Boyle’s Second Law: The Faster and Cheaper it is, the Greater its Value
Insurance Experts' Forum, December 9, 2013
The personal technology we use is changing rapidly, but where are the improvements in the insurance ecosystem coming from? They’re coming from everywhere all at once, and they’re transforming the ways we work and the ways insurance is sold forever.
One of the reasons is that the cost barriers to bring creative new technologies to market have fallen dramatically. Because these costs are dropping rapidly, it has allowed thousands of technologists and business people to build new companies to focus on innovation that fixes or improves business problems that have vexed us for years.
One of the companies that enabled this capability is Amazon. They have given IT professionals the ability to quickly spin up massive processing power and data storage at prices that were unthinkable five years ago. As a result, what we can buy today is stunning. As the cost of processor power and storage plummets, we are going to see opportunities that dwarf much of what we have seen in the past 25 years. No more will you have to build a data center to start a company; now you can just rent one from Amazon.
What’s the best way for companies to take advantage of disruptive technology like this? Many organizations are not focusing on speed as an important component of their strategy. A great question to think about when considering technology investments is: How fast can it be deployed and begin generating value and profits for the company? Asking that question can dramatically change the answer you come up with.
One example of a new company using the capabilities Amazon provides, and as a result generating value quickly, is Evosure, which was formed by commercial insurance and IT professionals who previously worked at Marsh and Zurich. They recently launched a SaaS-based business network called RiskPlace; think of it as Match.com meets LinkedIn for brokers and carriers in the commercial insurance marketplace. What they do is fix an old problem in the sometimes-inefficient relationship between carriers and brokers.
Today, hundreds of carriers and thousands of brokers conduct ritual mating dances to see if there is interest from any of the partners they could conduct business with. Brokers fire off a dozen or more emails to various carriers to find out if they are interested in a particular risk they are looking to place. Quote rates average 30-to-40 percent; hit rates average 20-to-30 percent, and the typical conversion rate is somewhere between 10-to-15 percent. It’s really troubling because each time an underwriter opens an email it, costs them $200 on average just to read and evaluate what’s going on with that potential policy. Billion of dollars per year are wasted in this inefficient process. Why? Because that’s the way it has always been done.
Enter the Internet, cloud, crowd sourcing and the ability to match the appetites of carriers with the desire of brokers to match their clients’ needs to carriers that have an appetite for that business. This is where Evosure steps in and gives the underwriters the ability to specify what type of risk they want to underwrite. This risk is defined in N dimensions: product, state, industry, size, etc., rather than the two dimensions in spreadsheets currently used by brokers.
Although the underlying algorithms and data structures are exceptionally complex, what the user sees is effortless and simple. There’s no more time and resources spent on sending thousands of inquiries to carriers who don’t want to write that business. This technology will make brokers more effective and better able to represent their clients, and make it easier for them to place policies faster giving them a competitive advantage. It also makes it easier for carriers to process business that best fits the risk appetites that they have.
After all, carriers have valid reasons not to want to write a piece of business. For instance, it does not fit their risk appetite, or it is in a state, industry SIC code, or a type of product they don’t want to do business in. Carriers won’t waste resources quoting business they don’t want anyway. When this process is re-engineered it becomes a win-win for both sides of the transaction.
We started our conversation with Boyle’s second law. Remember, the faster and cheaper you can do something, the more innovation and value you can create.
From my viewpoint, having users become productive in 10 minutes is fast, and saving hundreds of millions of dollars is big. What’s even bigger is making brokers and carriers better at their jobs of representing their customers and having growth in profitable written premium. In fact, that’s not big, it’s huge.
This blog has been published with permission from Mike Boyle, CEO at Perseus Technical Strategies LLC.
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