Legacy technologies came in for a beating at the InsureTech Connect conference in October. These outdated systems are draining resources and not getting the job done. They are also an impediment to adopting InsurTtech improvements, speakers said.
Next Insurance CEO Guy Goldstein cited legacy systems as a real roadblock for an industry that he says is actually surprisingly very open to change. “The industry wants to change; it’s really easy to get meetings with insurance companies and reinsurers and regulators. They are very welcoming,” Goldstein said. That has been the positive experience; the negative has been the existing technology. “I thought banks’ technology was not good there but it is incomparable to what insurance companies have in my opinion,” he said, identifying several issues:
“They’re not really ready for what consumers need today” and are a major challenge for InsurTechs looking to partner with traditional insurers, Goldstein said.
Valen Analytics CEO Dax Craig said even carriers that see technology as a competitive advantage are struggling to overcome legacy issues. “That is probably the biggest impediment they face,” according to Craig. “Second, is a mindset—not being able to adopt from a broad-based standpoint new technologies and new approaches.”
Craig cited small commercial systems and distribution. “You can’t make money now on a $500 policy,” he said. The whole segment needs to be automated.
Ayan Sarkar, vice president, Digital Channel Product Marketing for Guidewire, agreed with the diagnosis that the small commercial lines customer experience and economics are “broken,” but he insisted the situation is not hopeless. “I do see the forces converging,” he said. “All the tools are there…it’s coming.” The key is for carriers to become motivated to adopt the new technologies, he added.
Inside or Out
Not surprisingly, InsurTechs and traditional insurers differ on the use external resources to build and improve systems.
“Technology is our core competency,” said Spike Lipkin, ABE’s CEO. “We build everything in house.”
Next CEO Guy Goldstein takes a similar view: “We don’t use any vendor system.” Doing it all internally is the easiest, most integrated and quickest way to market, he insists. He criticized large vendors for systems that are too “generic and complex” and do not address smaller, specific issues.
Guidewire’s Sarkar defended vendors like his that focus only on insurance. “The biggest gap in the industry is the lack of standardization,” he offered, maintaining that many InsurTechs are now working with his firm.
Craig of Valen, which was bought by insurance carrier software vendor Insurity, maintained that carriers benefit from working with outside vendors because “they can get the best ideas from many players and incorporate them.” He admitted, however, that the biggest problem is the “edge case”—everyone is trying to build rules to avoid certain minor situations or particular cases into their systems, which makes the systems too complex. For example, a carrier may be concerned about the “plumber in so and so area that they don’t write that and say they need to build a system around not writing that one thing.” Vendors, he admitted, follow this track because they are paid to do it.
Guidewire’s Sarkar acknowledged the “edge case” problem but added, “We are getting better at saying no.”