Prior to COVID-19, insurance carriers were already adopting new technology solutions. These solutions ranged from new policy administration and remote-friendly systems to integrating geospatial imagery into underwriting workflows to new products based on IoT and telematics. In the age of COVID, however, these shifts have become tectonic in nature. U.S. insurers — some of the world’s largest organizations — are moving deeply complex IT infrastructures into the cloud while instituting new remote risk technologies. And they are doing so at unprecedented speed. The transformations now being accelerated by COVID are likely to dwarf earlier technology shifts, including the introductions of catastrophic risk modeling, insurance-linked securities (ILS), and direct, instant quote engines.
However, history teaches us that upon the entrance of a fundamental technical shift, the largest beneficiaries are not only those who adopt early but those who adapt early. New technology is like a new piece on the chessboard — this demands players re-think, from first principles, how the presence of this new piece changes the way they should do business.
The best response to change is rarely a one-for-one replacement of a current product or business process. There are plenty of teachable examples from beyond the world of insurance. For example, when smartphones became prevalent, several forward-thinking taxi dispatchers recognized that smartphones provided an easier way for their customers (riders) to connect with a taxi. Indeed, several startups sought to aid taxi dispatchers with direct communications and navigation. But the smartphone was primarily thought of as a one-for-one substitute for calling a taxi company. Meanwhile, the fundamental business structure of owning cabs and medallions was not reconsidered. In the meantime, Uber and Lyft took the opportunity to rethink the entire model and, although they now have their own struggles, now have a leading market share in comparison to taxi cabs.
Going a bit further back, the proliferation of the internet is perhaps the most significant technological shift of our generation. In the 1990s, vast amounts of information began to come online. The earliest search engines were modeled on the phone book — basically a list of webpages one could flip through — which were later organized into a folder structure. But the real breakthrough came when the approach to organizing information was completely re-thought as keyword search and then page-rank. Google took into account how the internet was being used and fundamentally re-engineered search result prioritization to mirror that use.
Insurance is replete with examples of adoption versus adaptation. Take IoT and usage-based insurance (UBI). Straightforward adoption is to provide drivers with discounts if they install a tracking app and drive safely. Another use case is to give homeowners a discount if they’ve installed security cameras, leak sensors, or fire sensors in their homes. The adaptation version is to sell a new insurance product designed around these capabilities, such as pay-per-mile auto insurance, or policies that cover the same driver but for different contexts, such as personal driving versus ride-share driving.
In the realm of geospatial AI and property underwriting, a straightforward adoption is to try and replace a property inspection with property insights from imagery. The bigger win is to integrate this technology at the front of the underwriting funnel to triage risks according to eligibility guidelines and create different workflows for different risks. By adapting their workflows around this capability, carriers no longer have to look at a minority of risks to reduce expenses. Instead, a carrier can “have eyes” on every risk, instantly and over the lifetime of the policy. This may result in more attention being paid to the front of the funnel, on pre-underwriting and on renewals... but will lead to greater alignment between pricing and book risk, as well as the ability to proactively engage with customers to mitigate risk and reduce claims.
Carriers should approach other new, disruptive technologies such as interior self-inspection solutions, robotic process automation, and even data management technologies with a similar lens. In this age of disruption, carriers must think about leveraging solutions as new pieces on the chessboard and adapt their business practices, products, and workflows accordingly. This first-principles approach will allow carriers to see disruptive technology solutions as opportunities to reinvent business models and accelerate their growth.
