Having created academically perfect works of art in his early teens, Picasso famously observed that “it takes a long time to become young.” His words reflected a creative arc that shunned tradition and spanned decades, with each new period and piece bringing some innovation.
The idea of innovating to improve operations and better predict outcomes is an exciting one that has been the backbone of insurance. The scale of coverage today—and advances in science and mechanics—has created massive opportunities for insurance companies to adopt innovative solutions that promise to perfect risk selection, limit exposure and supercharge profitability. The prospect of effecting such radical change to produce such compelling results is exhilarating, and we find ourselves champing at the bit to take advantage. We want to be young again.
The central challenge, of course, is knowing where to begin. And that takes time.
Small gains, significant impact
Even modestly sized insurance companies deal with large dollar amounts, so seemingly minuscule adjustments to premium retained can result in significant impacts to a company’s bottom line – a major impetus for insurers’ understandable angst.
Consider for a moment the number of transactions associated with a $100 million book of business supporting 100,000 policyholders. Between policy issuance, invoicing, endorsement and other policy servicing activities, those 100,000 policyholders may represent a million or more annual transactions. A single dollar saved on each transaction – 0.1% of the average policy premium – means $1 million per year in cost savings – a big number for any company.
Similarly, any mechanism a carrier can employ to better evaluate a loss event and the factors leading to it helps them to more accurately determine the value of an actual loss, the availability of recoveries through subrogation, and how similar losses may be avoided in the future. Again, modest improvements can have a great impact; those pennies and dimes add up. And so we see the value in technology adoption and the ease with which technology investments can be justified with simple back-of-the-envelope calculations. That’s exciting.
The paradox of choice
It’s no surprise, then, that an increasing number of savvy carriers are adopting a wide array of new tech solutions to support existing processes, simultaneously tightening operational efficiency while mitigating losses. But there are so many innovations from which to choose, that either knee-jerk procurements are made for fear of missing out, or decision-making grinds to a halt. For illustration, here are just a few of the ways insurance companies are using technology to improve their profitability.
- Satellite technology – Carriers use consumer technology like Google Maps or Google Earth to view properties from above, revealing potential hazards that were not previously apparent. Evaluating factors like nearby rivers, land elevation, greenery density, and proximity to fire-prone areas can influence policy rating and the premiums that result. It’s also far less expensive than a site visit.
- Drones – Insurance carriers use drone technology to access areas that would have been too costly, time-consuming, or dangerous to assess on foot. Drones can reveal in minutes what would have previously taken hours or days to evaluate, thus saving significant time, expense, and risk.
- Sensors – Increasingly versatile sensors can detect threats earlier and with greater accuracy. While insurance companies have relied on smoke and carbon monoxide detectors for decades, new sensors can guard against minor fluctuations that have the potential to turn into major damage. In some cases, sensors are integrated with carrier systems to trigger the first notice of loss or initiate a warning to take preventive action before a loss even occurs, further increasing carrier efficiency and reducing risk.
- Artificial intelligence – With unprecedented access to enormous datasets and inexpensive computing power, artificial intelligence is finding a new home among insurance companies. AI’s superior predictive capabilities can inform decisions formerly taken over periods of days or weeks in milliseconds to arrive at the same, often far better-informed, conclusions.
- Robotic process automation – Rooms full of individuals toiling away at menial, repetitive tasks are rapidly being replaced by bots – bits of software code that instruct the software to accomplish the same activities in instants instead of hours.
- Application-specific technologies – Specific carrier challenges are being addressed by novel solutions that help to refine traditional approaches to insurance operations. For example, one technology we know of benefits insurers of car dealerships located in regions with frequent hailstorms. It incorporates hail-detecting “orbs” that, when placed in strategic areas surrounding a car lot, produce accurate measurements of the timing, size, amount and location of vehicle-damaging hail. No longer reliant on a broad regional weather report, this technology helps insurers validate claims and fine-tune the loss adjustment process.
Conflicting agendas
With so many opportunities to radically improve, insurance carriers are increasingly eager to bridge the gap between legacy operations and exciting new technologies – they need to act fast! However, rushing headlong into change is generally a bad idea, especially in the historically slow-moving insurance industry. So they need to slow down.
Insurance companies cannot (nor should they try to) do everything at once, so an obvious first step toward a successful digital transformation is to narrow the focus of the effort. Deciding which transformation initiatives to tackle first should involve a careful examination of the dysfunction, importance, and level of change resistance expected among stakeholders of any process that may be impacted. Processes that are considered most dysfunctional, are of greatest importance to the organization, and have the least resistance to change should be given the highest priority. Others should be monitored or deferred for future interventions, as depicted in the graphic below.
This approach to prioritization respects the fact that stakeholder buy-in is a hugely important area with the potential to derail even the best-laid plans. Rank-and-file employees are likely to push back against disruptions to existing processes, even if those processes are demonstrably inefficient. No matter what new technologies a company incorporates, processes revolve around people. Overlook the human element and the transformation initiative is destined to fail.
The way forward
These days, we’re clamoring around digital transformation. A few years ago, the industry was buzzing about modernization. Tomorrow, who knows? Whatever clever term we wind up embracing, the act of leveraging technology to streamline internal operations or generate more accurate predictions is a proven way to gain incremental improvements that turn into major financial gains – when done properly.
The overarching – if not painfully obvious – lesson here is that insurance companies must put some discipline around their approach to change. Sometimes, that means slowing down to take stock before jumping into an exciting change initiative. Often, it means engaging qualified experts to assist with vendor selection, requirements definition, and change management – a collaboration with third parties who have successfully overseen hundreds of digital transformation initiatives can dramatically reduce the risk of falling into avoidable traps. Always, it involves the deliberate engagement of we mere human beings to effect change.
Transformation is not a foot race. Change doesn’t happen overnight. Forward-looking insurance companies are often laying the groundwork for the next 20-25 years, so if it takes an additional six months to do things right, the extra time invested will always pay off.
So step back, breathe, and get it right, so we can once again enjoy the fervor of our youth.
