In this series of blogs, my colleagues and I will look at the insurance sector in emerging markets, with a particular focus on technology, digitization, platforms and ecosystems.
One of the most important issues facing insurers is how to modernize their core platforms, which in most cases are unsuitable for the digital age. The challenges and solutions differ for pests and life insurance companies, so I will address non-life insurers here and life insurance companies in my next blog.
The insurance distribution has changed in recent years – largely due to changing customer needs and habits and the digitalisation of markets. Customers expect to find the P&C products they need online and expect these products to be easy to use. Few see much need for agents (although this is less the case for life insurance companies).
In short, P&C customers want a different relationship with their insurance companies. This applies to both the sales side and the services, where customers expect to be able to say update their addresses or their insured value online.
Changing customers' expectations is thus an important factor. Another is the increase in consumer platforms. These have completely reworked how the insurance is distributed, and reshaped the perception of who the customers know can legitimately offer them insurance products. Many airlines, for example, offer travel insurance when you buy your ticket. Equestrian companies such as Uber, Gojek and Grab also offer insurance products.
The question is, how can insurance companies gain access to these customers? To do this, they need systems that can be connected to digital platforms, and that are fast and reactive enough to match customers' expectations. Outdated core platforms are impossible.
Although it is important to modernize core platforms, it is expensive to replace them. This is where non-life insurers have several advantages over life insurance companies.
Their first is that non-life insurers can buy superior software from the shelf that makes them more reactive both in terms of creating and distributing products and serving customers. Although the software is not necessarily easy to implement, it is indeed possible to achieve rapid change. In particular, P&C players can link product catalogs to existing systems to quickly create new offers and release them on the market. The right digital solutions also give insurers the opportunity to analyze data for micro-segment customers and target them with tailor-made products.
A few years ago I saw for myself how effective these systems are. The Malaysian government had recently abolished the regulation of premiums, which led to a customer trying to position itself more aggressively in the market. For this purpose, it installed a product catalog which meant that it could change its premium ratings in days rather than months. It put it far ahead of its peers.
Such solutions are available for service and claims management, with software running in the cloud, maximizing efficiency. An important advantage is that this enables insurers to capture the information they need to use for analysis purposes. A health insurance company I worked with, for example, can now analyze hospital bills in detail, so that it can compare, say, the billing amount for an x-ray with the average cost of that country.
But where these solutions really come into their own is to get products marketed quickly and expose them to new partners. Keep this in mind: if Uber came to your company for P&C products, can you connect products to Uber's system within a week? This is what digital platforms expect, but still few P&C insurers can achieve.
The challenge is to choose the right platforms for the needs of P&C insurers. There are many good software solutions, but they do not work equally well for everyone. In my experience, the most common failure comes from choosing the wrong software for the wrong reasons ̵
The proper approach is to make sure you understand, in advance and in depth, what the potential platform needs to do. Therefore, if you are looking for a software solution, the first step should not be to prepare a questionnaire with thousands of questions and hundreds of product specifications and then run the Request for Proposal (RFP) ruler across candidates based on that level of detail. (I remember a very large company that called us an RFP that covered everything – from front end to CRM to policy management to accounting claims. It was simply too difficult.)
Instead, it's best to shortlist software based on what it can help your business deliver for the future. In practice, this involves designing a selection process based on a few dozen questions – focusing on core features such as configurability versus coding, technical architecture and APIs, cloud / SaaS availability – before identifying a narrow list of possible solutions based on factors such as pricing potential . Only after this should you do a detailed evaluation, which should largely include real-life examples such as how to create a new product or how to connect to an external distributor.
This is the method recently applied by a customer who wanted a product catalog. which its actuaries can use to configure products without IT intervention. After limiting the options, we spent a week showing the actuarial management tools. At the end of that week, the actuary designed new products from scratch. With the right delivery system at hand, the insurer can roll out these solutions in a few days.
Earlier I said that the situation is more challenging for life insurance companies. Keep your eyes open to find out why and what steps life insurance companies can take to ensure that their core platforms are suitable for the purpose.
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