Insurtech Q and A with Equisoft CEO Luis Romero

Q&A: Equisoft CEO Luis Romero talks insurtech, digital life insurance

August 9, 2023 3:27 PM

Buildings under construction in Montreal, Quebec, Canada, on Wednesday, May 31, 2023. Canada's population is swelling, more than a million newcomers arrived last year, bringing attention once again to a shortage of housing stock and prompting some buyers to make aggressive bids. Photographer: Graham Hughes/Bloomberg — Buildings under construction in Montreal, Quebec, Canada, on May 31, 2023.

Digital Insurance spoke with Luis Romero, founder and CEO of Equisoft, about digital transformations in the life insurance and wealth management sectors. Founded in 1994, Equisoft is a Canadian-based company that recently received $125 million in new equity investments.

Romero discussed what a digital transformation of an insurance carrier looks like, how new technologies like machine learning and AI are shaking up the industry, and the role of insurance agents in this rapidly evolving space.

The following responses have been lightly edited for clarity.

What is the story of how you got into life insurance and founded Equisoft?

Luis Romero.

Courtesy of Equisoft

I studied actuarial mathematics; I have a bachelor's degree in mathematics and a minor in information technology. It was natural for me to work in life insurance. When I started my career I worked for a national firm in their IT department, and then I founded Equisoft with a friend. That was in 1994.

In those days we were doing a lot of custom development for financial institutions, and I was attracted to life insurance. Over the years, as the company has grown, we've built a specialization in life insurance and wealth management.

Today, the vast majority of our revenue comes from life and annuities. We've done everything from custom development to integrating solutions to protecting our IP, and now most of the technology we integrate comes from our R&D.

How did Equisoft succeed in raising $125 million in venture equity, especially in the face of an increasingly difficult venture market for insurtech companies?

We're very proud of the work we do. We've been growing mostly organically since 1994. We've also done several acquisitions, but for the last 11 years, we've organically grown 20% annually. Plus, some of our acquisitions are very attractive for investors, due to the sustained growth that we've been able to show.

When you look at the information box for an acquisition, there's always a hockey stick, particularly with startups. They have stable revenue and then it bumps, and in a year or two it quadruples or quintuples. But Equisoft has a history of over-delivering. For our first few years, we were self-funded, so we've demonstrated that we can be profitable year after year. We can practice good management while also being very entrepreneurial. Even during those years when we were self-funded, we were able to make acquisitions, and that steady, consistent growth is a very attractive characteristic for investors.

We've grown in North America, our largest market, and we've also been very successful in other regions of the world. We're becoming one of the largest life and annuity providers globally, and it's a huge market. It's a difficult market in the sense that it's a complicated business, but we're very good at it. With competitive solutions and a good track record of delivering in a very complex environment, we have all of the ingredients investors are looking for in 2023.

I read recently that the number of insurtechs went from 3,000 in 2019 to 2,000 in 2022. The money has dried up for startups so it's a tougher environment, but for stable and growing companies with a large client base, I think the funds are still there. We haven't seen a reduction in investments in digital transformation from our customers. What makes it even easier for us is that we're resilient. Sales cycles can be long and many of our clients are averse to risk. It takes time for campaigns to select the right provider and the right solution, and to go through the contracting process. We're already servicing about 300 corporate customers globally, so we have a lot of business coming in from existing customers and we're continually adding to that. Investors like to see that kind of resilience in moments where there's more volatility.

Equisoft serves both the life insurance and wealth management industries. What is the connection between the two, and how does Equisoft serve both sectors effectively at the same time?

We don't necessarily have the same breadth in both, but there's a huge connection between life insurance and wealth management. Life insurance is all about protecting your assets and giving security to your family. It's a growing market because, in emerging markets in many countries, the average income is growing, and once you have an income and assets, you want to protect them. So insurance goes hand in hand with wealth management because we end up servicing the same end client.

It's also usually the same advisors selling both products. Our financial advisors who sell mutual funds or equities also offer life insurance when there's a life event that creates the need for it. More and more, life insurance products include an investment portion, so they're also tied together in that way.

What does a digital transformation for life insurance carriers look like with today's technological advancements?

Today, it's definitely going faster than it used to. The pandemic has accelerated the need for digital transformation. When you look at the financial services industry as a whole, life insurance has been trailing a little bit in digital transformation, but now insurers are catching up and accelerating their efforts. Overnight in 2020 all of our agents were working remotely, selling insurance online to their clients digitally. The catch-up process had to be accelerated.

Before this large transformation, people in the industry would talk in terms of multiple years and think about a five to 10-year plan. Now it's more of a three to five-year plan, trying to break it into pieces over months rather than years. The pace at which transformation is happening has changed.

Nevertheless, one of the reasons why life insurance is trailing a little bit is that it is more complicated. You always have to deal with the in-force policies. You have insurance policies that are in systems that have been sitting there for decades. When you want to move to new systems, whether for the back office or even the front office, you have to deal with these policies and it's not as easy as with other parts of financial services. That's why our unique data migration toolkit and expertise are a huge accelerator in digital transformation. It's very difficult to work on a transformation when you only have legacy systems. You can put some lipstick on the pig, as some say, and keep your old system, but sooner or later that's a big liability for the company. Also, it costs a lot to both maintain those old systems and simultaneously offer that unique digital self-serve experience to agents and policyholders.

There's a huge acceleration going on. All the new technologies and new tools are helping that happen faster, and it's an exciting time to be in this space.

The insurance industry has traditionally been seen as slow to adopt new technology. What strategies does Equisoft employ to drive innovation and encourage technological adoption within the industry?

There is a complexity when you're moving away from a slow-moving industry and trying to accelerate because you're working against the way things have always been done. From an Equisoft perspective, our value lies not only in providing the best technologies but also in providing the top leadership and showing that we've done enough of these transformations that we can share that expertise. I think that's what helps the companies during the journey. It also helped us build better tools and processes, re-using that business knowledge. That expertise translates into additional tools to help our customers shorten the journey and also reduce the risk, since insurers are risk-averse.

Ultimately, they want successful projects, and now they want successful projects that are faster and more cost-effective. The combination of technology, knowledgeable staff, expertise and processes that we bring to the table makes a significant difference in the journey for an insurer.

In your experience, what are the most critical aspects of successfully integrating systems and data in the life insurance industry to improve operational efficiency?

I think it's alignment, having everyone in the company aligned to offer better products faster and more cost-effectively to the client. If you take a company with hundreds if not thousands of employees and align them on a digital transformation project, that will lead to different ways of servicing those customers and developing new products. Finding new distribution channels to sell directly to the client, and supporting the agents so that they can offer a better digital experience, is best achieved when you have alignment among all the stakeholders at the insurance company.

It's usually the executives and the board deciding that this needs to happen. Then everyone in the organization needs to embrace the change and get excited about the new world and what the new technologies can bring. The key, from an Equisoft perspective, is for top leadership to share good experiences, making sure that everyone at the company is excited by the project and the journey they are embarking on.

Customer experience is a crucial aspect of any successful business. How does Equisoft enhance the customer experience side for life insurance carriers and their policyholders through digital solutions?

For 20 years, we've been talking about straight-through processing, but it's only recently that some insurers have gotten serious about making it happen. If you're buying a product through an agent, you're meeting the agent and they're proposing one or multiple solutions after conducting a needs analysis. You agree on a solution and you agree that the pricing is right. You do the application at that moment and minutes later, you get approved or rejected or approved conditional to some tests... Clients are expecting to buy a product in minutes, not weeks.

Before, it really would take weeks to do it all the way. Automating or gluing all the parts, whether it's an illustration, application, underwriting, or the back office, all those pieces exist for the longest time. But making them flow and offering a great experience for the agent and the client is the key.

Another example would be indirect sales to consumers, [which] is still limited. Some policies are sold directly to the younger generation, an option that should be offered by all insurers. Agents could also offer those simpler products directly to the customers, but regardless of the source, the client should be able to buy directly. So Equisoft is offering direct to consumers, either directly from the insurer or through the agent.

We are also working on some AI initiatives. We believe that AI will help tremendously with client service. You can now ask ChatGPT about the different types of insurance products. So while we still believe that life insurance will be mostly sold through agents, I think that clients will be more educated and ask more sophisticated questions of their agents, and the agents will [also] be able to offer a better service through AI tools.

How do you see emerging technologies such as machine learning, artificial intelligence, and blockchain playing a role in the future of the life insurance industry? Does Equisoft have plans to incorporate any of these into its offerings?

We are already integrating machine learning. There's still unfortunately a lot of paper in this industry... [but] AI can provide better client servicing. There have been chatbots for four decades now, but with AI you can answer a lot of questions – not only generic questions but more specific questions about someone's policy or situation.

We are working to incorporate some of those tools and also, even more pragmatically, use those tools to speed up the development of new applications. You can also use AI to help you code faster and better. We will become more and more efficient in building tools that offer better experiences for the end users and also reduce costs for insurers.

With the digital landscape continuously and rapidly evolving, what trends do you foresee shaping the future of the life insurance industry and how is Equisoft preparing to stay ahead in this dynamic market?

I believe that the insurance agent is here to stay. In many industries, buying online has killed a lot of jobs or reduced [the number of jobs] dramatically. But I believe that when you're going to buy a life insurance product, you want to pick the right one, and the question is not, "What is the right choice when over 600 life insurance and annuity companies in the US are offering the same product," it's more, "What is the right product for you? What is your situation?" and then adapting the product, buying the right product, maybe even buying another one later. This is all very complicated.

I believe that agents will remain relevant, but they will become more sophisticated. Giving agents the tools to better serve electronically, as well as in person, will allow them to serve more clients more efficiently.