For decades, the insurance industry has bought, sold, replaced and implemented technology solutions in a predictable pattern. Analyst firms collected anecdotal and hard data on purchasing patterns and published deal trends reports that exposed very little change year over year. In the last three years, the InsurTech movement has injected new energy into the discussion around which technologies insurers should be using.
CB Insights and others are tracking substantial investments in InsurTech that reflect highs not seen since the panic around protecting systems against the threat of Y2K. But investment in InsurTech startups is different than insurers actually purchasing and utilizing these new technologies. A recent blog published by SMA’s Mark Breading recognized the lack of tangible traction for InsurTech startups within the incumbent insurer community, asking, “Where’s the Beef?”
So, if insurers aren’t implementing and integrating InsurTech solutions at the rate one might expect based on eye charts of 1,200-plus startups now in the space or soaring investment numbers, what is really going on? Safe bet is not as much as expected. Per Newton’s Third Law, every action has an equal and opposite reaction. In the case of InsurTech, however, that reaction is not quite what was expected. Instead of inspiring the purchase and implementation of new technology solutions, InsurTech has shifted the way in which insurers interact with existing vendors.
Today, there are new expectations and a new baseline for implementation and upgrade timelines, the ability to integrate via flexible APIs, and the incorporation of new technologies into tested and trusted solution suites.
When the industry spoke in decades instead of days, it was easier to think about legacy replacement projects that would take years to modernize a company’s core administration systems. But with iPhone app updates happening in the background as daily life goes on unaffected, expectations have shifted. The new baseline demands not only new implementations but also upgrades or enhancements happen more rapidly and with minimal business interruption. Core administration system providers are redefining project requirements, eliminating natural stumbling blocks and moving to more agile methods for managing enterprise-scale projects. Retaining insurer customers today requires established vendors to adopt InsurTech startup mentality to achieve rapid-fire response times.
Bend and Flex
Insurance companies are notoriously private about sharing details of anything that might expose a competitive edge, including details of technology modernization initiatives, product specifications and more. In turn, the technology companies serving the insurance industry also tend to play things close to the vest, especially when it comes to sharing source code, building out cloud capabilities, and integrating with other partners and solutions.
But it turns out that inclusivity actually trumps exclusivity, and flexibility is the name of the game. Core administration vendors are the insurance industry’s newest integration hubs, providing the ability for partners and InsurTech startups to integrate into insurers’ established systems safely, securely and responsibly via open application programming interfaces (APIs). And the number of integration requests is growing fast.
What’s Old Is New Again
Core administration systems, which manage the bulk of the business for insurers today, are multifaceted technology solutions built to accommodate the customer, product and regulatory complexity this industry presents. That means no one should underestimate the expertise, ingenuity and competitive nature of the entrepreneurs who founded insurance technology companies before there ever was InsurTech.
The incorporation of emerging technologies into tested and trusted existing solution suites is ongoing and inevitable. Machine learning can be brought to bear in developing better policy language and analyzing images to automatically adjust minor auto damage, for example. Artificial intelligence can drive natural language-enabled chatbots capable of conducting application interviews conversationally and helping close claims faster. As the technology develops and talent to handle it becomes more widely available, there is also likely even a place for blockchain.
While insurance companies have an established trust level with existing vendors demonstrating successful track records in the space, shying totally away from engagement with unproven InsurTech startups seems unwise. Customer demands are escalating, more flexible insurance products are needed, and new positive technology use cases are emerging in other industries every day. Insurers able to create an innovation environment incorporating both existing core administration system vendors with insurance experience and InsurTech startups with new solutions will be well positioned to meet and exceed the new baseline.