The Importance of Balance

On January 2nd, Insurance Thought Leadership published an article called, “Insurtech Trends for 2022”. We think it reflects the abiding confusion and uncertainty around insurtech. This excerpt seems to reflect that confusion and uncertainty:

While insurtech has been around for some time, the past year’s growth has been picking up substantially. We’re well past the days of simplistic disruptive thinking, where startups would present themselves as the Uber of X. Traditional insurers clearly understand the importance of becoming digital … The opportunity to transform traditional, legacy-driven processes remains massive, as is reflected in global investment transactions in insurtech – by the end of the third quarter of 2021, up another 23% from the year before and hitting $10 billion … Compared with overall fintech data, insurance actually still remains an underinvested sector.

If insurance represents an underinvested sector, where did the $10 billion go? If we’re well past the days of simplistic disruptive thinking — and if insurtechs have learned the underlying complexities of the insurance business model they aim to renew — why is insurance an underinvested sector? We may have an answer.

Value-Based Buying

In buying software or systems, insurers have to consider a number of factors:

  • What are their needs, short-term and long?
  • Who’s the vendor they’re buying from?
  • What’s the track record of the vendor they’re buying from?
  • Are they trading fresh ideas for a lack of experience?
  • Are they trading experience for a lack of fresh ideas?
  • Is it possible to get both?
  • How long will implementation take, including business rules, integrations, and customizations?
  • How good will the software of the system be once it’s up and running?
  • Does the long-term value exceed the short-term price?

Private insurance companies and mutuals are responsible for the financial interests of their policyholders. Publicly traded insurance companies are responsible for the financial interests of their investors. Neither of those responsibilities leaves room for undue risk-taking and dice-rolling.

That’s why we look for long-term, mutually beneficial relationships. That’s why we offer a fixed-price engagement so there are no short-term prices or long-term surprises. And that’s why we focus on total cost of ownership over the long-term.

The Best of Both

We understand most people would prefer the newest, the fastest, the shiniest. Maybe the insurance sector is underinvested (we’d like to see that term clearly defined) because insurance isn’t new, fast, or shiny. Maybe the promise of new, ideas doesn’t offset the security and stability of experience. Or maybe it’s possible to strike a balance.

We believe it is. That’s why we’re here.

 

Does Continuity Have a Price?

In an article we published in the Fall 2020 edition of the The Demotech Difference — “The Importance of Sound Implementations” — we wrote this:

Turnover is the equivalent of corporate amnesia.

We recalled that recently because there seems to be a spate of updates of late telling us about leadership turnover in the vendor community of which we’re a proud member. And it seems as if many of the folks coming into those leadership positions are from outside the insurance industry. Please don’t misunderstand us: We completely understand the desire for new blood, fresh ideas, varied perspectives, and deliberately defying complacency. But we don’t understand how companies can sacrifice that much intellectual capital and still remain viable and competitive.

Let’s Sharpen the Point

Turnover of any kind diminishes continuity. Replacing people with folks from outside the industry would also diminish domain experience, industry knowledge, process familiarity, troubleshooting and problem-solving experience, organizational cohesiveness, and reliable interdependencies — to name just a few. And would that leave organizations that diminish themselves with constant turnover and repeated hiring from outside the industry in a perpetual state of x-steps-ahead-x-steps back?

It may boil down to an overall lack of insurance operational expertise. If I’ve led and auto-racing team and I’m appointed to lead an insurance software company, I likely won’t understand the deliberate way the industry moves forward and embraces change. The fact is not many executives from outside the industry understand that until it’s too late, until after they’ve made commitments to the their customers. That creates panic, wasted time, financial losses, and diminishing returns when they realize they were overly optimistic. With no knowledge of the history of the company, its successes and failure, and the decisions that led to both, leaders with no industry experience are being set up to fail. So are their customers.

Realistically speaking, how do you sell that? How can you make an argument for organizational stability and credibility if you’re announcing the fact that the organization lacks stability and credibility? We recognize those are tough questions. But we aren’t aware that anyone else is asking them.

Let’s Do the Math

Even if those kinds of losses of experience, continuity, and intellectual capital don’t have direct costs (we think they must), they have opportunity costs, at the very least. What’s the cost of strategic directives that aren’t realistic — or simply may not work — because they suffer from a lack of understanding of the problems carriers face.

We’re absolutely sure this must make some kind of sense to someone. But it doesn’t make sense to us. On the other hand, what do we know?

Is there anything like a continuity cost? We’d have to say we’re not sure.

But we’re positive a lack of continuity has a very large price tag.

Read the Fine Print

We’d been reading about folks who claim to be able to implement a core processing system in one day. Then we had a prospect ask us if we could do the same thing.

We said, “Sure. Anybody can do that.”

The prospect replied, “Can you do it for me?”

We said, “Yep. On one condition.”

“What’s that?” he asked.

“You have to take the system, out of the box, and don’t change anything.”

Enter Reality

The prospect started getting excited: “Well, yeah, but I have a dozen or so integration points.”

“That could take more than a day,” we said.

“I also need to produce customized bills,” he said.

“Ooh. It sounded like you said custom.”

“I did. And I have some other customizations, as well.”

“That sounds like more than a day’s work to us,” we said.

“And how about building in all my business rules?” he asked.

“You might want to be looking at a calendar, rather than a clock,” we suggested.

“And I also have to pull in reports from my legacy system.”

“We might be able to do all that in a day if we were on Venus,” we said. “One of its days lasts 243 Earth days. Have you considered relocating?”

Vive la Différence

Fans of Tim Burton’s 1989 film, Batman, will remember Michael Keaton (as Bruce Wayne) saying to Kim Basinger (as Vicki Vale), “It’s not exactly a normal world, is it?” Even if you haven’t seen Batman — but you have tried to implement a core processing system in a day — you know he’s right, perhaps especially in insurance.

Despite the fact that insurance is as regulated as it is, there’s precious little standardization in the industry. That makes normal a little tough to pin down. Company A does it this way. Company B does it that way. Both of them are happy and productive. But nothing is going to work for both of them out of the box. In fact, it’s highly unlikely they’d want it to. (Hello, differentiation.)

The next time somebody says you can get a core system implemented in a day, tell him to read the fine print and think outside the box.

To quote Robin Williams, “Reality. What a concept.”