Insurance Edge caught up with Bart Patrick, Managing Director for Europe at Duck Creek Technologies, to find out more details on the progress insurers and brokers are making when it comes to applying technology across the insurance sector.
IE: Bart, the recent report published by Duck Creek Technologies highlighted some interesting findings. For example, some 48% of those who responded said that their company still used an in-house IT system. Do you think that insurers are simply risk-averse?
BP: A reluctance to change systems is partly understandable, because it can be difficult to look at the potential costs vs the savings, or extra profits/benefits that might be accrued. People in insurance have heard lots of promises in the past regarding IT solutions and are often skeptical. You can’t blame them for not wanting to repeat the mistakes of the past.
IE: So how can those companies truly value the tech, so that they find the right products that help their brand build a future-ready system that works better for customers too?
BP: We see niche insurance MGAs, agents, or insurtechs doing it best, and in one way it is easier for them, because they are starting with a clean slate. They have no legacy IT system because they have no legacy, full stop – so they are looking at problems with a fresh perspective and are willing to try new ideas. For the new kids on the block, the key advantage they have is a can-do attitude; they want it to work faster, better, and smarter, and they have a limited timescale to make their impact and build their product.
That’s great for specialist brokers and insurtechs of course. Now where things get difficult for big insurance brands is that they want to stop spending money on IT and tech as a matter of course, with little perceived benefit from that. The key factor here is attitude; older tech companies embrace things like the cloud, but only if it saves them time, man-hours, and, therefore, money.
Big companies have already installed new systems in the past, and often just built extra stuff on top, endlessly bolting on extras…stacking little admin gizmos on there and making some antique bit of technology in a back office somewhere integrate with their main system. Just because, well… it’s always been there racking up some data on policies and so, we need to keep that ledger or whatever.
What you end up with is something that really is beyond repair, or any type of updating. You will reach a point of no return where that company has to bite the bullet and start afresh. Their root problem, however, is that they don’t want to repeat past mistakes and install something that will essentially be outdated in five years or so.
IE: I have heard of insurers where if you dig deep enough you find a little computer with a green screen somewhere in a basement. Nobody dares touch it. So I see why people are reluctant to just unplug everything and start over again!
BP: Exactly, the fear is real. Now one extra thing Duck Creek offers is that we run the system for you; there’s a reduced workload on the IT department. Many IT problems that you typically have as an insurance company become OUR problems by default. So things get fixed, or streamlined and improved, as and when.
IE: Is there a clash sometimes between the customer experience and the business case, with money saving being too high a priority?
BP: This is often true. Insurers can look at IT as a problem in itself, that needs attention, but has no visble value to the consumer – the end user – because they don’t see all that stuff going on under the bonnet. But today, policyholders ARE often managing their own admin, it isn’t a call centre or back office doing that. So how you construct an ecosystem, and how easy it is to navigate and get stuff done, really matters.
In some respects, your customers are now building your future products as they interact, and transfer a ton of data. An insurer needs to look at IT from a customer-focused perspective now, not an in-house admin point of view. People don’t care how things happen during FNOL or a claim, they just want it to work by magic and get updates on what’s happening – no fuss, no chasing. So your IT system IS your customer experience, from first contact to renewal. Workflow is everything.
IE: No two claims are the same, are they? A simple TV falling over differs from something like a three-vehicle collision on the road, where one person may have an injury, need rehab, etc. How can ecosystems recognise those differences and respond in the right way?
BP: Your low-cost TV claim is ideal for automation; get proof of damage via a smartphone photo, when you email the policyholder a link saying, “which of these TVs would you like to replace the damaged one?” Or maybe say, “if you want to spend another £50 you can upgrade to this.”
It’s straightforward stuff. But a claim with several people involved needs all the parts of your ecosystem to work together, and it has to do so in a way that the customer doesn’t really see. Because they don’t care really, they just want things sorted out and kept in the loop. Where it can go wrong is if one link in that chain breaks, often in terms of communication and support – then you get problems.
Now it’s tempting to try and patch that problem, fix that one weak link and carry on with the legacy system you already have. Here’s a fact; about 70% of most insurers’ IT budgets are spent on essentially just keeping the lights on, keeping the show on the road. There is perhaps 20% spent on innovation, new ideas, new products. For me, those stats should be the other way around.
IE: Has COVID-19 prompted insurers and MGAs to take a fresh look at things and modernise their systems?
BP: Covid has highlighted the need to move on for many companies in the insurance sector. In some ways we are still at the beginning of the working from home revolution, but yes, that initial investment in IT systems, hardware for employees, GDPR, compliance etc. has set the ball rolling.
I don’t see a mass return to office life anytime soon, but there will be a return of some type of office based work, with some WFH flexibility on top. The hydra of IT systems will still be there, but it will be something different and can’t really be in-house again. For example, you have streams of data now from the Internet of Things, and that can only increase in volume, and the variety of sources that provide that data too.
IE: The motor insurance market has changed fundamentally because of WFH, lower mileage, fewer accidents, and so on. Will smartphone telematics become the norm?
BP: It’s useful to know a great deal of data about car drivers, but what do you do with it? Let’s assume you know that driver A is moving along smoothly, the engine is running nicely, and the fuel consumption is good. What use is that information? On the other hand, knowing that driver B has a smartphone in use while the vehicle is moving on the motorway IS very useful – you may want to react to that as a broker or insurer.
The biggest changes I see in car insurance are going to be because of the arguments over renewal costs and the regulatory changes that are coming. In effect, it is arguable that everyone will pay more because those cheap policies used as bait to get customers to compare and switch will vanish. They have to if loyal customers are going to get cheaper cover just for staying in one place for ten years, claims-free. That is probably a bigger factor in terms of pricing than collating yet more driver behaviour data.
There is a long term danger however. The smart kids building new PAYG policies are all sifting the useful data from the “nice to have” stuff. That may lead to cherry-picking the good customers, based on the available data, leaving the unknown risks with the bigger, slower-moving insurers. New startups, with no technical debt, can therefore skim off the best motor consumers using data to price risk, and, to an extent, settle claims faster and cheaper too.
The real problem for the motor market is that separation between a premium customer base and all the rest. What then – will big companies simply exit the market or start to decline to quote based on driver data? It’s potentially a very big problem and there are the same factors at play in home, commercial, and other insurance sectors as well. Data gives insurers the ability to pick and choose their customers, but future regulators could have other ideas.
IE: Bart, very interesting stuff, thank you.