Freddie Frith from ClauseMatch looks at how Covid-19 is driving digital change in the Insurance sector, with compliance becoming more important as working from home is a necessary part of everyday business;
Digital transformation has been on the insurance industry’s agenda for years. But the Covid-19 crisis has arguably given it a newfound sense of urgency. Like other businesses, insurers are being forced to work out how to service customers, collaborate, and comply in a world where social distancing, lockdowns, and other restrictions on face-to-face interactions are going to be the norm for the foreseeable future.
The twist is that the insurance sector has historically had a rougher time embracing new technologies than most — even compared to other sectors in the financial services industry. So what has been the pandemic’s short-term impact on the insurance industry, particularly when it comes to compliance? And could it trigger the long-lasting technological changes that have been so slow to take hold thus far?
A shock to the system
“My experience where I work, is that we were incredibly fortunate,” says senior compliance professional John Moffatt. “When lockdown restrictions came into force, I had just been migrated to a laptop and most of my data was already in the cloud. So I literally closed my laptop one afternoon, went home, and picked up where I left off. Who knew the internet was so robust, right?”
But if Moffatt was able to carry on with minimal disruption, others weren’t so lucky. “Other companies are doing things differently,” he says. “Those that have all the right technology are able to transact electronically and are happy for us to respond electronically. But then there are those who were used to paper and face-to-face dealing. They don’t know how to communicate electronically, so they’re really struggling.”
The slow pace of digital transformation
Over the past few years, the insurance industry has made significant steps towards embracing tech. In 2017, 61% of insurance chief executives said they viewed it as an opportunity, rather than a threat. And 69% planned to invest in digital infrastructure over the following three years.
But while awareness of the importance of digital transformation has been growing, progress has been happening at a snail’s pace. Where online account-opening is ubiquitous in the banking sector, for instance, FRISS’s Digital Transformation in Insurance survey, conducted in 2018, found only 69% of insurers had online distribution systems. Tech adoption was even lower on the operational side: just 45% of those surveyed used tech in underwriting, with even less — 32% — incorporating it in their fraud prevention process.
Flattening the hierarchy
Moffatt thinks there needs to be a shift in the mindset of some companies and how they communicate with staff. “You can no longer bring employees to a meeting room, tell them about your policies and procedures, and quiz them. So you have to look to alternatives like e-learning platforms, where employees can watch a PowerPoint or a video and answer multiple-choice questions.
I think companies also need to be more careful about messaging. If you’re issuing guidance through Microsoft Teams, or an email chain, how do you know it’s all been understood by everyone the same way? You have to do a bit more checking and control than you’d normally do and here automated control checks would be the way to go. “I think you need to move to a more structured communication style with proper checks and balances at the end, to make sure that people have understood the message loud and clear.”
But Moffatt also thinks more profound changes are inevitable. “When things return to some semblance of normal, people will have a very different view of the value of being physically in an office together. I think the idea of working from home will lose the stigma that it’s not the default way of working, and you won’t be measured on how much time you put in, but on the value of your contribution.”
For this to work, leaders will have to abandon traditionally rigid hierarchies: “Firms are going to have to start empowering people to make decisions at a lower level, because rigid hierarchies are too much of a bottleneck in a remote scenario. That’s why they aren’t getting stuff done right now. You need trust coupled with empowerment.”
Tech is key, but you need the right people to make it succeed
Covid-19 may have transformed the way insurance companies work forever. As Moffatt puts it: “I’m not sure everyone will want to go back to the hierarchical working practices of old. So this could well be the beginning of a wider change in employment practices.” The flipside is that this new way of working has also laid insurance companies’ digital shortcomings bare. And this means they’ll have to re-think their digital transformation priorities.
More to the point, while technology has a crucial role to play in the way insurers will do business tomorrow, mindset is just as important. And having the right mindset requires a strong culture. Put bluntly:
“You can have every policy, procedure, and control in the world. But if the culture of the business is wrong, you’ll never succeed. “95% of compliance is in the mindset. And, to achieve that, you need to hire the right people with the right experience to do the right job.” Want more insights on maintaining a strong compliance culture in the midst of the Covid-19 pandemic?