The Myth of the Digital Insurer

Myths through the ages

Myths are, always have been, and always will be an intrinsic element of human society.

Myths like the Golden Fleece, Minotaurs, Unicorns, Cupid, Excalibur, and thousands of others have taken center stage in different segments of human life at different times, disappeared, and been replaced by newer tales and folklore.

Myths provide a source of controlling people, exhilaration, entertainment, morality, ideas, and, at times, provoking war.

But whatever the myth that emerged at whatever point in time in whatever segment of society that created or lived though the myth, one truth endures: myths are not real.

(Images from Bing.com)

The mythology of the digital insurer

In what I label the Fifth Technology Era which is the era we are all living in, the latest myth to emerge is the myth of the digital insurer. The portfolio of Fifth Technology Era technologies are (re)shaping commerce throughout most, if not all, industries. Specifically, this portfolio is accelerating quick-and-easy to use customer-friendly applications enabled by a mobile, digital web-accessible, cloud-enabled, video-supporting architecture.

These technologies and associated applications are expanding commerce from the constraints of three-dimensional terrestrial geography to a four-dimensional ‘digital-space’ of commerce that employs time not as a barrier but rather as an integral component of anytime, anywhere commerce.

(Note: I discuss the technologies and applications of the Fifth Technology Era – as well as the technologies and applications of the previous four technology eras in my book “From Stone Tablets to Satellites: The Continual Intimate but Awkward Relationship Between the Insurance Industry and Technology” published by Wells Media Group, Inc. in June 2022.)

Most people expect the insurance industry to either be an active example of conducting commerce in the four-dimensional ‘digital-space’ of commerce or at least rapidly deploying initiatives to become such a commerce player. The people (in ‘most people’) include insurance customers and prospects, insurance industry employees and contractors, insurance marketing and sales professionals, and insurance advisors whether consultants or journalists.

The fulfillment of this expectation by and of insurance firms is neatly summarized as insurance firms becoming ‘digital insurers’ hopefully in the shorter term rather than in the longer term. The expectation is further fueled by the ‘instant gratification’ philosophy of most consumers, whether they are digital natives or not, and augmented by the erroneous belief that insurance (name your favorite insurance line of business segment) is a commodity.

Three reasons that digital insurers are a myth

There are, at a minimum, three reasons that a digital insurer is a myth. Firstly, digital insurers do not exist. There are no minotaurs.

Secondly, the likelihood of a digital insurer ever existing is extremely low, almost infinitesimally so.

Thirdly, even if insurers were digital insurers (which to me means being able to conduct commerce entirely digitally throughout their internal operations and throughout the insurance ecosystem regardless of customer, prospect, distribution channel, suppliers, third-party contractors, or others), they would also have to be able to conduct insurance commerce entirely with physical artifacts as well as with a mixture of digital and physical artifacts.

However, I understand the attraction of the digital insurer not being a myth. Hey, if Amazon can do it, why not an insurance firm? One reason, of course, is that no line of insurance is a commodity. Not one. The purchase of insurance, regardless of the insurance segment we are discussing, requires consultation / advice. That includes personal lines auto insurance or homeowners insurance. (Any person who purchases insurance without talking to an agent/broker has a fool for a client and an idiot for an advisor.)

Whatever a digital insurer is or is not, there are two truths which persist, for an insurance carrier, whether incumbent or startup:

The volume – amount of premium or number of policies sold – is not of primary importance: the profitable quality of each policy sold is of primary importance.
The speed of paying claims is not of primary importance: the ability of the insurance carrier to minimize loss costs, including minimizing fraud, is of primary importance.

But can insurers really become digital?

Moving from myth to materiality

Initiatives to move from myth to materiality

But what is a digital insurer? I haven’t answered that ‘square one’ question yet.

If a digital insurer is to ever move from myth to materiality (e.g. become real), there are several initiatives that must occur within each insurance carrier as well as throughout the activities involved with insurance commerce. If an insurer ever becomes completely digital (and I mean completely) that is accomplishing a necessary but far from sufficient objective.

For me, insurance commerce encompasses at a minimum, processes supporting: insurance shopping, purchasing insurance, insurance administrative services, and insurance claims service.

View from a potential digital insurer

To exist as a reality, there must be a coherent, consistent, complete sense of vision of every person who works for a digital insurance carrier.

An anecdote involving the US President John F. Kennedy and one of NASA’s janitors is instructive:

“The story goes like this. President John F. Kennedy was visiting NASA headquarters for the first time in 1961. While touring the facility, he introduced himself to a janitor who was mopping the floor and asked him what he did at NASA.

“I’m helping put a man on the moon!” — The janitor”

Excerpt from an article titled: “JFK and the Janitor: Understanding the WHY that is behind what we do”, Tanya Jansen TOTAL COMPENSATION MANAGEMENT, NOVEMBER 26 2014, Beqom

As Ms. Jansen wrote in her article, “The janitor got it. He understood the vision, his part in it, and he had purpose.” [My emphasis shown in bold.]

Everyone who works for a digital insurer either directly or as a third-party must also ‘get it.’ That includes everyone who is involved with one or more of the high-level components of an insurance company (see visual) and subsumed processes and activities (not shown in the visual).

Here is my brief description of each high-level component:

Business Model: the response to ‘how’ an insurer perceives their marketplace changing around them and subsequently structures their strategy and associated operations.
Vision / Mission: Vision answers the question “who do we want to be” while Mission answers the question “How will we get there?”
Governance: The practices and processes used to run the insurance company.
Competencies / Assets: Competencies are the capabilities that differentiate the insurance company from other companies; Assets include, but are not limited to the processes, people, knowledge, distribution channels, locations, communication and collaboration networks, data bases, and brand.
Culture: Culture encompasses how people behave and what they believe to be true within the insurance company.
Strategy: Determining how to successfully differentiate the insurance company in its target markets of choice.
Operations: The business processes (and associated activities) used to run the insurance company. These processes can also be discussed as, for example, Systems of Record, Systems of Engagement, Systems of Insight, and Systems of Communication and Collaboration.
Investments and Finance: The processes used to cede / assume reinsurance, calculate reserves and surpluses, determine and make investments, and GL/AP.
Infrastructure: Infrastructure encompasses at a minimum the physical resources, telecommunication networks, and human resources (employees and third-party contractors).

My main point is that if only a small subset of an insurer’s employees – as an example, the management of each department and possibly a handful of key employees – understand the why of becoming – and remaining – digital, then the insurer will fail in achieving its objective of moving beyond myth to materiality. The digital insurer will remain a minotaur.

Why become a digital insurer?

There is a macro reason for the ‘why’: the why of becoming a digital insurer. I discussed the ‘why’ earlier in the post: The portfolio of Fifth Technology Era technologies – an Era we are all currently living in, although far too many people do not have access to broadband wireless connectivity, are (re)shaping commerce throughout most, if not all, industries. This portfolio is accelerating quick-and-easy use of customer-friendly applications enabled by a mobile, digital, web-accessible, cloud-enabled, video-streaming supporting architecture.

Putting it another way: digital natives and increasing numbers of digital ‘tourists’ are using high-speed wireless connectivity to conduct commerce, shop, be entertained, consume medical advice, and otherwise collaborate and communicate with family, friends, and colleagues dispersed throughout the planet.

Simply stated: The ‘why’ for an insurance firm to become a digital insurer is that increasingly more customers expect it. The myth must become material, it must become real … at least in the eyes and capabilities of many people and companies who are customers, employees, and third-party contractors.

Insurance commerce view

Of course, marketplace expectations do not equate to marketplace realities.

What are some of the insurance marketplace realities?

One reality is that the mixture of physical and digital artifacts will continue to exist throughout the entire insurance ecosystem of partners, suppliers, third-party contractors, and, of course, customers and prospects. (See visual.)

The mixture will change for each participant – person and company – in the insurance commerce ecosystem at different rates and at different times. However, the existence of physical artifacts is not going to disappear. Physical artifacts will always be part of the mixture of the two major types of artifacts.

Waiting for every existing and future customer – whether retail or commercial – to eliminate all of their physical artifacts is as useless as waiting for Godot.

I’m going to use the above visual in three visuals in a section below. Don’t worry. You’ll see it in each one because I created a version in red.

Here are my brief descriptions of both types of assets:

Physical artifacts include those items a person can touch such as, at a minimum, paper, fax machines and facsimile output, interoffice mail envelopes, printers, paper clips, file cabinets, typewriters, whiteout (Google it), pens, pencils, filing cards, and folders. (Yes, servers, mobile phones, desktop computers, laptops, and tablets are physical artifacts – you can touch them, can’t you?)
Digital artifacts include items a person can not touch such as, at a minimum, systems of record, systems of engagement, broker management systems, systems of communication and collaboration, systems of insight, systems of finance / accounting, as well as the data captured, stored, and/or flowing through one or more of these systems.

Note that customers, whether retail or commercial, have their own physical and digital artifacts. They also have their own versions of Systems of Record (SoR), Systems of Engagement (SoE), Systems of Communication and Collaboration (SoCC), Systems of Insight (SoI), and Systems of Finance (SoF).

So what?

The ‘so what’ is that it is these customer DAs/PAs mixtures that the insurance firm interacts with throughout each instance of commerce. That encompasses shopping, purchase, customer service, and claim service.

One obvious implication is that a digital insurer will have to be a multi-headed beast: As I alluded to above, it will have to be able to conduct commerce entirely digitally; entirely on an analogue basis (i.e. only using physical artifacts); and in most instances by using some mixture of physical and digital artifacts.

Unfortunately, there are far too many people who erroneously believe that technology will transform the entire insurance ecosystem into a complete 100% digital portfolio of platforms and ecosystems. The reality is that the digital insurer will also have to create more physical artifacts for one or more of the ecosystem participants it conducts commerce.

Some insurance commerce DAs/PAs examples

Now, let’s consider insurance commerce using a lens of the mixture of the Digital Artifacts / Physical Artifacts for the insurance value chain, auto claims, and the insurance commerce ecosystem. (Yes, insurers participate in a commerce ecosystem. Insurers have ALWAYS participated in commerce ecosystems. Hate to burst any bubbles of VCs or others who erroneously believe that they are cheerleading for a new idea. [Actually I love pricking balloons with the ‘needle of reality’.])

Keep in mind that I wrote above: The DA/PA mixture will change for each participant – person and company – in the insurance commerce ecosystem at different rates and at different times.

Focusing on the mixture of DAs and PAs in the insurance value chain

I’ve mentioned that an insurer becoming a digital insurer (i.e. only having digital artifacts) was not realistic. Insurers will always have a mixture of digital and physical artifacts throughout the various components that are part-and-parcel of their company.

Moreover, each of the key participants in the insurance industry will always have a mixture of digital and physical artifacts. (See visual.)

I’m thinking of ‘always’ as being a time period consisting of many, many, many, many decades. Customers, whether existing customers – whether retail or commercial – will always have a mixture of DAs and PAs. Brokers, reinsurance brokers, and reinsurance companies will always have a mixture of DAs and PAs.

This means that there will be processes and associated activities that will be enabled by, and also generate, a mixture of DAs and PAs by one or more of the participants in the insurance industry value chain. Fax machines aren’t going to disappear and neither will paper (documents, files, file folders). Postal services will not disappear and neither will interoffice ‘mail’.

Whatever the mixture is of DAs and PAs for each participant, insurance firms – of all flavors and types – have to take the mixture into account as they go about their business of integrating systems within their firm and between firms for each specific instance of insurance commerce.

Focusing on the mixture of DAs and PAs in auto claims

Let’s move from the very high-level insurance industry value chain consideration of the mixture of DAs and PAs to a more explicit example: the mixture of DAs and PAs in the auto claims processes.

I suggest that insurance firms consider the likelihood of DAs becoming a larger per cent of the DA/PA mixture within the next 10, 20, 30 or more years for:

Police departments creating, storing, and sending accident reports from a jurisdiction where the claimant’s accident occurred
Vehicle body shops
Rehabilitation providers
Claim adjudication firms
Law firms.

Moreover, as these participants in the auto claim adjudication and management processes shift a larger per cent of their assets to digital assets, I wonder if there will be data standards (hell, I wonder just how ‘clean’ the data elements will be within each process used by each participant in these processes) to enable data sharing between each participant.

I believe the data sharing issue remains an issue for commercial insurance clients. I can only imagine the level of exasperation that risk managers of commercial insurance clients currently feel – and will continue to feel – due to data issues even as the DA/PA mixture shifts to feature more DAs.

Further, there is the matter of which specific PAs actually become DAs for each of the participants. There is the possibility that the so-called ‘low hanging fruit’ of some PAs becoming DAs is a waste of time from the perspective of claimants waiting for their money. (I realize that one glaring omission from the visual is the customer’s bank, credit union, or wherever they need the claim check deposited [hopefully electronically but that is not a given]). Yet another source of a DA/PA mixture that insurance firms need to take into account.

A more realistic picture of insurance ecosystem DAs and PAs

This is a situation where I wish I could use, or knew how to use, animation in a WordPress blog post.

I’ve briefly discussed the DA/PA mixture for a high-value insurance value chain and for an oversimplified auto claims management situation. (Note: Obviously the police departments are missing from the visual.)

Let’s move to reality.

Reality is multiple degrees different than desired or market expectations. Reality encompasses that insurance firms have always participated in ecosystems. Think of an insurance segment line of business and then expand that picture to include every participant person or company that is involved in the commerce of insurance for that segment. (See visual.)

Each participating person or company in the insurance ecosystem has its own DA/PA mixture. Each participant is changing the DA/PA mixture at their own pace. Each participant is choosing which PAs (if any) to become DAs (noting again that their choice may be suboptimal at best from the perspective of meeting or exceeding insurance customer needs and expectations).

One specific callout to an ecosystem participant I’ve not yet mentioned: insurance regulators. I wonder what their DA/PA mixture is for each insurance line of business in each of their jurisdictions. I bet it ain’t mostly DA for each interaction they have with (re)insurance companies and insurance customers.

Reality is why insurance firms (whether carrier, reinsurer, agency/broker, third-party claim adjudicator) won’t be able to conduct insurance commerce completely digitally.

Will the myth of digital insurers persist?

One reality about digital insurers, whether they ever become more than a myth, that I mentioned above – several times – is that they will need to operate simultaneously in the analog world and the digital world (including a world that is a mixture of both).

Insurers will always have existing customers – and third-party contractors, partners, and suppliers – who want to conduct commerce with them using analog artifacts (e.g. paper, fax machines, postal mail), or entirely digital artifacts (e.g. mobile, web-accessible, cloud-enabled, video-supporting applications with nary a piece of paper in sight), or some combination of analog and digital artifacts.

An insurance firm, whether carrier or agency/broker firm or reinsurer, that believes they can conduct commerce, including supporting processes and activities, entirely digitally would be in for a shocking fact: the real world is not going completely 100% digital any time over the next four, five, or more decades (if even then).

One other shock, which should really not be a shock, is that advanced technologies are not going to replace insurance agents / brokers at all. (Advanced technologies are not going to replace insurance carriers either.) The only way without brokers is for each State in the United States to change their laws to permit consumers’ and enterprises’ risk exposures to be managed entirely by technology – that is, to legally allow technology to replace the insurance agent/broker function. Until that happens, there is that inconvenient legal truth that agents or brokers must be involved in the commerce of insurance.

I can’t swallow the kool-aid that people are drinking that believe agents/brokers are going to be replaced by technology (not even by generativeAI). Nor can I be so myopic as to believe that any State will put insurance client’s (personal or corporate) assets at risk because of people who are so blinded and deluded with technology that they believe that technology will conquer all.

A second shock, which again should really not be a shock, is that algorithms and data models – regardless of which technology is used – will remain under the watchful eye of insurance regulators in the jurisdictions that an insurer does or wants to conduct commerce.

Will the myth of digital insurers emerging in the insurance ecosystem persist? Unfortunately, yes.

Why?

This quote attributed to Einstein comparing genius to stupidity always comes to mind: “Genius has its limits but stupidity doesn’t.”