What the Slow Pace of Modernization Costs Insurers
Insurance Experts' Forum, October 21, 2013
I had an opportunity to attend the Property Casualty Insurers Association (PCI) technology conference in September in warm San Antonio. The conference remains a good barometer for the technology state of the property/casualty industry and is a valuable opportunity to take the pulse of the CIOs in attendance. There were the usual sorts of sessions, including informational updates on the latest technology, budget and software trends, along with sessions focused on customer service and the emergence of big data in the industry.
While there were interesting discussions around emerging technological trends – think telematics and real-time risk modeling – thematically, the conference seemed to center on the continuing efforts of carriers to modernize their core systems and processes. This has been a long road, and will most likely continue to be a focus for the industry over the next several years.
That’s all fine, but it begs the question of why such modernization efforts should take so long. In my tenure as a CIO, one of my business colleagues once opined that NASA could build and launch a space shuttle in the time it was taking us to implement a new commercial lines policy platform. While it stung a bit at the time, it happened to be true, or at least nearly true depending on the NASA timeline one used. Upon further reflection, I’ve come to appreciate the comment for what I think it really represents.
The hard truth is, as compared to other industries, it takes a while to get things done in the insurance industry. On the one hand, that’s not surprising given that the industry’s foundational rock is risk management, but on the other hand, there’s a cost to always being settlers and not pioneers.
And what is that cost? Well, for starters, there are elements of process and expense inefficiencies, customer service issues and vaults full of information that nobody can find the combinations for. But I’d like to suggest that there is a bigger cost, and that is the perception, deserved or not, that the industry floats in the backwaters of the huge technological tide pool that is quickly and inevitably eroding staid business models and the processes associated with them.
Now, that is not entirely true as there are carriers that have jumped on the technological bandwagon, particularly in personal lines, but in the main, the perception holds, which is a dangerous thing for the industry. The reason it’s dangerous is pretty simple, yet has powerful implications.
Technological innovation and adoption draws two things – money and talent. That’s a model that’s been borne out over the past two to three decades, and it will clearly continue into the foreseeable future.
Money in the form of investments is a major part of the fuel for technological innovation, and in industries like aerospace, pharmaceuticals, engineering and even manufacturing, much has been invested to drive new processes based on technological approaches to old problems. And combining that fuel with talent is often where the real magic happens.
Talented innovators and technologists want to be where the action is, and where they have the opportunity to create, implement and profit from their ideas and the work they put into bringing those ideas to life. That action, for the most part, is not in the insurance industry, at least not now. That’s a problem for the industry, because the more that perception of technological backwardness gets reinforced, the more difficult it becomes to turn it around.
That’s not to say that it can’t be done. I happen to live in the Detroit area so I’ve had a front-row seat as the auto industry committed institutional suicide by, among other things, taking their customers for granted and ignoring major socio-cultural changes driven by technology. It took the federal government to help that industry out of their funk.
Here’s hoping the insurance industry makes its own course corrections.
Frank Petersmark is CIO Advocate at X by 2, Inc., in Farmington Hills, Mich., a technology company specializing in software and data architecture and transformation projects for the insurance industry. Previously, he was CIO and VP at Amerisure.
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