I sat down with Ernst Renner, NEOS’ CEO and Managing Partner to discuss the changes he sees in the insurance industry and his perspective on how insurers can make disruption work to their advantage. This month, we’ll talk about digital transformation and analytics and what it means for carriers in 2019 and in the future.
Q: Many insurers have been actively investing in digital capabilities, but the industry has not yet fully realized the value. Why do you think this is?
I think many carriers struggle with what it is to be digitally enabled. They need to define very clearly what their organization will be in a digital world: new products, new distribution, more optionality in product design, better service (and even what “better service” really means to them), perception as knowledge experts or educational materials, how a future carrier model works for their internal organizations, and more.
From an investment perspective, carriers typically invest internally through experimentation, but more and more often, are becoming active in the InsureTech space. There are exciting partnerships in place, and spin-off’s from large carriers looking to find innovation beyond their walls. As great as that is, the vision of their digital future must be first and foremost in consideration of real investment.
Q: Do you think the pace of change outside the industry has been relentless and even proactive companies are struggling to remain on the cutting edge? Do you think it’s safe to say that this is one of the biggest challenges for insurers over the next five years?
Ernst: The pace of change within all industries has been relentless. I think the pace of change and adoption from the insurance industry is naturally slower because the industry is risk-averse by nature, so being at the forefront of digital transformation and analytics isn’t something they necessarily want to be all the time. The pace of change is also throttled by mandates of state, federal, and/or sovereign governments, so the pace of adoption isn’t going to match that of companies that are pure B2C commodity plays, like Amazon, Apple, or Google.
It is a good idea to pick and choose what customer experience components make sense for a carrier from the B2C market, but that doesn’t mean that an insurance company will be like Amazon. That’s a comparison of apples to bowling balls (you get to pick who is the apple and who the ball).
Another thing that weighs a carrier down is that the established brands have decades of legacy (products, systems, risk, processes, people, and even culture) to drag with them and it’s costly to make drastic changes that digital transformation often calls for. Carriers are as progressive as they can be and are competing against their peers, but not against industry outsiders. Those insurers who ignore the adoption of a digital mindset, however, will be left in the dust when it comes to generating new premiums.
Is digital transformation one of the biggest challenges? Yes, I suppose it is. For carriers in life and annuity, finding new and different distribution, innovative product design, and more automated underwriting are true business challenges that “going digital” can help solve.
Q: Have you seen a difference with the insurers that have already adopted digital agendas? What are they bringing to the table that other carriers are not? Do you see adoption more frequently in certain lines of business?
Ernst: Yes, there is a difference with insurers that have already adopted digital agendas – those that have been doing it, do it well. Life insurance providers, in particular, are having success with offering policies direct to consumers because of the products they offer; however, on the retirement and annuities front, there is still a lot of work that can be done, particularly around enablement to provide advice and offer education to prospective buyers. Those products are more expensive and complex; an actual person is still useful to help choose the best investment choices.
I think the collection of data from wearables will become more prominent in the industry. Blending wellness incentives with actual dollar returns are very interesting. The thing to watch, though, will be GDPR-like legislation like the California Consumer Privacy Act and its effect on data collected and utilized through these methods. These regulations will spread across the country and likely be implemented differently in various States. With the scrutiny on private use of data, additional attention may be placed on evolving underwriting techniques, like the use of genomic data, micro-slicing applicant social trends, and other data that is now in reach.
Q: What benefits do you believe digital transformation and analytics will bring to carriers?
Ernst: First, to be “digitally transformed,” a new horizon of products, distribution, and operations will become available to those who go through a truly transformative experience. The way a carrier engages with prospects and policyholders is changing dramatically.
Second, it will provide a solid basis for actuarial market test modeling for new types of products for different demographics.
And lastly, process automation will improve as more companies bring educated and intelligent systems to handle the transactional pieces – like a robo-advisor – the AI technology that would be implemented needs to be fed useful data and the process to do it has to be understood.
Each of these broad areas requires useful data to function correctly and yield desired results. And it is essential to note that these results must be consistently correct at launch as well as going forward. This will call for additional attention to data governance and data management practices in general.
It’s important to point out the need for the diligence of the data – if you seed bad data, you may observe unintended, adverse, circumstances from customer experiences in automation. You may have significant legacy data, but if you haven’t governed it properly, it could create a major problem for your organization.
Q: Looking forward, what do you believe a successful transformation should include?
Ernst: Successful transformation should include a clear vision of what you are trying to achieve.
Once we know where we are going, and what the destination should look like, establishing a new operating model to support the vision, and then choosing the tech components needed to achieve it, are the logical next steps.
Innovation in insure-tech ranges from new types of business models (I am a fan of German carrier Friendsurance; exciting and innovative business model) to different and unique underwriting techniques (data-based risk modeling, semi-fluidless-testing), to RPA and chatbot providers. They all have an essential role in the digital ecosystem of the future. The insure-tech world is thriving, and options for partnership or innovation are staggering, but tread this path with great care.
How do you think carriers are handling digital transformation? We would love for you to join the conversation.