In the latest Digital Insurance Transformation Forum, Janet King, vice president of research and content solutions at Arizent, and Penny Crosman, executive editor of technology at Arizent (publisher of Digital Insurance), will dive into the results of a recent survey of Digital Insurance readers about where they are focusing their attention in the coming year.
Penny Crosman (00:08):
Welcome everyone. I'm Penny Crosman, tech editor at Arizent, the parent company of Digital Insurance and American Banker. I'm here with Janet King, our director of research across all of Arizent, all the brands that we publish. What technologies are insurance companies deploying and thinking about using in the future? to understand and put numbers around what is happening in this market, we at Arizent turn to our research department every year to do an annual survey of Digital Insurance readers and find out what they're thinking about and what they're investing in. So I would like to welcome you, Janet King, to kick us off.
Janet King (00:51):
Thanks, Penny. It's great to be here. I'm always excited to come talk about research with the Digital Insurance audience, especially about this research, which you noted is a piece of annual research that we do every year to better understand the state of insurance digital transformation. And kind of just to level set before we dive into the details, when we're talking about digital transformation, we're defining it as you see here. So it's about how an organization uses technology to remake processes, pursue new business models, and or create new business value and successful digital transformation strategies should be delivering ongoing benefits to the business.
And as mentioned, it's been an annual research effort for several years and this year the research was conducted in March among 139 digital transformation stakeholders at carriers, agencies and insuretechs. So we had a mix of stakeholders from all parts of the insurance ecosystem, and our goal really was to look at some of the key trends that are shaping the digital journey to allow us to provide all of you who are joining us today, regardless of where you sit within that ecosystem, with a peer-based perspective on the state of digital transformation today and some of the factors that maybe you should be thinking about as you move your own future initiatives forward.
So let's dive in and we'll start Penny with a look at industry sentiment regarding digital transformation progress. And what we see is that most stakeholders fall into the middle part of our scale here, agreeing that the industry is taking an incremental approach to digital transformation in the interest of not changing too fast. And that has honestly been the consensus among survey takers for the last few years. But we are seeing a slowly growing number who believe that the industry is moving beyond that in delivering products and services that really take advantage of the full breadth of data analytics, telemetry, and other digital technologies to create new business value. So that's the kind of grouping on the left, and it's not yet enough to be at the tipping point, but four in 10 overall with nearly half of the brokers and agents believing that to be true. And I think notably, while the brokers that we talk to are the most optimistic about industry progress, only 28% of them or just about one in four strongly agree that the insurance agents are being successfully integrated into the digital transformation of the industry. So Penny, I'm curious if you're surprised be any of those findings or more specifically by the fact that so many still see changes incremental, and what do you think needs to happen for brokers to be more central to that story?
Penny Crosman (03:47):
Yeah, that's a good question. I mean, I'm not too surprised that a lot of people are in the middle given how highly regulated insurance companies are and how many of them do still have older legacy systems that are difficult to swap out. We'll see later they're making this very gradual shift toward cloud computing, but they're not really there yet. A lot of them still have on-premise tech that's just a little bit harder to upgrade. That said, I think generally speaking, the large carriers have made a fair amount of progress in their technology upgrades, at least in certain areas over the past few years. I think that especially the carriers have done a lot of work on letting people use apps to file claims and using portals to kind of manage their policies. But I think the independent agents, which tend to be smaller companies, have been a little bit slower to roll out similar kinds of tools, just partly because of the fact that they don't have the resources that the larger carriers have. I also think that in the earlier days of the insurtech movement, a lot of people thought that the independent brokers and agents were going to be sort of disintermediated, and now we're seeing that that's not quite happening the way people thought it was. So I think that the independent agents are not going away and they're kind of looking to catch up and become part of the kinds of upgrades that are happening across the industry. But I liken it to the way in banking you have the big banks that have multi-billion dollar tech budgets and then you have the small community banks that have one guy or three people running technology and a very limited budget. I think it's that same kind of dynamic where it's just harder to do when you're a small company.
Janet King (05:47):
Yeah, absolutely. And I think your point about the brokers and the disintermediation and all that stuff, I think that's really interesting, right? Because we are seeing them continue to be such an important part of this transformation. And I think regardless of the perceived pace of progress, what we're really seeing is that the customer experience is still at the heart of digital transformation initiatives for most carriers and brokers. So this question was only asked among carriers and brokers not InsureTech. And in fact, like last year, it's the most sided priority for digital transformation with nearly half ranking it as part of their business, as the part of their business that they most often target for digital transformation efforts. So ranking it first on that list, and that's nearly three to four times as often than other business areas like underwriting or distribution or product development or even claims. So I'm curious what sort of the CX as the enduring north star for transformation says to you Penny about digital transformation in the industry overall?
Penny Crosman (06:57):
Yeah, I think again, it makes a lot of sense because obviously it's the most visible side of digital transformation, so thing that customers and partners can see. I think it's also a little bit easier to make your case for a return on investment with a new customer experience tool or better customer experience because you can see the numbers improve in terms of net promoter score in terms of new, it's considered to be a driver of new customer acquisition and also a way to improve customer retention. There's often a direct connection between better customer experience and customer retention. So I think it's a little bit easier to make the case for we need a better portal, we need a better app that's more competitive and it's also not quite as difficult or expensive as completely redoing your underwriting system or some kind of back office system that's super complicated and that you've had for 20 years. Certainly when you talk to insurance companies, like in other industries, they always say they're putting the customer first, the customers is the center of everything they do. Everybody says that. And I think that they try to create an experience that matches that mantra that so many have. And I also think, again, I think some of the insurtechs that have done fairly well on the customer experience side like Lemonade, I think those insurtechs do put more pressure on the industry even though they're not as big as they were and we'll talk about that later. There's still that extra pressure to have something comparable so that you're not sending people over to something that seems much easier to use and more intuitive.
Janet King (08:47):
I think those are great points and the ability to use this as a way to build the business case is a really relevant one. And I think also mean maybe, I don't know if you would agree with this, but there's pressure on, I would assume that there's pressure on insurance carriers and brokers to try to match the sort of best consumer experience that customers are having in other places. So industries outside of these industries outside of insurance are sort of setting the bar for what we all expect when we interact with a brand through digital channels.
Penny Crosman (09:22):
Yeah, that's true, that's true. And in banking, we used to talk about everybody wanted to be the Uber of banking
Janet King (09:29):
And right
Penny Crosman (09:30):
There are those examples of apps that everybody loves and try to match that kind of experience. For sure. Those apps are inspiring to the industry,
Janet King (09:40):
Especially in areas like claims where it gets that last mile. And so I think you see a little bit of this reflected here when you look at the digital transformation goals that carriers and brokers are setting. And again, this is specific to carriers and brokers, but when we ask them not just what areas of your business are you targeting, but what are the goals driving those decisions? So improving customer experience is at the top of the list along with delivering operational efficiencies and growth. And that's consistent year over year. But what we're also seeing is that the number of insurers that are citing minimizing risk as a digital transformation goal for the coming year has almost doubled since last year. So what do you think might be contributing to the increased focus on risk mitigation?
Penny Crosman (10:30):
Well, I think it's a very interesting question and I think a lot of it has to do with the extreme weather events that we've been having and the acceleration of them, of wildfires, of flooding. I live in a town called Mamaroneck. We've had 19 floods since 1989. Wow. Hundreds of people were evacuated during Hurricane Ida. We had two feet of water in our basement and our insurance company was quite generous and covered the cost of a new washer and dryer. And then three weeks later we got a notice saying our policy had been terminated. And I feel like the risk models are constantly taking in new information about the risks of flooding, of wildfire, et cetera, and those models have to be adjusted to adapt to these changing conditions. And we've seen, as everyone knows that Allstate and State Farm are not insuring any new homeowners in California because of the increased wildfire risk.
(11:34):
Well, that's a model that had to be either rewritten or adjusted to that risk. Whether you agree with it or not, things are changing and there is a need to change how the models operate. Between 2022 and 2023, wildfires accounted for more than $3.2 billion worth of damage in the United States, and 4.5 million homes in the U.S. are at high or extreme risk of wildfires. So that's one example. In auto insurance, we're seeing risks go way up. TransUnion did a study last week that showed that traffic fatalities have gone up 21% since the pandemic. The traffic violations have also gone up into double digits. And we're also seeing terrible driving habits like the report found that 38% of Gen Z drivers and 33% of millennials all admit to texting while driving. A lot of them have a very blase attitude towards seat belts as well.
(12:51):
There's also driving well high, and we don't have too many numbers on that because there aren't that many cops that are able to, the cops have to be specifically trained to tell if somebody is stoned or not. There isn't any simple test, and so it's very hard to collect numbers on that. But marijuana is now legal in 23 states and it's definitely happening more. And according to the Centers for Disease Control, drivers who are on marijuana are 25% more likely to be involved in a crash than those who don't have the drug in the system. And on construction sites too, and on commercial sites, there's also some of these same risks of climate change and worker safety habits, et cetera. So all of these things are sort of new and changing data sources that have to be fed into the risk and underwriting the risk models basically and have to be rethought and maybe with completely new models. So I think that's where some of this attention is coming from.
Janet King (14:01):
That's a lot of complexity for insurers to manage for sure. So it'll be really interesting to see how that number continues to rise. And maybe because of that or related to that, we're also really seeing some interesting shifts in focus among insurtechs, and we had more than two times as many this year compared to last year, indicating that they're targeting the underwriting or rating operations of their customers with their products and services. That's a big shift. It went from 28 to 67%. So how would you explain that shift?
Penny Crosman (14:37):
Part of what I'm seeing is that when the insurtech movement was younger, a lot of the insurtech startups were focused on challenging the incumbents and actually offering insurance themselves and on doing the underwriting, being full stack carriers like Lemonade as an example. Lemonade offered a streamlined process for buying insurance with an AI powered chatbot. And it has grown, it's now got 1.9 million customers, but it's also losing a lot of money. In the first quarter, it lost $65.8 million. So investors have kind of to some extent, soured on this category of insurtech. There's a lot less money being fed to these companies. And there are investors who feel like these companies haven't proven that their underwriting models are significantly better. So they're basically insurance companies that are losing money, and that's an overgeneralization. But we've definitely seen a shift away from challenging the incumbents toward serving the incumbents.
(15:46):
So the insurtechs that are providing underwriting software and some of the major software that the traditional carriers need, those are the ones that are getting investment, that are doing better. They have better performing business models, and so that they're providing underwriting technology, claims automation, policy management for traditional companies. So it does seem like there's just a lot more energy going into that, giving something to the traditional world of insurance. And there's also a lot of demand from insurance companies to get to update their underwriting models as well. So it's a good timing on both sides of that equation. So I think that's part of why that is.
Janet King (16:46):
It's a good marriage at the moment.
(16:50):
Well, we're just coming off our Dig In event in San Francisco, and that was a really terrific live event, and there were a number of panel discussions about optimizing talent. We'd heard that theme a lot, and it was timely because in our research here, staffing challenges were cited by carriers and brokers as the number one factor that's impacting the direction of their digital strategy. So when you're just thinking about, okay, what kind of inputs are having an impact on your digital strategy goals, staffing, innovation, budgets, inflation and executive buy-in are some of those things. So what are you hearing, Penny, in your conversations in the market about talent? How often is talent coming up as part of the digital transformation conversation?
Penny Crosman (17:42):
It comes up a lot and the tech talent shortage in the insurance industry is real. And I think there is a lot of concern about that. About 400,000 employees are expected to retire from the insurance industry over the next three years. And the average age of employees at insurance companies is about 44.4, and at brokerages it's about 44.7, which isn't insanely high. It's not out of line with other industries, but it does seem like it is a challenge for this industry to attract young workers. There was a valid analytics study that found that 44% of millennials do not find a career in insurance interesting. I also think among Gen Zs, and this is anecdotal, but I feel like among Gen Z, there are a lot of people who really want to do something purposeful for their career and they're willing to not buy a home.
(18:43):
I feel like Gen X was more about they really wanted to buy a home and provide for their family, and they were willing to take a corporate job to get that. I feel like with Gen Z, we're seeing more people willing to rent, willing to live in an apartment and have a job like teaching, nursing, et cetera, that's not quite as high paying, but fits with their values. And again, I don't have numbers, that's a little more anecdotal, but I do think that that's one of the reasons why insurance companies are having trouble recruiting among younger people. There was a speaker at the Digital Insurance conference who suggested that people over 40 should be offered voluntary retirement if they're not willing to change and upgrade their skills. And some of us felt like 40, it's not that old, but yeah, no, it is. The tech talent shortage is very real and it is something that a lot of them are talking about and thinking about.
Janet King (19:49):
And then I was sitting there listening to some of those conversations since your point about mission and everything, certainly you're right, something that's really important to the younger generation, but we had talking about is there just a messaging challenge because insurers are sitting on so much data that can have really big impact on people's lives and on social issues and things. So there's an opportunity to reframe it, I guess, in a way that would be appealing to younger people, but we know it's a huge challenge. So we wanted to understand how actively these folks are recruiting for digital and tech roles. And what you see is just over one in four carriers and just about one in three brokers or agents say that they're actively recruiting. And most of the balance is falling into the somewhat actively budget when it comes, or bucket I should say, when it comes to recruiting new talent. So most everybody's doing some level of recruiting, but maybe at more of a minority doing that sort of really active recruiting. Does that surprise you or do you think it's just a matter of definition?
Penny Crosman (20:59):
Well, yeah, I was going to say you're definitely much, much better at math and statistics than I am. But when I look at this, I kind of lump the very actively and the somewhat actively hiring buckets together. And I feel like, well, that gives you 89% of insurance carriers are actively recruiting and 78% of insurance brokers and agents are actively recruiting tech people. So that feels about right to me. So maybe some of it is like what does "very" mean, maybe, but I do think that there's certainly a lot of discussion happening about how to recruit, how to hire. I do think there are a lot of jobs to be filled. I think a lot of the big insurance companies still have a backlog from some of the catastrophes that have happened. I know there's a pork processor in my town that waited more than a year to get their claim processed.
(22:00):
So a lot of companies do have a backlog of claims, so they do need people to look at that stuff. So I know that there is a lot of need for workers in this space. So yeah, I think there could be kind of a definitional thing. And we're also going to see later there's a more rapid adaption of cloud computing and there's more need for data science. So the skills in tech are kind of shifting a little bit. Yeah, I still think there is a lot of hiring happening and it needs to be happening.
Janet King (22:40):
Yeah, I agree with you. And to the point you just made was when we dug in a little deeper and said, what types of tech roles specifically are you seeking to fill on topping the list for both carriers and brokers for things like application developers, cybersecurity personnel, database administrators, cloud management roles kind of aligns with what you were just talking about with where they're going on their tech roadmap, but leading the list for carriers specifically is data scientists, including individuals who have AI skills. So that was 52% among carriers versus just 11% of brokers and agents. So any thoughts on that?
Penny Crosman (23:21):
Yeah, I think some of that might be what I was mentioning earlier about there's just much more data available about different kinds of risks that affect policies that needs to be thought of and considered in some of these models. And some of the models need to be rewritten. In fact, I was talking to Deepa Soni, CIO at The Hartford recently, and she was talking about increasing use of internet of things sensors, for instance, on construction sites or in commercial real estate to be able to detect things like rising temperatures or presence of water or maybe sloppy habits among employees that could lead to safety issues. And so again, these are new kinds of data that the existing models haven't really had to consider. So I think a lot of it is that the models, there's more data coming from more different places. So you need people who can either design new models for you or revise the ones you have and test them and make sure that the outcome is helpful. And I'm hearing more talk about better ability to predict what's going to happen and nobody can really predict it fully, but, but ability to predict problems before they become calamities I think is part of what we're seeing.
Janet King (24:54):
And going back to that desire to better mitigate risk and everything else, that all makes so much sense. What also is really interesting, I think, is when you take a look at what carriers and brokers are doing specifically to meet those recruitment goals. I mean, you still have quite a few, almost a little more than half who are starting with their existing employees and focusing on internal retraining and upskilling as one path to closing that gap, but a sizeable number also targeting high performers within and outside of the industry or looking to capitalize on talent that has been made available by layoffs at tech firms. So that whole idea of looking for talent outside of the industry is a really in interesting approach. Trying to go back to that thing of delivering the best possible customer experience and learning from people maybe outside of the industry. But what do you see as the advantages or maybe the potential pitfalls of that approach?
Penny Crosman (25:52):
Yeah, sometimes it's called acqui-hiring by just buying a company and then you get all that talent that they've developed in house. I see it as a double-edged sword. I mean, it certainly lets you very quickly get a team, possibly a team that already works well together, able and with knowledge in a certain area to help you with your tech projects. But I've also seen that fail a lot in financial services where a big institution hires this small team of software developers or small team of designers, and the culture clash can just be so dramatic. And people who are in a small company used to making decisions very quickly used to being able to get projects done quickly. Now suddenly they're mired in this situation where there are multiple sign offs for every decision, and there's committees and there's bureaucracy. I just think it can work, but I've seen it not work a lot. So I'm kind of a skeptic about that model. And also upskilling sometimes it's very good and it's a great thing to try, but not everybody can go from being a claims adjuster to a software developer or something like that. Not everybody is a techie and you can't always make them be. So it's certainly good to try, but it just, there's definitely challenges with it.
Janet King (27:28):
Well, those are all really, really good points. So we've got just a couple more data points, but let's kind of transition over to tech and look at a few tech related stats. And the first pertains to industry sentiment around insurtechs and whether or not they're perceived to be developing truly transformative digital solutions. And what we saw is that 61% of carriers and 72% of brokers and agents said yes, they think they are delivering truly transformative solutions. Then of course, 85% of insurtechs gave themselves the top grade, saying, yep, we're doing great work. What do you see coming from the insurtech community specifically that you believe has the potential to truly transform the industry?
Penny Crosman (28:16):
That's a good question. I do think these stats show some self-awareness on the part of the carriers that they're not necessarily at the cutting edge. I do think some of the insurtechs have done some really good work on streamlining the claims process on creating a better customer experience. We saw some people do demos at our Digital Insurance conference of AI informed knowledge bases for contact centers. I think that's something that can be very useful, helping your customer service people be able to find information really quickly. We saw some demos of apps that just have a nice interface for interacting with your customer directly, and we've certainly seen companies like Lemonade that have been able to speed up the whole underwriting and claims process itself. And of course the InsureTechs devote all their time and resources into the technology itself, whereas the carriers have so many other things to do and think about that it's kind of inevitable that the insurtechs will be a little bit ahead innovation wise.
Janet King (29:38):
Absolutely. And so the last data point that we have suggests, I guess that most digital transformation stakeholders are viewing insurtech as helping to lead the change in the industry, but what are the technologies that carriers and brokers are investing new and incremental resources in over the next 18 months? Where are they putting those dollars? And if we look at the light green bar for a moment, that shows that cloud tops the list for carriers for as a source of newer incremental investment along with advanced analytics. And then brokers and agents, which is that darker green bar are most often citing investments in cloud digital payments and chatbots or other customer interaction technologies. So any surprises for you there?
Penny Crosman (30:28):
It all kind of makes sense. I think cloud adoption has kind of become inevitable for almost all industries. Insurance was one of the later industries I think to really start adopting it. The cost savings are inescapable. McKinsey estimated that the EBITDA run rate impact of cloud on the insurance sector will be $70 to $110 billion by 2030. I think everybody kind of of recognizes that this is the way everything is going. And again, the push for advanced analytics makes total sense for mitigating risk, for better underwriting, better predicting what's going to happen and therefore what the pricing of a policy could be. What's the proper way to charge people for risk? I also think the payments world is changing and real time payments are becoming more and more of a thing, and there's going to be more and more of an expectation for people who file a claim that they can get their payment immediately, whether that's through Zelle or through the Clearinghouse's RTP or the future FedNow.
(31:44):
Now we'll have a realtime payment system, so the insurance companies just have to adapt to that, and I think they recognize that. And I think for the agents, the chatbots make a little more sense for them, then the agents have less of a need for the heavy duty analytics because they're basically matching people to policies rather than trying to predict their future risk. And so therefore, chatbots can make more sense, I think for agents to just walking people through, what are your needs? What kind of policy do you actually need, and where are you coming from? The questions are a little bit more basic, I think, than when you're actually underwriting the policy itself. So this all definitely makes sense. But yeah, it is interesting how the industry is definitely chugging into the cloud, and I think that's inevitable.
Janet King (32:52):
Absolutely. I agree. Well, thanks for chatting with me about all of that today.
Penny Crosman (32:58):
Yeah. Well thank you Janet, so much for coming. And thank you to all of you for coming. I hope you found this useful and informative, and I hope you enjoy the rest of your day.
