Prologue: Lessons From a Parallel Narrative
When we look at the disruption story of other industry verticals, it appears insurance falls somewhere on the spectrum between healthcare and banking. A bit quicker than healthcare to adopt a culture of innovation, and coming up fast on the financial sector. A sweet spot, of sorts — as a lot can be learned from the forerunner.
In banking, FinTech companies were the disruptors. They came along, cleverly inserted themselves into every customer-facing point of sale, and turned one of the most formidable industries around. Customer experience became a larger concern as the big banks found themselves getting “minted,” losing consumer touchpoints to third parties who did it better; who even spoke on the level of the hard-to-reach millennials, turning banking into social media threads, letting them express themselves in emojis (see: Venmo).
The Q’s stack up: Why didn’t they see it coming? Did they get too comfortable, didn’t they care about what their customers wanted? Or were they operating at full capacity, too busy with the challenges of big banking? Alas, there is a happy ending to the story. Although the banking industry will never be the same, it is arguably better. Certainly for its customers, who get to enjoy the benefits of free-market competition. Thanks to FinTech, banking became faster (PayPal), more accessible (Square), and budgeting became a gamified reality (Mint, etc.) — and that’s just covering the retail sector. Meanwhile, the concept of open banking has FinTech third-parties and big banks working together, tackling the challenges of innovation in one of the best working examples across the board.
Insurance Innovation: Same Story, Different Characters.
A similar thing is happening in insurance, at a slower rate — though some predict the insurance industry will race past banking if InsurTech keeps up its current pace.
Disruption wears many hats, and brings many challenges. Today we take a look at 3 themes in the insurance innovation story, challengers standing in the path of the insurance incumbents who aim to achieve a culture of innovation to tackle that very disruption.
1. IT Modernization
The Setting: A Brave New World
And a brave new world, it is. Digital market leaders in property/casualty are partnering with startups to integrate with everything, from driver tracking devices to drones for property assessment. The data collected from these wearables, telematics, and IoT (Internet of Things) devices is being used, not only for immediate assessment, but also for underwriting, and in some cases, live policies that update as data is collected. Meanwhile in the health/life insurance sector, we’ve all heard the Fit Bit insurance app story, healthy habits are gamified into a point system to unlock cheaper premiums. Across all sectors, insurers are automating backend processes with technologies like AI, machine learning algorithms, and Blockchain, the decentralized ledger system. These initiatives unlock transparency, cost savings, and better data for a greater, more tailored customer experience. “Firms like InsureEth enable airline insurance payouts automatically on cancellations or delays. Blockverify and Everledger reduce fraud by restoring provenance data on the Blockchain,” says Financial Brand. Enter the concept of roboagents, who take robotic process automation (RBA) to the customer level. While AI, roboagents, and chatbots learn and refine the customer process, data lakes collect a store of incredibly insightful information on customer habits and likes. In general, big data is finally being used to open new opportunities for insurers and policy holders, alike.
The Challenge: Legacy Systems
Rather than build out these technologies in-house, many firms are taking to third-party integration to enable the technologies of the future. But that integration is only possible through a framework backed by automation, externalized data, digitized core functions, and a level of operational efficiency most legacy systems don’t have. But we believe there’s a lot of greatness in legacy — much to be leveraged — and that the transition to digitized core systems isn’t as difficult as one might think.
The Solution: API Portfolio of Miniservices and Business Capability Building Blocks
Hands down, the fastest solution for updating legacy is a move to a digital enterprise portfolio. If you’re coming from a previous SOA (service-oriented architecture) effort, you’ll want the option to import legacy assets, reclassify them, and transform those core systems to digital building blocks (microservices & APIs). The key to an API Portfolio is to have your entire catalog is stored in one place, so that whenever you need to connect or integrate with these new technologies, your searchable portfolio of business functions is ready to go. From there, innovation is a matter of search-and-discover. For more on our portfolio, check out our article on What’s in an API Portfolio.
2. Changing Business & Operating Models
The Setting: Shifting Sands of Constant Change
Constant change in business models makes onwards and upwards difficult to navigate. The amount of data pouring in from every customer interaction is changing the paradigm from a product-centric model to customer-centric. Those who led the digital race gave policyholders a taste of it, and now the consumers demand adjustment from the rest of the lot. Meanwhile, we’re seeing vertical segmentation as new players begin to own niche markets within the industry. With those new players come a change in market dynamics due to “Disaggregation of the value chain, new product opportunities emerging from the sharing economy, and insurers providing value-added services as a means to differentiate their companies in a new market” (World Insurance Report) Many insurers are now segmenting their portfolios to cater to these areas, as in the case of Munich Re offering inland flood insurance, or Metlife offering accidental injury.
To add to that sandstorm of latitudes, insurance matters change drastically from one part of the globe to another, constantly creating new challenges for global firms. The US is obsessed with InsurTech wearables, China is a more innovative market, the EU has its eye on regulatory directives like PSD2, and P2P underwriting and risk management are high trends in Africa. It is clear that IT will need to move quickly and thoroughly to launch multiple, well-governed products quickly and with proper documentation tied back to reporting so that decisions can be made quickly about which to retire and which to scale.
The Challenge: Changing Business & Operating Models Make a Blurry Roadmap
The greatest challenge of working with these new opportunities is discovering the right opportunities to pursue in the first place. It’s hard to define your initiatives when you don’t have the end-to-end story of what’s working and what isn’t, and as any auditor will tell you, most companies would rather pay the fines than get stuck chasing down details.
The Solution: API Strategy Alignment
The only way to navigate through the shifting sands of changing business (and operating) models is by aligning business and IT — and we can take a cue from Amazon that this begins by exposing data across the silos through APIs. Open communication is imperative to forming a bond that can withstand the turbulence of innovation. This ensures a smooth transition when both sides can work together, operating efficiently to get to the goal state.
In order to build so many experiences out in a changing landscape, you’ve got to keep your business model close to the very services you’re building with. We recommend a domain-based information model, so that when an update to the model occurs, it can be made without breaking other systems in production. With it, your canonical is mapped to the very microservices you’re calling — loosely coupled and flatly structured for easy movement across Lines of Business and regions. Change management logging and version control are key here.
3. Regulation & Risk
The Setting: New Frontiers — Shifting Political Climate and New (Cyber) Risks
These trends are in the same category because they all depend on the same sort of frontier: the unknown. But we believe there’s a way to prepare your company even for the unknown. We’ve seen regulation driving demand for advanced data and analytics — due to PDS2, and the open banking directive in the UK, insurers in the financial sector are expected to open access to customer data by January 2018. As for policy changes, the US reinsurance industry is looking at threats due to upcoming legislation that might heavily tax exports, as the US holds one of the largest global reinsurance markets, and over half of reinsurance policy holders are overseas. Cybercrime and terrorism also demand new P&C product lines, as cyberterrorism has opened up a new risk in the realm.
The Challenge: Demands against limited bandwidth
Regulation and Changes in policy pose an obvious challenge to innovation strategies. It’s hard when companies who barely have the bandwidth to tackle their own launch schedules are expected to get up to speed on the next law, regulation, or policy that comes with new practices to (hopefully) automate. Risk management is a tricky one to tackle too, as cybercrime is vast, and no one knows what lies ahead for it. So underwriting the damages on a cyberattack is anyone’s guess, really. Meanwhile, new technologies like Bitcoin are opening new markets for lines of risk in new realms, too.
The Solution: API Product Management
To prepare for the unknown, stringent governance is advised — knowing what you have at any given moment goes a long way to tackle the challenge of the future, allowing your leaders to innovate safeguards and new products to manage emerging markets in a hurry. Audits are a breeze when you already have the full end-to-end story of your API portfolio of core business capabilities broken down into the right granularity to build. When you have automated logging of updates and change management baked into the design lifecycle. And when you’re keeping your business capabilities stored right inside of the very platform you’re building with, you’re prepared for whatever the future throws your way. To learn more about search-and-discover portfolio views, visit our ignite 6.0 update here.