Why Is That?

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For all the talk about insurtech, we still live in a world of aging systems, outdated architectures, all required to keep pace with the countless processes required to run an insurance business. Why is that?

Much of what’s being touted as insurtech comes from people new to the insurance industry. People who do work in insurance don’t have time to contemplate the future. They have their hands full with the present, having to manage time and cost, profit and loss, expenses and adjustments, investments and returns, retentions and ratios. Those who work in insurance have to worry about keeping their jobs by selling policies and service. Those who don’t have to sell policies and service have to worry about keeping their jobs by trying to sell insurtech to those who do. Why is that?

Déjà vu All Over Again1

Much of what we hear about insurtech has been said before—many times. Some examples:

  • Insurers are too conservative to notice the changing world around them.
  • They can’t comprehend how technology will change the way insurance will be offered, bought, and sold.
  • IT spending is up (or down).
  • The bulk of the money will be spent on policy systems (or claims systems).
  • The number of vendors in the market will expand (or contract).
  • Insurers will replace systems with best-of-breed solutions, point solutions, or end-to-end solutions.2
  • The sky is falling.

And those prognostications are ways delivered with dread and foreboding: Do something — anything — or you’re doomed. Why is that?

I See, said the Blind Man3

The insurance industry doesn’t have to save itself from anything. It’s doing quite nicely, thank you. It’s just trying to understand its technology options and make a living. And all it gets is stale Chicken Little rhetoric. Why is that?

In part, it’s because insurers, vendors, advisors, analysts, and the trade media have different agendas. They seem to exist in different worlds. The effect is the rough equivalent of an astronomer with cataracts gazing through his telescope on a cloudy night: There may be some discernible light, but the picture is dim and confusing. So, the industry chugs along, keeping company with the notion that its competitive salvation is IT innovationor, as it were, insurtech. Why is that?

Let’s Try Reality

IT spending in the insurance industry may stagnate, but it isn’t going down. And the insurtech proponents may make the most noise but, thanks to large insurers, the industry still spends the bulk of its IT budget on internal development, a luxury mid-sized and small insurers can’t afford.

Faced with such facts, the best thing to do is face them. Insurtech can’t be ignored, it has to be assessed pragmatically. Policyholders can’t be ignored. They still require products and service. And change can’t be ignored. Since it’s inevitable, we just have to find our own ways to live with it.

In the light of day, the most obvious truths may be the hardest to see. Why is that?

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1. https://www.today.com/news/its-deja-vu-all-over-again-27-yogi-berras-most-t45781

2. Solutions will always be in search of problems.

3. … as he picked up his axe and saw.

Cause and Effect

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Since we’re in the insurance-technology business, we tend to bristle a bit when we hear and read things about the insurance industry’s ostensible lagging behind some other industries in the adoption of technology. Granting the existence of such lagging, why do people assume it’s a symptom of technology aversion, as opposed to, say, good business sense?

“Well, if you look at retail, that industry uses technology for data acquisition, marketing, consumer targeting, customer acquisition, and increased sales. Retail even uses video surveillance and facial recognition to monitor customer behavior!” Point made. But …

How Do You Spell Risk?

Some people might put life, auto, and homeowner’s insurance on their shopping lists. But it’s not likely any large commercial risks or core administration systems will appear on those lists. By the same token, retailers surely have product-liability standards to uphold and commensurate liabilities to disclaim. But they don’t have to comply with stringent national and state-specific regulatory requirements to which insurers are beholden. And while retailers certainly have to manage risks to inventory and customer safety, those risks are of a completely different nature from the ones that define insurance.

In addition to having to take into consideration such things as behavioral trends, actuarial tables, risk profiles, geographic locations, and more, insurers have to protect policyholders’ privacy. Neither do they have the luxury of imposing retail mark-ups or selling policies at bargain basement rates, given the fact that, among the regulatory requirements they have to fulfill is mandatory reserves against claims not yet incurred.

Reality Check

“Well, insurance hasn’t changed much in the past 50 years.”Right again. In fact, it hasn’t changed much since Hammurabi invented it. But a peek below the rhetoric reveals there are reasons for that:

Stability and caution breed the trustworthiness that equates to longevity in the insurance industry. The expression, “Insurance is sold, not bought,” remains stubbornly true, regardless of the fact that most of us need it. And policyholders (understandably) demand more, requiring insurers to provide more, with attendant costs, from already thin margins.

So, yeah. Insurance lags behind some other industries in piling on the technology bandwagon. It’s true. But before we say that disparagingly, let’s understand why it’s true.

After all the benefits of good business sense get passed on to us in the premiums we pay and loss protection we get.