Unpacking the fundamentals of insurance in relation to technology – Episode 1 in a series of five conversations between Tony and Tavio Roxo, CEO of OWLSTM Software. TechFest 2023 kicked off with an overview of these fundamentals as the basis for an insurance digitisation journey. We now explore each in more detail.
Tony: At the start of the event, we ran through the fundamentals of a successful insurance business, identifying the following, strong financial management, effective risk management/ strong underwriting, diverse portfolio of products, solid marketing/ distribution strategy, good customer service, healthy cultures, and strong technology infrastructure.
From your perspective, when you approach a company on a digitization journey, where do you start?
Tavio: The first thing to recognize is that this is not a one solution fits all scenario because different companies are in different phases of their technology journey and their business maturity. They also have different products, different distribution channels, and different broker networks and they need a technology that would assist them in their business.
Some of the fundamentals you outlined earlier are true across all these businesses, although slightly different in each one. As an example; company A is a long-standing insurer, operating for 25 years. They have a legacy system, and now they are looking to potentially upgrade. They are going to approach it from a slightly different position than company B, who is five years old, is operating on Excel and now wants to distribute their product completely digitally, versus company A, which is doing it through a broker network.
When you are approaching company A, the data points that they must consider on their technological journey would be heavily weighted in favour of how you drive your product rules through into your intermediary network. Whereas, with company B, it is going to be more of a discussion around how you digitize the system or their processes, to allow external policyholders to access it in a digital journey way.
Both of them use pastel, for instance, so both of them will have to take the underlying data and have an integration or some sort of a mechanism to push that financial data into a form that they are able to consume in a way which makes sense to them so that they can preserve the financial management, which you speak of.
Company A might approach it from the point of view that their risk and underwriting will be more complex because they have legacy systems and more complex underwriting rules because of the nature of the product. Company B is looking potentially to do a lighter product which goes to market with three or four questions asked, to immediately assess the risk and calculate a premium.
I have never come across two insurers in the same vertical, selling the same product, through the same channels, that do not operate completely differently. So, I do not think there is a one size fits all.
This whole discussion is around this customized approach, and that is what makes it so complex. You cannot walk into exclusive books and buy a book that tells you exactly how to upgrade your business. It does not exist. You must figure it out, and you must approach the discussion or approach the process with an open mind, understanding that there is more than one tool which can serve your needs. You need to look at identifying what are the most particular important attributes on your journey for the next five years. You can look at it and say yes, they can all output into financial systems, they can all do X or Y, but what I specifically need, is that digital journey, while company A needs an intermediary portal.
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Tony: You understand insurance, but you are a technology person, and your clients would be insurance people. How do you bring the two disciplines together?
Tavio: That is a complex question. There are a couple of things to consider. I mentioned earlier that no two insurers are the same. So, the first phase of it, would be to try and understand and remember that any insurer, any business in the insurance industry that is looking to upgrade, migrate, move across to a new technology platform, is doing so because they are experiencing pain of some or other sort. That is the first phase. What are the pain points? What are you trying to solve? What are the burning issues in your business that bring about this discussion and bring about this need or want to move across to a new platform? The business would know what those are because that is what brings them to the discussion.
Whether it is at a board level saying we are not getting sufficient reporting, or at a regulatory and operational level, where we are not getting concise and accurate reporting daily or frequently. All these can be a reason for guys to be moving across to another platform or investigating if another platform could work.
Once you have isolated that, you break the business down in a very methodical way, into the various areas that cut across all insurers. Those are the areas that you spoke of. One area will be financial for sure.
Another area, which you must understand as a technology provider, is the nature and sophistication of the underwriting questions, and how do those change the rating factors for your pricing of the premium? How can you do that in a more efficient and more dynamic way?
Fulfillment is also an area which all insurers must grapple with, as a regulatory requirement, which you must deal with.
Claims management. Here the questions can be, how do you receive a claim, how do you deal with a claim once you received it, how do you account for it?
You can almost map out this current process that might be used in the insurer, and then simultaneously map out an optimal process so you can see gaps and friction points immediately.
A very easy one to identify is where you can insert an API for two technologies to talk to each other, to consume information between each other, where it is currently not happening that way because there is a human in between, extracting out of one system, transforming, modifying, manipulating, and then putting it into another system for its consumption. Whenever you have that, you can eliminate it. You can take a five-day work packet and reduce it to an instant. These are a few of the efficiencies and reasons why some of the guys are doing it, and why they want to move across.
Tony: In conclusion on this one and in preparation for the next few episodes, which of these fundamentals do you find are mostly raised by guys when they say what their pain points are?
Tavio: Typically, there are a few hard areas in an insurer’s world that makes it difficult to run a good shop, which you can, to some extent, solve by bringing heavy lifting technology to the party. One of the side advantages of running a good shop where the hard stuff is sorted, is that employees realise it is a good shop, and they are proud to be associated with it. So are customers, policyholders and brokers.
It is important to run a proper setup, and it is difficult to do that at scale with eyeballs and not leveraging or leaning on technology to do that.