Internal Challenges of Modernizing

To attend to its corporate goals, satisfy its stakeholders and meet changing customer needs and expectations the organization faces pressure from the market (see Why modernize? – Pressure from the market) and internal challenges which may be favourably taken up by a modern core insurance system. These challenges or pain points are valid for the organization as a whole or specific to functional areas, as seen below:

Common challenges faced by the organisation:

Across the board:

• Improve customer experience
• Drive panoptic personalization to create personalized offerings
• Ensure structured and cost-effective innovation across the value chain
• Ensure compliance, including Schrims 2 alignment in the day-to-day operation
• Stay competitive and grow market share
• Capture and analyse data for insights on clients, offerings and processes
• Automate processes, make them faster and drive costs down
• Scale with the same number of staff
• Autonomy from IT for innovation
• Monetize ecosystem opportunities
• Provide Insurance as a Service

Sales and Marketing:

• Access new distribution channels and partnerships
• Create new flexible products with a quick time to market
• A strong value proposition both for distribution partners and end client
• Sustain customers and grow their engagement
• A 360º view of clients

Underwriting:

• Use of big data to ensure micro-segmentation and underwriting for new innovative products
• More data points to better price and underwrite
• Grow prevention and customer proximity

Claims:

• Improve customer experience on claims
• Low-cost and automated claims handling
• Reduce fraud
• New triggers of claims (UBI, parametric, …)

IT:

• Technical debt
• Lack of specialized resources knowing legacy programming languages
• Lack of APIs and integration capabilities

Support Services:

• Analyse and Automate processes

A significant difficulty of many traditional insurers is the technical debt related to legacy systems that keeps on growing in proportion [i] and that ties up a big part of the IT personnel “to simply keep the lights on” – as put by McKinsey [ii] – and that may not work on innovation.

Summing it up, time for a modern insurance platform

To correspond better to customers’ evolving needs and expectations, to counter competition from new entrants that are more technological and agile, and to be competitive and avoid slowly by surely losing their position in the market, insurers must adapt their processes and innovate.

While in the past innovation consisted in a big part in altering covers and processes, in a world where people and things are increasingly connected innovation has become much more technological.

A study by Forrester [iii] highlights that:

“to stand out in a sea of insurers that offer similar products: 79% of respondents surveyed believed the performance of their core systems differentiates their firms in the broad insurance marketplace, and another 62% believe their core system modernization initiatives are the most critical component of their digital business strategies”.

Nevertheless, the same study indicates – see below – that organizations often are not modernizing their core systems to their fullest expectations, due to a lack of skills and the scale of the task.  Hence the longer they wait, the bigger the gap will be.

The reward for insurers going forward is great. McKinsey [iv] shows the potential gains to be: 0.5 to 1% in GWP increase and retention, 42% in operations productivity and 41% in IT costs.

Next to these direct quantifiable gains referred to by McKinsey, an important aspect of adopting a modern core system or platform is the openness and flexibility that turns innovation much easier for the organization.

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Sources:

[i] From 2012 to 2017, technology’s average share of operating costs rose by 24 per cent (for P&C) and 12 per cent (for life) – In: Tonia Freysoldt, Sylvain Johansson, Christine Korwin-Szymanowska, Björn Münstermann, and Ulrike Vogelgesang, “Evolving insurance cost structures,” April 11, 2018, McKinsey.com

[ii] In: McKinsey & Cy, Reaching the next normal of insurance core technology, June 2020, p.72

[iii] In: Core System Modernization: Time For A New Roadmap, Forrester commissioned by Red Hat, May 2020, p.3ii]

[iv] In: McKinsey & Cy, Reaching the next normal of insurance core technology, June 2020, p.112