Viewpoint: Investment in digital technology is critical to success in today’s insurance industry

Our industry may have been relatively slow to embrace digitalisation, but most insurers now accept that to stay competitive in today’s market, it is imperative they adopt a new approach to the use of technology.

There is also now a realisation that companies that fail to adapt will fall behind and miss an opportunity to reduce costs and improve returns.

There is no doubt there are significant and measurable benefits to digitalisation. Automation can reduce the cost of the claims journey by as much as 30%, according to a McKinsey study on digital disruption. KPMG found digitally mature firms had 25% higher revenue growth and 31% higher earnings before interest, taxes, depreciation and amortisation over the past three years.

What is technically possible varies hugely between classes of business and distribution models. For some, such as personal lines, which involve high levels of repetitive data entry, a complete digital solution is achievable. However, for more commercial and complex classes of business, technology can play a more limited but equally important role – pulling in data from external sources via application programming interfaces to simplify the underwriting process, improving the quality and consistency of data to enable better underwriting decisions.

Regardless of how carriers and brokers use technology, the need for experienced professionals will remain, however their roles will almost certainly change to focus more on what data is required and how it can be analysed to improve performance.

Rather than replace job roles, technology will result in them evolving. Underwriters will have the opportunity to use their experience to analyse risk information rather than simply reading proposal forms – a task that can be performed by machine.

Legacy challenges

Large carriers with complex legacy systems and portfolios may find themselves overwhelmed by the sheer scale of the task of digitising their business. Global insurers with significant portfolios and multiple classes of business can be forgiven for wondering where to start.

Many insurers have internal targets for digitising a proportion of their portfolios, but they may be tempted to look to insurtechs as an alternative to addressing the technology challenge in their own business.

There can be a tendency to think that unless you can digitise the process from beginning to end, there is no value in trying. This, I think, is one area where managing general agents (MGAs) have an advantage. Being smaller, more nimble, companies with access to good technology solutions and no legacy issues to deal with, an MGA can take on the task of automating (or semi-automating) a portfolio that simply would not “move the needle” for a large insurer.

Virtually any class of business can be simplified or improved using technology, even if the focus is only on capturing data more consistently to improve portfolio analytics and reporting. Other parts of the process can be improved over time as part of a journey, rather than a one-off solution.

We should not overlook the fact that the advantages of advanced technology are not limited to reducing costs and improving profitability. Many underwriters become frustrated with outdated technology and the additional tasks that creates. Providing genuinely useful technology solutions can be a way to attract and retain talent by creating an environment that enables them to focus their experience and knowledge on adding value. For businesses battling to get the best staff, this could be a vital competitive advantage.

The effective use of technology can reduce the regulatory burden on MGAs. In a tightly regulated market, smaller players may feel the cost of compliance is so high that it is eating into margins. The right technology can help by improving data capture and data quality and to simplify regulatory reporting.

Automation does not provide a complete answer or solve every challenge, and it will not replace the years of experience and market knowledge of underwriters or brokers. However, a combination of the intellectual capacity and experience of people combined with the data-harnessing power of technology will be a key driver in improving the efficiency and sustainability of the insurance ecosystem.

Andy Colbran is chief executive of NuVenture International