insurance: The future is multi-platform

Innovation is a hot topic for insurance. The industry has lagged and has a lot of catching up to do to offer clients the experience they have come to expect. Innovation is about identifying unmet needs and untapped markets and addressing them, sometimes with untested solutions and unproven business models. For innovation to deliver sustainable growth, it must be embedded in the company’s growth model and fully integrated across the organization, bringing together cross-functional teams to approach challenges in new ways.

By integrating new technologies and functionalities in their solution, software providers empower carriers to innovate their processes and product offerings. Given the importance of the capabilities built into insurers’ systems, a legitimate question arises:  How do software providers innovate to empower insurers for value creation?

To shed light, we interviewed Karina Buch, COO of IBA.

Interviewer: Thank you, Karina, for your availability to help our readers understand the innovation process in an insurance software provider such as IBA. My first question is:

How does IBA contribute to innovation in the insurance world?

Karina: We do it with the capabilities made available on our platform. Capabilities relating to both how the platform is constructed and its design – e.g.: APIs based, availability 24 by 7, being backwards compatible – and the true capabilities of an end-to-end platform.

Furthermore, and contrary to others that offer product-based insurance solutions, IBA’s modern insurance platform is product agnostics for P&C, risk-based insurance. We offer an open template so that insurers may innovate and set up a product however they wish, for the audience and distribution channel they chose, made available via app, web or other, without limitation.

A third component is the business model of the insurance product. A platform must empower carriers to set up products based on innovative business models; usage-based (on/off), swiping covers on or off depending on life stage or context, affinity, white label, embedded, B2B or B2B2C and so on. And just like a magic cube, the same platform must permit configuring a multitude of offerings with different characteristics to the same or other client segments as well as be multi-tenant.

To summarize, we do not tell insurers how to innovate but, through IB Suite, we give insurers the capabilities so that they can innovate on all these important factors for their business.

Innovation at IBA goes by identifying and implementing the capabilities that will enable insurers to do novel things in a new manner.

As much as the insurance industry must innovate to adapt to changing customer needs, software providers that serve this industry must look for new ways of meeting the evolving needs of their clients. What are the processes in place at IBA to innovate in its product offering? 

Karina: We do a couple of things. We do a “voice of the customer” and ask our key clients what their plans are and how they wish to achieve them. We also question our IS (information system) partners as to the trends they identify in the market, what is more in demand, and what we should put on the roadmap.

An example of this is the data lake which we enquired about, which was commented on by one of our IS partners and referred to by one of our big customers. As a result, we developed the concept and now have incorporated it for rollout in our roadmap.

How do you measure the effectiveness of your innovation processes? 

Karina: We do it in several ways. We monitor customer-related KPIs – such as the volume of transactions and GWP – also for service fee purposes – to assess the adoption and use of each (new) functionality. We also speak to the customers and collect their feedback. And, in the sales process too, we share our views and intentions on novelties to gather insight into the attractiveness of new functionalities. So we have different touchpoints to come to conclusions and of course, there is then the ultimate, as to whether the customer wants to be a reference customer, and what they say.

Any innovation, innovative feature or offering you may share you will launch soon? 

Karina: Normally we never do that, and the reason is I want our prospects to buy IB Suite for what it is today and not what it might be tomorrow.

Well, thank you Karina for those insights and for making us understand better how software vendors such as IBA contribute to the innovative process of insurance.

The digital transformation of insurance started with the introduction of IT systems and mainframes in the second half of the twentieth century. So why has it become such a hot topic over the last few years and what drives this trend? Why did insurance board the digital transformation journey later than other industries? What is now the main focus of the industry?

As true as the industry never stopped its digital transformation, it is the acceleration of the pace at which society became more digital that left insurance behind. As the web evolved from version 1.0 – characterized by data and search engines – to version 2.0 – where a portable internet fuelled social networks and made data sharing and digital interactions the norm – insurance stood still for a long time. What explains that, although other brick-and-mortar businesses made their products and services more readily and conveniently available to consumers online, the financial service industry took longer?

The first factor is the nature of the business which elevates high entry barriers for newcomers. Compared to others, the financial services industry requires more capital, is more regulated, and necessitates more significant IT investments to run. Secondly, the complexity, architecture, and age of the installed IT infrastructure of incumbents in a given (geographical) market are similar, as is the perceived difficulty to transform it. A third reason that slowed down the industry’s perceived need to adapt is less standardized and more complicated products that consumers have more difficulty comparing and replacing. Finally, having few touchpoints with their clients, incumbent insurers did not feel the urgency to digitize or turn client interactions more convenient.

The progressive and more frequent appearance of tech companies with solutions covering all stages of the insurance value chain made this status quo change. Looking to fill the gap left open by traditional players who did not have a satisfying value proposition for modern consumers looking for convenience and new products, neo insurers and insurtech – the likes of Lemonade, Getsafe, Bought By Many, Wakam or Wefox – surged using the available new technology and are grew strongly.

To face off this growing competition with risk subscription capabilities, incumbents started acquiring and partnering with innovative start-ups that offered the technology and know-how they lacked to provide clients with the user experience they had come to expect from insurers too.

Nonetheless, transforming dated technologies has its limits and makes it difficult to attend modern days customers’ expectations. Accessing third-party information providers or leading-edge Insurtech technologies turns into a headache with legacy systems The effort spent in terms of time, personnel, and money, to maintain and develop dated systems that utilize outdated languages, databases, and architectures have steeply increased for many companies.

While some of this effort – also called technical debt – is inevitable, it moves from an important topic to an urgent one when it adversely impacts the balance sheet. When systems are closed, unable to connect to innovative technology and insurers build under-efficient patches giving the impression of business as usual, technical turns legacy systems into the main factor limiting the speed and capability of incumbents’ digital transformation.

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Quote from Manikandan Natarajan[1]:

‘Another way to look at it [technical debt] is the difference between an insurer with a high-performing tech stack and another with what has thus far been perceived as an ‘average’ performing tech stack. If you are spending 70% on business as usual (BAU), 20% on innovation, and 10% on other incidentals, then you are part of the ‘average’ Insurers. Compare this with High Performing Insurers who spend 40% on BAU and 50% on innovation.‘

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As Cognizant refers[2], there is an increased understanding among insurers that the foundational components of yesterday’s Policy Admin System – architecture, tech stack and functionality – contribute to reduced flexibility, scalability, and digital readiness.

To counter this limitation and successfully move on their necessary digital transformation journey, carriers with legacy systems are now focusing on choosing an adequate modern IT solution for their company.

Engaging in the process of modernizing and adopting a new insurance platform though is a rare moment in the life of an organization. Chances are that few or any of the people in a given carrier have done it before, in their current company, or ever. How to proceed and select the new core system that will eventually impact and condition the company’s success in the short and medium term may seem daunting. It shouldn’t be!

Modern times call for modern solutions and a novel approach to core system selection. Incumbents need open and flexible platforms with the necessary capabilities to cater to customers’ expectations of today and tomorrow. Immediacy being the rule, the clock is ticking fast. Insurers need to align the quality of their service offer fast or risk losing clients to their more digital counterparts. Agile methodologies combined with the modularity of modern insurance platforms have rendered long traditional selection and implementation processes obsolete.

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[1] In What it Takes to Reduce Technical Debt in Insurance Systems; posted by Manikandan Natarajan, June 28, 2021, SimpleSolve

[2] In: How APAC Insurers can modernize with Next-Gen Digital Policy Administration Systems, Cognizant 20-20 Insights, Jan 2020

In our blog Embedded Insurance and its Importance: Part 1 we explained how context (or a change thereof) determines taking on insurance, and how making a complementary insurance cover conveniently available in the customer (digital) journey creates value for the parties involved – client, carrier, and distributor. We also saw that consumers are open to acquiring insurance products from trusted brands that embed them – making them readily available in their offers.

This new reality opens a huge potential for embedded insurance, which is estimated to increase in Europe, from $10,781.8 Million in 2022 to $28,525.5 Million by 2029[1].

While a debate is currently on as to whether embedded insurance is at its version 1.0, 2.0, 2.5 or 3.0 – see below – 2 things are sure:

1. Insurers need to reconsider their relationship with brands which they, until now, merely saw as distribution channels. Jointly they can create a proposition that is valued by the brand’s customers, that is profitable to all and that both want to push.

2. A substantial part of the potential of EI will come from new products created based on behavioural and real-time data collected in an increasingly integrated environment which requires modern systems and capabilities.

The peer group brought together by Simon Torrance – Founder and CEO of Embedded Finance & Super App – suggests that a new value stack that exploits digital technologies and data in new ways will render possible underwriting models that improve customer experiences, marketing effectiveness, risk selection, pricing and unit economics. New operating systems will appear that ingest an increasing volume of real-time data from the operations of brands, their customers, and other sources to optimize and match the right solution to the right customer at the right moment in the right place.

While examples of this new value stack are still rare to be found, the peer group points out that most of the innovation has come from a growing number of start-ups deploying a range of different business models. They go on to emphasize that the biggest winners will be those running the Operating Systems, as the latter are much less capital-intensive businesses than risk-carrying. Incumbents, therefore, need to skill up, develop, manage and grow such operating systems or risk being overtaken by insurtechs as they learn how to cover more sophisticated risks and offer adjacent services.

Brands with large customer bases that realize the benefits of proposing creative financial services in their product offering may ultimately look for a new breed of Operating System provider that can manage all their needs, beyond insurance, via one platform. This Operating System provider would then source a selection of financial services providers to integrate and have readily available on his platform, next to others ad hoc, to become a one-stop-shop.

Although the insurance industry traditionally works with data, it has been unable to integrate and work on an explosion of new datasets coming from new external sources. Collaboration with data-driven tech companies is necessary to skill up insurers and in turn improve the ability of the industry to innovate in collaboration with brands. The richer and more organized the information, the better protection gaps may be assessed, transferred and closed.

It is estimated that non-insurance brands may distribute up to $5 trillion GWP worldwide over the next decade. How much of it will be in collaboration with incumbents depends on the speed at which they skill up and adopt the necessary capabilities to, jointly with the brands consumers trust, create and distribute new products responding to real emerging needs.

As iptiQ – a technological insurer launched by the incumbent Swiss Re – says [2] : as every sector becomes tech-enabled, those insurers who learn to efficiently respond to the needs of brands and their customers will be best placed to generate new growth and value.

Embedded Insurance 2.0, 2.5, or 3.0?

Although we have not been talking of EI for so long, it has evolved from its original version (EI 1.0) which was an affinity-like program by which insurers partnered with other organisations or businesses to distribute products and services directly to groups of similar people, such as those in unions or fraternal organisations.

Not all refer to version 2.0 in the same form.

According to the peer group referenced above[1] we are currently initiating EI 2.0 which is a new way of collaborating and innovating with third-party brands, of all types and sizes, to help them grow their businesses, create compelling new protection solutions for end customers and, ultimately, close protection gaps¹.

Accenture[3] argues though that version 2.0 started when consumers began to purchase more expensive items and seamlessly added on insurance while making a physical purchase – ex.: digitally purchasing motor insurance alongside a car at a dealer. We would then arrive at EI 2.5 when insurance started to be added online in complement of a web purchase – such as travel insurance when buying a flight on-line.

According to Accenture still, EI 3.0 is when insurance cover is designed and included in the background of a non-insurance product, where the consumer has no say in the choice of carrier, the level of protection or the cost – ex.: Volvo’s electric vehicle insurance in partnership with Allianz or Spot’s injury insurance being included in ski passes.

Sources:

 [1] In: Embedded insurance: a brief overview, 19 Aug 2022

[2] Composed of executives from Allianz, American Family, AXA, Ergo, Google, IAG, Liberty Mutual, Marsh, Munich Re, Swiss Re, and Travelers

[3] In: Europe Embedded Insurance Business and Investment Opportunities – Q1 2022 Update

Embedded finance, and now embedded insurance, has become a buzzword. What’s behind this concept? Why is it gaining so much traction and what are the essential ingredients for success, are aspects insurers look to understand to engage in a movement that is set to proliferate and touch every digital interaction we have in the future.

Dennis Kang, CTO, ZhongAn – China’s first and largest online-only P&C digital insurer that has capitalised on the embedded insurance opportunity – defines it as:

‘The insurance product that is firmly integrated into all kinds of business scenarios where protection might be required. Tech is fully involved to make the customer experience very friendly and insurance low cost. It is selected and approved via a check box and is embedded in all products‘[1].

In insurance, context is key and often a trigger of purchase. Experiencing a change of context, due to a significant life event tends to heighten an individual’s awareness of potential risks, which will frequently spur a protection need. The birth of a child may stimulate the parent’s wish to protect his well-being via the subscription of a life insurance policy and a health insurance policy. The purchase of a house may lead to subscribing to home insurance to protect oneself against the risk of fire and other hazards. So will the purchase of a car, a piece of expensive jewellery or equipment, or a pet, for instance. Not having a direct and seamless route to obtaining coverage may lead to neglecting it and then later finding oneself in a regrettable situation if a loss occurs. This is where embedded insurance comes into play.

Embedded insurance fills the gap left by traditional insurance players. Today’s insurance market offers a wide array of coverage options, that is also large, complicated, and fragmented. Consumers get coverage from many types of providers, including carriers, brokers, banks and product manufacturers. Research shows, however, that traditional providers — insurance carriers and brokers — are not meeting the demand for coverage across the wide-ranging categories in which consumers are interested[2].

While the trust level of consumers in insurers varies from one country to another, consumers are open to offers made by brands they trust, that leverage data to offer insurance meeting their needs, when and where they need it.

Technology and our increasingly digital world turn the insurance purchase easy and convenient. The more digital touch points an institution or brand collects on a consumer, the better it will know his lifestyle and purchases to identify the most timely and relevant protection cover to propose and sell. Embedding this insurance offer in the customer journey makes it then easy and convenient to subscribe.

Dennis Kang identifies 5 key elements an insurer must master for a successful embedded strategy at scale.

1. Technology
Embedded insurance premiums vary and may start at a few cents[3]. It is often a high-volume, low-margin business where onboarding is challenging. Technology must optimize processes and computing power must be ensured. It also has to be agile to respond quickly to the competition when needed.

2. A customer-centric business model
To win customers’ preference and loyalty, the company must centre its attention and processes on providing the customer with an outstanding experience in all interactions, from onboarding to claims and renewal. This centricity may lead to selling a product with low to zero profitability in order to onboard the customer and sell other more profitable covers.

3. Ecosystem linkage management
Technology-related, but not only, an insurer must have the capability to connect and manage many ecosystem partners to set up products and integrate any scenario that requires a cover.

4. AI and data
Data collection and analysis is the centre of it all, hence AI too. All must be collected and analysed to detect emerging needs, segment the market, analyse responses given and minimize fraud.

5. Internet Knowledge
Insurance needs and opportunities may arise from any part of the internet; a marketplace, forum, social media, metaverse, web 3.0 … A good knowledge of the net is essential to leverage and attract clients in whichever channel they use.

Getting insurance coverage is very much context based. Important life events and purchases will raise awareness of the risks that may potentially harm, destroy or affect a new life event, investment, or purchase. While in the past one could neglect getting protection against those risks for not being offered adequate cover at the right time and place, technology is changing the scene. Closing the insurance gap, brands and institutions consumers trust are now embedding insurance products in their offers, making them readily and conveniently available to their customers.

The trend has only just started. More and more banks, online retailers, marketplaces, and ecosystems are looking for insurers with technological solutions and products to partner with. If you too are interested to know how IBA has helped renowned carriers embed insurance in a variety of retail chains and channels, please contact us here or click here for customer reviews.

Sources:

[1] In TDI Talks! In conversation with Dennis Kang, CTO, ZhongAn – The embedded insurance opportunity, and key ingredients for success

[2] In: Embedded Insurance Report, Leveraging Transaction Data To Expand Coverage In A Digital-First Market, PYMNTS.com | Cover genius

[3] A return shipping cost reimbursement cover of a low-price good, for example

We all know about the increased adoption of the cloud by every sector of the economy. Many things are said on the topic and the reason and benefits of this trend are not always clear to the non-initiated public.

A recent survey by McKinsey[ii] indicates that by 2027, 54% of business leaders plan to have more than half of their computing environment on the public cloud (versus 13% that have it today).

Ultimately, it is the customers – or the desire to give them the best possible experience – that is the groundswell of this movement.

As discussed in Customer experience in the driver’s seat of insurance transformation, in today’s connected world shaped by the GAFAMs, clients have come to expect a flexible and personalized experience, by which all service providers interact with them in a digital, seamless, and autonomous way. To meet these evolving customer expectations, the digitization of society is constant. This in turn leads to greater data generation and a steadily increasing number of data processing issues that can only be solved in cloud environments. The provision of constantly increasing computing power with sufficient capacities is nevertheless by no means the only driver of cloud development. Just as important is the fact that many of the most innovative methods of data analytics are available first and foremost in the public cloud.

In 2017 already, Bain & Company and Google identified seven key technologies that had begun to disrupt the industry and whose impact they predicted would accelerate in the next years[i]. These technologies —namely, infrastructure and productivity, online sales technologies, advanced analytics, machine learning, the Internet of Things, distributed ledger and virtual reality— are mostly available in the cloud and continue to progress and generate data.

While in the past, to use such programs or applications, software needed to be loaded onto a computer or located on a physical server in the same building, Cloud computing eliminates this need (and the associated costs), allowing users to access the same programs from any location, thanks to the internet.

The tangible benefits of cloud technology are thus: easy access, reduced costs, increased performance, scalability, reliability, and security. However, the most important thing to understand about the cloud, is that it’s not a more efficient way to operate IT, but a force multiplier for generating value for the business.

McKinsey[i]says the business units most effective in capturing the cloud’s value focus on two key areas: understanding where the value in the cloud lies and building a partnership between business and IT. As illustrated by the exhibit below, the organization will then derive value from rejuvenation – focusing on cost and risk reduction led mainly by IT – and innovation – where business and IT look at the cloud to accelerate or enable the development of new revenue streams.

McKinsey figures[i] that the rejuvenation of cloud adoption by itself enables carriers to standardize, automate and benefit from:

• 30 to 40% reduction of IT overhead costs
• Optimized IT asset usage by scaling processes up and down as needed
• Improved overall flexibility of IT in meeting business needs through the use of business features made available by cloud providers

Sibylle Fischer, Director Strategic Venturing / Startup Scouting at Baloise Group, is right when she says[ii]: « today, cloud-based software and software platforms, open-API technologies, microservices, machine learning and A.I. are all helping to redefine everything we know about insurance — from the way we onboard customers, to how we process claims, to how we sell products and services. »

Simply put, the cloud is the distribution of essential services such as servers, databases, and software via the internet. Making available services such as storage, processing, and data transmission to users in an on-demand mode, the cloud is having a huge impact on the insurance industry. Most important is that its impact on the organization is transversal, from benefits for internal processes to enabling new customer acquisition, and policyholder loyalty. To realize and exploit the potential of the cloud, business leaders need to ensure all executives in the company understand what is at stake and be involved.

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Sources

[i] In: McKinsey & Cy, Reaching the next normal of insurance core technology, June 2020

[ii] In: What’s Next for Innovation in Core Insurance

Cloud computing: Where the insurance industry really stands, From <https://isg-one.com/articles/cloud-computing-where-the-insurance-industry-really-stands>

[i] Digitalization in Insurance: The Multibillion Dollar Opportunity

[i] In: McKinsey – What every insurance leader should know about cloud, Successful cloud migrations depend on knowing where the value for insurance lies in cloud and on business and IT working together, Sept. 2022

[ii] In: McKinsey – What every insurance leader should know about cloud, Successful cloud migrations depend on knowing where the value for insurance lies in cloud and on business and IT working together, Sept. 2022

Insurance is commonly thought to be slow and bureaucratic. Although the industry is transforming and this is changing, historically, all processes of the insurance value chain incorporated human intervention to a certain degree. While judgement and advice are necessary for some contexts, in many others human intervention limits itself to basic data input systems or to transcription from one system to another. besides being slow, these labour-intensive tasks have other inconveniences. They are prone to errors, expensive and probably not the most rewarding.

Insurers, who started off their digital transformation journey by providing consumers with a more digital experience, are now looking to automate to reduce costs, improve efficiency, better use resources, and increase the scalability of their operation.

Automation may be applied to a great variety of processes. It comprises Robotic Process Automation (RPA) and artificial intelligence (AI) solutions such as Intelligent Document Processing (IDP), chatbots, and machine learning, that augment each other to mimic a user’s activities and/or human thought process to completely -or partially – manage business processes[1].

Looking at underwriting for instance, Deloitte found out in their Financial Services Global Outlook Survey 2020, that an increase in automation was the top alteration insurers planned to make in a 6 to 18 months time frame[2]. By doing so, carriers, burdened by legacy systems and unproductive tasks, such as manually compiling information from disparate sources and interfacing with multiple systems, hope to lower costs and increase productivity.

Insurance broker submissions, for example, are an area where handling is still high. Email submissions are read by knowledge workers who triage them and extract relevant information for downstream underwriting. The same applies to any attachments, forms, loss-run reports, spreadsheets, custom forms, and photos. However, this process is labour-intensive, time-consuming, and error-prone, and can hinder the time to bind. As a result, quotes are not turned around quickly enough for customers and not all are processed, at the risk of not quoting more complex submissions that may represent acceptable opportunities. The company thus ends up at a disadvantage compared to more agile competitors.

A submission intake solution that integrates intelligent technology may resolve these problems. It automates submission intake and triage processes and performs data capture and input tasks faster and more accurately than employees can on their own.

Claims is another area where automation and AI is being applied. Doing so carriers look to provide customers with a quicker and improved experience while making the process more efficient and saving claims expenses.

Underwriting and claims are just 2 activities part of the Insurance value chain. Other activities exist which also may be broken down into multiple processes, some of which are more prone to automation.

Although all processes may seem capable of automation in theory, not all have the same potential to be automated or offer the same benefits. So, how to know which processes are worthwhile and with which ones to start?

The Enterprise Value Chain Approach¹ (EVCA) is a framework that enables organizations to identify and assess processes for automation to create and feed automation pipelines. It is a methodological approach that analyses activities and breaks them down into their constituent processes or value chain. Each constituent part is assessed for its suitability for automation based on a set of assessment dimensions, such as whether it is transactional or strategic, its cost and volumes. At the end of the assessment, the processes deemed unsuitable for automation are removed from the automation program, and the remaining processes are put on the list for further consideration.

Applying the EVCA, Everest Group identified five primary business processes that are integral to the P&C insurance value chain. The first step involves evaluating the financial risk of insuring an entity, which is conducted by actuaries. Actuaries use historical data to create rate tables that estimate the likelihood of an event occurring and provide the appropriate premium based on various factors and features. Next, the underwriter determines if the applicant should be insured and uses the rate table to determine the appropriate premium. After the analysis of the risk to be covered under the insurance policy, the process moves on to policy servicing and reporting. This step encompasses transactional duties, such as processing and printing the policy, preparing insurance endorsements, auditing, and resolving customer queries. The last stage is claims processing, which is a five-step process starting with the initial notice of loss, followed by claims appraisal and adjustment, settlement of claims, and salvage through subrogation and litigation.

Once the 5 process groups are identified, each constituent sub-process is further scrutinized for its automation potential as described above, to make up the graph below recommending further action based on Everest Group’s assessment framework.

The Pursue quadrant of the framework is occupied by processes with high automation potential and high overall cost and volume of operations. The first notice of loss (FNOL) process and underwriting process are both in this quadrant due to their high transactional volume and potential for automation. FNOL involves minimal judgement and has multiple technology platform deployments, making it highly automatable. Underwriting also has a high automation potential due to a fragmented technology environment and significant underwriting activity and could benefit from cognitive data processing. Automating these processes could improve efficiency, reduce cycle time, enhance fraud detection, and minimize errors.

The Claims adjudication, subrogation, and actuarial processes offer a cost-saving opportunity through automation but have limited potential, placing them in the Opportunistic quadrant of the framework. These processes are complex and require human intervention, with actuarial modelling and analysis making it difficult to digitalize. However, cognitive data processing and self-learning algorithms can improve automation adoption and enhance business performance. Claims adjudication and subrogation have lower automation potential due to unstructured process workflows and minimal standardization. The leverage of cognitive solutions can reduce manual processing requirements and drive a healthy bottom line for insurers.

Policy servicing has moderate automation potential but is in the Watch quadrant due to the already fairly digitalized and transactional nature of the process. Chatbots are in use to enhance digital customer experience, which limits further efficiencies with first-level process optimization already achieved. However, techniques such as straight-through processing and auto-flagging of cases addressed can improve cost optimization and reduce turnaround time.

It is thus fair to say that the P&C insurance value chain processes have a reasonable potential for automation due to their transactional nature and well-defined workflows. However, most of these processes are highly complex, requiring extra efforts to achieve superior benefits from automation deployment. If implemented correctly, automation can improve carriers’ bottom lines and increase market share by engaging customers in newer and better ways.

[1] Identifying Automation Opportunities for Property and Casualty Insurers, From <https://www.automationanywhere.com/company/blog/rpa-thought-leadership/identifying-automation-opportunities-for-property-and-casualty-insurers>

[2] The rise of the exponential underwriter, Leveraging a convergence of data, technology, and human capital to transform underwriting in insurance, From <https://www2.deloitte.com/us/en/insights/industry/financial-services/future-of-insurance-underwriting.html/#endnote-sup-7>