Adapt or die: digital evolution and the re/insurance industry

The far-reaching implications of digital transformation were on the agenda in an Intelligent Insurer webinar,  Digital Evolution and Industry 4.0: re/insurers must adapt or die, held on December 7 2021.

Panellists Pravina Ladva, group digital transformation officer at Swiss Re, Anthony Day, partner and international head of insurtech at DLA Piper, Joan Cusco, global head of transformation at Mapfre and John Wang, digital expert and partner in Aon’s Inpoint team discussed strategies and innovations within their organisations, the risks and opportunities of digital transformation, and what the future landscape will look like.

A key theme was the depth to which digital transformation must extend within an organisation; it is not simply a matter of adopting a clutch of surface-level innovations.

“It's about embracing digital across your organisation,” said Day.

“It's looking at how you embed digital, change the organisation, and use digital to drive market opportunities and deliver competitive advantage. It’s about transforming the way your organisation works and running through quite sophisticated digital transformation programmes.”

Current initiatives

The panel discussed a range of digital developments within their organisations, including transition to the cloud, Swiss Re’s use of telematics to predict driving patterns, and Mapfre’s introduction of telemedicine mental health care solutions.

Cusco also discussed how Mapfre is collaborating with Shift technology, the French unicorn, in the claims automation space. “What's disruptive in this approach is that we are not trying to digitise the existing process, we're actually eliminating the process on the Mapfre end - so we're giving the customer the ability to process a claim end to end: to provide information, get the decision and get the settlement in a single interaction in self-service mode.”

Customer centricity

Mapfre’s example highlights the importance of customer centricity for successful digital transformation.

“One core factor is how to use digitisation to improve our core day to day activities, the service we deliver, and ultimately the service to the clients,” agreed Ladva.

Cusco added that it’s important to be able to flex to meet different types of customer needs: some will want intimacy with their insurer and the ability to use data to improve their premium and their coverage; others may prefer their carrier to work behind the scenes. “The good thing is that digital technology allows us to do both things: to be super present or to be super silent; we need to work in both directions,” he said.

Wang agreed. “You have to have the balance of digital with what I would call the manual process,” he added. “You have to understand when to go digital, and when to go back to the cornerstone of customer service, making it meaningful to the end user.”

Drivers of digital transformation

Wang identified operational expense savings and profitability as key drivers of digital change, while Cusco added that disruptive new entrants and changing risks are also factors that push insurers to innovate. He noted, however, that when it comes to the relationship between digital innovation, cost cutting and increased profitability, the landscape is a complex one.

“These technologies don't help you increase the premium. On the contrary, customers expect lower premiums because of that data they are giving away and the risks they are managing better now; so in this transition between the legacy operational models and pure digital, new business models, there's a death valley in which we're just investing.”

Ongoing evolution

Cusco added that in a competitive landscape, it’s important to keep scanning the horizon and evolving. “We look at horizon two, horizon three innovations that might actually help us prevent disruption, help us anticipate disruption, and also help provoke disruption and be part of changing the game,” he said.

Ladva noted that fresh opportunities can be found in the new ways in which customers consume technology. “It creates new ways people want to engage with us, new ways people want to purchase insurance, new risk pools emerging, and better data about existing risk pools. All those are pressures, but for us, they're opportunities, and now we make use of technology along with thought leadership about how to translate that technology into services and solutions for the end client.”

Use of data

Day highlighted the intelligent use of data as a key opportunity for innovation and progress: re/insurers already realise the importance of data, and now, with the introduction of enhanced analytics and AI, they have ability to kind of take control of their data, monetise it properly, understand and leverage that data, enrich it with other datasets and then use it in more creative ways across the organisation.

“That is driving a lot of change, and it also means that from a market proposition perspective, you're able to make more informed choices about where you want to evolve products and services,” he said.

Wang added that the use of data enhances the delivery of services to clients, fuels better decision making, and drives operational efficiencies, as well as improving outcomes and claims.

“We’re trying to harvest unstructured data and marry it with structured data, helping the adjusting staff internally and ensure they make better decisions as they go about their day,” he said.

The issue of ownership

Day said that while there is massive appetite to bring tech startups or scale ups into organisations to leverage AI solutions, one question that often doesn't get addressed, particularly from a contracting perspective, is who owns what and whether there are any limitations on what your partner can reuse with other clients.

“Within the AI space, the really important thing is to own the learnings to the algorithm,” he said.

However, Wang and Cusco noted that some sharing does need to take place in order for development and innovation to continue.

“The point is that if you keep the algorithm for yourself, you're going to kill it because of the lack of data and churn,” said Cusco. “You need the algorithm to be open to more amounts of data, to more training, to more market, and so on. The two solutions for that are first to negotiate limited exclusivity rights – for example, to say ‘I want this to work for me only in this country and for this use case, but I want you to keep training the algorithm with customers in other countries and in other use cases.’ The second is to say, ‘We want it to grow and grow with more training, more data, and so on, but we don't want to pay for everyone's party; so if we're the first ones paying for the algorithm, and moving the data, then we get part of the financial return.’”

Other challenges to innovation

To embrace digital evolution, old patterns and processes need to be left behind.

“Our biggest risk is inaction - and the inaction is caused by legacy, not just in tech, but legacy in all of its forms,” said Ladva, adding that it’s important to learn from outside the industry as well as inside it.

Day identified the speed of regulatory change as another key challenge, noting how much it influences the way in which digital transformation is executed.

“Particularly in Europe, there's been a lot of regulatory change around outsourcing and cloud; you really need to understand your supply chain. The second piece is the data protection privacy lens; the regulators now, particularly in Europe, but also in many other countries, are no longer allowing you to not know what's happening with your data - you need to forensically know where your data is hosted, where it's being transferred to, third parties you're sharing data with, and so on.”

He also emphasised the importance of operational resilience. “That means really understanding what happens when technology fails - and there's a particular focus on the key cloud providers, as they effectively provide the cloud infrastructure for all insurers and reinsurers, and tech companies across the market.”

The future landscape

Looking to the future, Cusco recommended taking a considered approach to digital hype. “We have a love hate relationship with hype; it lures half of the organisation, and it scares the other half – and it will probably deceive both sides. It’s very difficult to handle hype with caution, but at the same time prevent yourself becoming a laggard.”

Wang predicted that in the next five years most of the evolution will be on the data side, with a focus on harmonisation of data standards and the sharing of anonymised data.

Day agreed that there will be more and more collaboration, with some interesting business models coming out of that. Asked whether more insurtechs will become insurers, both he and Wang again highlighted the potential for collaboration.

“I think more and more insurtechs will partner either with each other, or with the carriers, to evolve,” said Wang, while Day added: “I think there's always going to be division across the market because insurtechs don't want to be regulated, they don't want to have the cost and hassle associated with it unless they're genuinely building a business to be a direct competitor to a carrier; so I think there's going to be a lot of partnership, a lot of collaboration, because insurers and insurtechs have different roles within the value chain.”

Day also predicted that sustainability and ESG themes will increasingly intersect with digital.

“I think there's just going to be much greater focus, within all aspects of insurers and reinsurers, on environmental and sustainability goals, and that will naturally then bleed through to digital initiatives,” he said.

While Wang predicted slow evolution, Ladva said she expects the rate of change to double. “That's because I don't think we will have a choice,” she said. “The external environment – the economic environment and customer demand - will force us to make that change.”

To watch the session in full, click here