With most insurance business high volume and low margin, optimising operational efficiency is key for many firms. It's something the insurtechs are building their propositions on, while for the bigger traditional insurers an area of critical challenge.
Most insurers, new and old, have already started to use emerging technologies to drive greater efficiency. This is particularly true in the back office, where automation through robotics offers major operational improvements. Take the example of renewals, where there are big peaks and troughs during the year. The spikes in workload mean human error can creep in, while staff overtime costs also make it an expensive process. Using Robotic Process Automation (RPA) tools, on the other hand, reduces errors, lowers costs and increases speed. And applications such as Blue Prism remove the need for the same data to be inputted several times into different systems.
Elsewhere, machine learning tools are also increasingly being used for claims. This is especially true for lower value claims. A machine learning application can teach itself to analyse claims received and place them into one of three buckets: pay, don't pay, or refer. An effective approach is to give the machine learning tool a batch of historic claims to analyse and decide upon - and then to compare those results to those already delivered by your human underwriters. By making any refinements needed, the algorithm should soon be in line with the human decision making process. Once that's the case, it can then deal with claims much more quickly, efficiently and at far greater scale than a person can, so freeing up valuable resource for other tasks.
It doesn't stop there. New technologies are also being used on the front line for contact with customers. We're now seeing a growing use of Chatbots that can retrieve information and provide quotes to customers, whether the contact is online or via an app. Within the contact centre, new tools such as Appian increase speed and efficiency by giving the service agent a single user interface, significantly reducing the amount of keying and re-keying necessary.
All of the digital solutions work together to create an enhanced experience for the customer. Insurers can provide clearer quotes, a more rapid response to claims and can service queries faster in contact centres. In an age where the customer experience is everything, this agility helps provide a new competitive edge.
However, for traditional insurers, these emerging technologies are not, by themselves, sufficient, if they are to keep pace with insurtechs and make the transition from the old, policy-based approach to one totally driven by the customer experience. To make the necessary operational leap forward, these firms also need to deal with their legacy systems. There is no point building an impressive front end, if what sits behind it remains archaic and siloed.
Most insurers are still grappling with the challenge of simplifying and consolidating legacy systems while at the same time building a new technology stack. These new stacks are needed if propositions are to provide the personalised, flexible, tailored experience customers now expect, based on their experience of Amazon, Google and so on.
Whether the legacy systems have developed through creating different versions of the same systems for different brands in the corporate portfolio - or whether they are the result of mergers and acquisitions - they need to be addressed. Otherwise, we will continue to see scenarios like the one featuring the customer whose house has been burgled, including the theft of his car keys and car, only then to be told he has to make separate calls for his house and his car. Hardly an ideal scenario during a stressful and traumatic time.
Legacy systems create huge running costs, with more people needed to service them and significantly longer lead times to introduce new products and price changes or adapt to new regulatory requirements. They make an organisation significantly less agile and act as a huge drag factor.
One approach is to collapse your legacy systems down to just one single system for each line of business. Even then, however, because they are built on monolithic architecture, it can be a long and difficult process to make changes, because of the testing required to ensure a change to one part of the system does not create knock-on problems elsewhere.
Compare this to the new breed of tech companies such as Netflix and Google, built around micro-services and based in the cloud, allowing them to make changes rapidly and at low cost. If one of the tech giants decided to enter the insurance market, they could make significant inroads and attract high volumes of new business - with traditional insurers struggling to keep up. Meanwhile, more agile insurtechs are already eating into traditional customer bases.
Insurance companies are facing a critical moment - one where it's imperative that they future-proof themselves against the digital disrupters, both large and small.
The dual task of developing a new technology stack, while still addressing the legacy estate, raises many difficult questions for some insurance firms. Where should the bulk of investment go? Where should most of the resources be deployed? If you are building a new technology stack, should you move some legacy systems to the cloud anyway? Or is it better to leave them and switch directly over to the new stack?
Meanwhile, which processes should you be aiming to automate? At KPMG, we have an automation assessment tool that can help you identify where to focus and walk you through the regulatory and data governance issues.
The priority now is pre-emptive disruption to drive greater operational efficiency and deliver smarter, agile solutions. Ultimately, the goal is to redesign your business and operational model so that the customer experience sits right at its very heart.
No insurer wants to become the equivalent of a Blockbuster displaced by Netflix.
Article original published in The Digital Insurer's May 2018 newsletter – How technology can boost insurers' operational efficiency.