The insurance industry has existed in one form or another since pre-biblical times. (See Code of Hammurabi circa 1754 BC.) Throughout its existence, insurers have provided a critical value-add to society through the mitigation or management of risk. During all this time, insurers have always used technology to support their business objectives.
From stone tablets to social media, from quill & ink to computer productivity software, from desktop calculating machines to Hollerith punch cards, from plastic raters to mobile phone apps, and from paper maps to GIS on laptops (or tablets or smartphones), insurers have always experimented or deployed technology.
The first reality: technology has always played a role helping insurers get and keep customers.
Sometimes the role of technology is to improve operations: that is, to enable insurance business processes to become more efficient or more effective. Sometimes that role is to quicken the pace of servicing customers or brokers. Sometimes that role is to create new insurance products. Sometimes that role is to help find new customers in new markets. Whatever the objective, technology has played, and continues to play a role getting and keeping customers.
It is irrelevant if investors or the young(er) generation of the times don’t see how insurers are using technology: their blindness doesn’t alter the reality that every insurer uses technology.
The reality of how technology impacts the insurance industry
Another reality is that technology impacts the insurance industry in one or more of three areas (at a minimum). Technology:
- provides capabilities to improve the effectiveness and / or efficiency of insurance core administration or other business operations
- alters how insurance commerce is conducted (for prospective clients, for clients, for distribution channels, for claim adjudicators, for third-parties who remediate property damage and / or rehabilitate bodily injuries)
- changes the landscape of risk by introducing new risks, altering existing risks, or eliminating existing risks.
Yet another reality is that technology (regardless of how new the technology is or large a market share the technology has within or across any vertical market space or how important it is for a technology firm to sell its solutions to generate revenue) does NOT transform an insurance firm (startup or incumbent) into a technology firm.
One absolute fact about technology and the insurance industry
A fourth reality is that success of an insurance firm depends entirely on understanding and managing the market dynamics and competitive dynamics of the insurance line(s) of business the insurance firm exists to sell and/or support.
Insurance regulators do not contact an insurance firm after the firm deploys any type of technology to alert the insurance firm that ‘the firm is now a technology firm’ or to send the firm new regulations with which to comply.
Investors, management, employees, clients, and prospective clients of the insurance firm must accept the absolutely stark reality that the insurance firm, startup or incumbent, remains an insurance firm regardless of what technology or set of technologies the firm uses.
Two steps to take to face reality
Perhaps one step to the acceptance of reality is for any person who believes the lie that the insurance firm is, or can become, a technology firm would be to remove and melt down any awards they got as children or young adults for participating in a sports team (rather than an award that they should have received ONLY if their team actually won that sport’s championship).
Perhaps another step would be for investors and / or managers of startup insurance firms to grow a backbone and tell themselves, their employees, and their clients of the startup insurance firm the truth: the truth being that the startup insurance firm is an insurance firm regardless of what technologies it uses to get-and-keep customers.
Major types of insurance systems
A further reality is that insurance firms rely heavily on several major types of business systems to get-and-keep customers. But again, there is no alchemy at play. There is no transformation that turns an insurance firm into a technology firm because insurers use any of these systems.
These systems (which are or should be managed as interdependent systems) include, at a minimum:
- Systems of Record: includes core administration systems such as policy administration, billing, and claims management) as well as underwriting systems.
- Systems of Engagement: includes product development systems, marketing systems, CRM, CX, and Agent / Broker Management (i.e. producer management) systems.
- Systems of Insight: includes geographic information systems / geospatial systems / earth observation data and modeling systems, decision support systems, algorithms and modeling systems, analytical systems ranging from semantic / text analytics to diagnostic / prescriptive / predictive / cognitive analytical systems and AI systems (whether using neural nets or fractals or other)
- Systems of Communication and Collaboration: includes email systems, messaging systems, video interaction systems, chat systems, VoIP systems, virtual reality systems, and augmented reality systems.
- Systems of Finance: includes reinsurance pricing systems (ceding or assuming), surplus and reserve systems (I have no idea if these exist), and general ledger / accounting systems,
I plan to write posts about emerging technologies and their potential impact on the insurance industry. I’ll discuss the technologies and technology vendors that provide the technologies. When I can get the information, the insurance firms using or planning to use the technology and where in the insurance value chain they plan to use or are using the technology.
I can’t think of any technology, including space technology, nanotechnology, genomics, or materials technology that won’t impact any one or more of the three areas I mentioned at the start of this post.
That is one reason being a technology-focused insurance industry analyst is both exciting and rewarding.
I believe, however, that the best reward of being an objective, independent technology-focused insurance industry analyst comes from popping the (far too many and continually growing number of ) ridiculous balloons that technology firms, consultancies, and assortment of gurus let loose to benefit themselves instead of actually – and truthfully – helping the insurance industry.