Analysts from A.M. Best suggested that insurance carrier chief executive officers need to take a hands-on approach to technology upgrades and pursue partnerships with InsurTech in order to remain relevant, in a special report published yesterday.

“Industry CEOs can no longer relegate technology to their IT divisions,” said Sridhar Manyem, A.M. Best director, Industry Research and Analytics, in a statement announcing the report titled,” Insurers—Behind the Technology Curve, and They Know It.”

Industry leaders “need to have an in-depth understanding of technological concepts and how they relate to specific business operations and strategy, given the potential for industry disruption,” he said.

“If done properly, technological improvements and increased automation can increase efficiency and offer better insights.”

The report details results of a A.M. Best survey in which carriers indicated four areas that where they believe they need to make the greatest technology improvements:

1) Customer experience, 33.3 percent

2) Legacy administrative and claim systems, 29.9 percent

3) Data aggregation and mining, 22.9 percent

4) Underwriting systems, 10.4 percent

Only 3.5 percent selected “Risk management and compliance” as the area in the most need of the technology improvements, representing the balance of respondents.

According to A.M Best, technological advancements have to flow throughout a company culture, much like enterprise risk management—with CEOs leading the cultural push.

Commenting on the need for customer service technology improvements, the report suggests that insurers need to provide a differentiated, enhanced customer experience to see improved net

promoter scores that translate into higher retention.

Highlighting customer retention challenges in a discussion of legacy system updates, the language of the report was stronger. Legacy systems “lack a high enough level of cyber security and can be compromised relatively easily, exacerbating operational risks,” the report said, referring to cyber and other potential systems issues that could create reputational risk—and corresponding negative impacts on customer retention.

Disparate systems at large carriers involved in acquisitions and outdated ones at smaller carriers, in addition to “standalone spreadsheets that rely on individual memories [and] duplication of data—these all create problems with data quality and consistency, and may lead to bad decisions if insurers are relying on bad data,” the report says.

In a section of the report discussing data aggregation and mining techniques, A.M. Best analysts notes that in spite of advances in predictive modeling, an insurance industry that “has long collected data…has yet to tap the full power and potential of that data.”

On the other hand, companies in the growing InsurTech industry “have amassed a wealth of innovative analytics,” the report notes, suggesting that these “could enhance insurance processes” of carriers that “already have rich troves of information about policyholders on pricing, retention, churn, uplift from analytics, policy-specific information and underwriting.”

Jason Hopper, associate director, Industry Research and Analytics, said: “Insurtech companies will find deploying these capabilities difficult as they lack scale, while insurers may lack the depth about the power of computing and machine-learning techniques. Still, the combination of the two could be powerful and may lead to an inflection point that could change the typical insurance model.”

The report also includes a special section on the need for carriers involved in M&A to integrate data systems.

“Having a formal process to integrate data from an acquisition is imperative,” the report says, suggesting that time is running out for insurers who rely on the know-how of long-term employees who understand existing data systems. “The next five to ten years will be a critical period, during which organizations must learn to use that institutional knowledge to modernize their core systems and combine it with new technologies,” the report says.

Source: A.M. Best