There’s little in business or in life that hasn’t radically changed in the last several months by COVID-19. As a result, most corporate CEOs and companies have had to shift their priorities as they approach month six of the crisis. Insurance companies with whom we work have put in place well thought-out survival strategies to ride out the storm and are now beginning to focus their attention on three things: lowering operating expenses, managing losses while optimizing underwriting excellence, and driving efficient growth.
A logical approach may be to start at the top of the funnel and tackle all the issues at the front of the business that create downstream challenges. But what if you have a truly global operation that operates multiple business units – each with a different set of challenges; and in markets that have been impacted differently by COVID. If your business is heavily commercial in Europe, consumer oriented in Asia, and balanced between consumer and commercial in North America – what is the right strategy for building a unified digital transformation approach?
Asia may call for a strategy focused purely on AI and machine learning to optimize for the data-centric consumer-oriented business. Europe on the other hand, which may rely heavily on manual work-arounds for a commercial client set may be better served by creating a digital process workflow and creating a more robust technology layer to allow underwriters to price effectively and quote faster than the competition. The North America business may be in need of a more harmonized data strategy that allows for a non-siloed view of enterprise data to make better decisions, faster. For example, based on historical data, and across the multiple business units (e.g. Property, Casualty and Financial Lines), what is the close rate of deals sent across by various Brokers, and based on that, what Brokers have a better handle on your risk appetite and how that evolves over time.
So in an effort to deploy a globally consistent approach to digital transformation, it may be necessary to build a layered view of the varying needs by geography and by business unit; and then build a harmonized north star view that takes into account different business needs, starting points, velocities of change – but driven to a single end-state.
In our work with several global carriers and brokers, we have consistently started our inquiry with understanding where the key set of challenges lie for the carrier using competitive benchmarks to diagnose the most acute issues and determine how digital transformation could help drive resolution.
If the key challenge is centered around loss ratios, then the resolution will lie in the front office underwriting function. More specifically, within controls, underwriting appetite guidelines, level of underwriting authority, as well as the data and process within reinsurance to understand and ensure that you are laying off the correct amount of risk. Digital transformation and a more robust enterprise data strategy can be crucial in structuring workflow strategy that drives a disciplined risk selection funnel. Dynamic technology platforms become central to making sure that underwriters have the right information at the right time through the decisioning process; and that all supporting functions e.g. engineering and pricing, are optimized to push data seamlessly. In their most recent earnings, Travelers indicated that work they have done in building out state of the art digital tools has helped them better weather the COVID storm.
For challenges around expense ratio, breaking down each of the business units and global middle and back office functions is key to understanding where the inefficiencies lie. Digital workflows, intelligently using data to remove redundancies and the error rates, and leveraging AI and machine learning will drive down cost materially.
COVID-19 is Changing the Global Workflow
Organizations increasingly must look long and hard at what work is done remotely, and the cost of that remote work, versus what work needs to be done face-to-face. Right now with COVID, offshoring is unexpectedly re-ramping up due to the new realization that, more than ever before, remote work is part of our future.
Before the pandemic crisis, global trade wars and regulatory issues appeared to be causing a trend toward reshoring, while automation and robotics actually created conditions for ‘no-location’ work. However, now that so much work has gone remote, outsourcing appears to be making a comeback, albeit at a different level of arbitrage. At first, it was the low-level tasks that were outsourced; now those tasks are being brought back onshore but are being automated.
Meanwhile, higher touch and higher value work is being outsourced. Consider the middle-office example of a major insurance company meeting with a large client, say, a global consumer packaged goods company, to put together a proposal. The insurer may do a territory analysis to write their casualty policies across each of their global locations. It’s a fair amount of work to go country by country and find out the current regulations, necessary coverages, required local payment terms, and more. Additionally, understanding the concentration risk within the current portfolio and the potential impact of a new client requires not only understanding the potential new client but also the underlying business that has already been written and the implications of adding new risks to the portfolio. That territory analysis and concentration risk assessment, which used to be done onshore by an underwriting assistant in the U.S., for example, is now outsourced to lower-cost countries staffed with center of excellence underwriting analysts.
Successful companies have organized these middle-office, more complex tasks around functional centers of excellence as opposed to dispersing the function across multiple sites.
We’re also seeing more and more back-office activity, which requires some level of skill, being offshored to low-cost centers. The technical capability of many professionals in these countries is remarkable—many analysts in India or the Philippines, for instance, are up to speed on U.S. (and global) insurance regulatory frameworks.
The recent shift toward sending higher level work offshore to lower-cost locations seems to have been accelerated post- COVID as more companies realize that they can do just about anything remotely. The big shift that is starting to happen for large carriers is that middle office work is shifting offshore and back office work is being automated at an increasing pace.
Carriers that have successfully transitioned work have emphasized a ‘one team’ model that seamlessly integrates onshore and offshore teammates to meet evolving client needs– and leverage technology and dynamic data environments as the catalyst for effectiveness. Zurich has recently articulated their focus on enhancing their platform to facilitate more efficient digital interactions with their clients, as a result of the COVID crisis.
Once the Global Workflow is Optimized, Digitization Can Proceed
In digitizing an insurance company, we find there are primarily two levels of maturity, depending on the level of work already being done in a given country or region. First is digitizing the workflow—so instead of having three underwriting professionals touching a physical file and walking it from desk to desk, the file is digitized; though the three professionals have to look at it, the process is no longer manual. The second, more sophisticated step is fully digitizing theprocess—so you don’t need as many middle and back office underwriting professionals touching the file—that’s all done automatically by leveraging data and using robotic process automation (RPA).
The old school, non-digital, manual process is inaccurate and clunky. Leading carriers are moving away from email submissions that need to be entered into an underwriting system by a UA and then re-entered again into a booking system by the processing team.
The ultimate goal in a full end-to-end digitization of an insurance company is to have as fast and seamless a data cycle as any leading technology company, like Amazon. Part of that evolution is automation through RPA. The most effective use-case of automation in the insurance industry that we have seen is in data ingestion. In the insurance industry data comes in in many different ways and different formats, and if you can automate and standardize it into one consistent application format that can be used throughout the system, automation becomes more and more valuable.
COVID has spawned unprecedented disruption in every single industry in a very short period of time. As we work with companies in the insurance industry, it is clear that how carriers respond to the accelerated sprint to digital will be a dividing marker between winners and losers.
