This Opinion piece is by Rory Yates, SVP Corporate Strategy, Global, EIS, and it looks at the challenge of transforming legacy systems.
Insurers can’t take a step without being told they’ve got to transform. While undoubtedly true, you’d understand a reluctance to do so. Transformation is expensive, risky, and takes time. What’s more, it wasn’t long ago the sector went through a large-scale (chunky) one-off transformation at an enormous cost, replacing its legacy systems with what is commonly called ‘modern legacy’.
The problem is the transition to modern legacy hasn’t often delivered the change needed. Nor has it reduced the cost and complexity of running an insurer’s business. It’s no surprise that rather than take on another chunky transformation, the industry mostly tinkers around the edges, integrating point solutions where possible and refreshing its front-end systems or “non-platform” solutions to appear more digitally friendly.
It would be easy to assume that insurers are naturally risk-averse, preventing them from real change. While it’s an elegant analogy, I don’t think it’s right. The fear or risk associated with engaging with another chunky transformation isn’t a result of the business’s relationship with risk but because technology-driven change has let insurers down – especially substantial transformation projects.
No matter how ‘modern’, building monolithic, highly structured and complex solutions that you can “run an insurance business on” but can’t make meaningful change without facing unjustifiable barriers and costs is ridiculous.
Yet, it is the situation many insurers now find themselves in. Legacy or Modern Legacy matters, not a jot. Legacy is still legacy.
Why Chunky One-Off Transformation Should be Consigned to the Past
However, something must be done with consumer trust scores at rock bottom and myriad headwinds threatening revenues and profits. Recent research from loyalty specialists, Ello Group, reveals that a mere 13% of British consumers have faith in their current insurance provider, and only a paltry 8% have maintained loyalty to their insurer for over three years.
There’s also a veritable tsunami of existential and environmental effects coming at once. Insurers are being swept up in this connected, real-time and dramatically changing risk landscape, where keeping up alone requires huge amounts of continuous change.
Consider the culmination of factors, both macro & micro environmental, and we have a classic tipping point.
The good news is industries like e-commerce have paved the way for more successful change. These new principles and approaches jettison the idea of large-scale one-off transformation for platforms and ecosystems that drive continuous adaption and evolution. Fundamentally, these e-commerce systems are built around the customer, are fully data-fluid and can act on the increased customer knowledge. It is clear evidence that ecosystems are evolved, not built.
When you consider successful, customer-centric transformation in industries like retail, a common set of principles becomes clear.
Principle 1: Agility Built In
Agile methodologies ensure continuous development and adaptation are built into modern software development. Engineered entirely on human first principles and driven by deep human insight, the agile model is focused on delivering business imperatives and customer-centric outcomes.
Through Agile & more self-sufficient working models, change becomes far more efficient and effective, allowing people to continually adapt at a business model & product level of change.
Principle 2: Open and Adaptive Ecosystems
Today, modern IT architecture isn’t fixed. It’s a continuously evolving ecosystem model. Evolving an ecosystem that can consume and analyse huge amounts of 1st and 3rd-party data requires a fluid core, where the customer is the channel and architecture that ensures integrating new data streams and supplier offerings are seamless and easy to implement.
Let’s not forget the power behind Alibaba and PayPal is their ability to ingest huge amounts of customer knowledge and empower their ability to act on it.
Principle 3: Unlocking New Value
In eCommerce, delivering new “value” is the key driver, replacing the traditional quest for more efficient ways of achieving the same outcomes. This is now imperative in insurance.
New business models in insurance are few and far between, but due to huge amounts of change in customer needs, the proliferation of distribution, intelligent and connected environments, and the human ecosystem itself, market forces are now creating change. Adaptive solutions which allow insurers to rapidly meet new needs are now needed.
Cheaper is a race to the bottom for all of us. We need insurance to pioneer a better future.
Insurance Must Move from Revolution to Evolution
Typically new ideas, designs and products are refined over time according to the paradigm you are in. So for insurance to change, we must change our understanding of the parameters we face and set new competitive goals.
The concept of a contractual commitment in a document known as a “policy” makes sense if nothing much seems to have changed. But it has, exponentially in some cases.
The flawed concept at the heart of this is:
People + process + technology = transformative change (big bang!)
Instead, I prefer to think of:
People + the right technology foundations + the right culture = progressive change (evolution)
Insurance needs to think the same way. It’s a subtle pivot but an important one that underlines that making the move to continuous evolution isn’t the high-risk leap insurers might think it is.
Why isn’t there a virtual claims assistant concept in every insurer today? An “agent” that takes all the issues and communication problems away. One that guides the human to human intervention when needed. Making the “administrative” process for all parties disappear?
Why can’t I see my insurance in one place or at least understand my overall coverage? For example, Life insurers operating in the UK under the Consumer Duty requirements will have to think long and hard about how they respond to changing lives and offer this sort of service.
These things are conceptually simple but hard to deliver in insurers today. Certainly, there is usually a fundamental technological shift that enables these leaps. Tesla or Amazon don’t happen without a series of advancements in technology that happen before them. On this basis, insurers are in a wonderful position to adopt many foundational capabilities that power other ecosystem businesses today.
One-off disruptive change, like building a lab to make a new product or set of product capabilities, becomes a barrier. It doesn’t change the business, it works around it in an attempt to be an “inside” disruptor. The reality is insurance is complex. It needs a shift to adapt new capability or bring it to market at a sufficient scale or within a sustainable operating construct. When it does this, the momentum shift will resemble e-commerce in retail and consumer markets.
This is about starting with the right technology foundations that drive out huge amounts of adaptability and then evolve – eating the proverbial elephant one bite at a time. It will be fundamental and powerful and mark a change where technology stops getting in the way of these wonderful, powerful businesses we rely on.